NOTE 5 — STOCK-BASED COMPENSATION

On June 29, 2016, the Board of Directors amended the Company’s 2015 Stock Option Plan (as amended, the “Plan”) authorizing the Company to grant awards to certain executives, key employees, and consultants under the Plan, which was approved by shareholders at the Annual Meeting of Shareholders held on September 6, 2016.  The total number of shares of Common Stock, with respect to which awards may be granted pursuant to the Plan, may not exceed 6,000,000 pursuant to an amendment to the Plan approved by shareholders on April 23, 2019, at the 2019 Annual Meeting of Shareholders.

On May 20, 2020, the Company entered into a Settlement Agreement with EMED Technologies Corporation (“EMED”) to settle all claims in connection with all pending litigation matters between them (the “Claims”) as described in “NOTE 9 — COMMITMENTS AND CONTINGENCIES.”  Pursuant to the Settlement Agreement, the Company issued to EMED (i) 95,238 restricted stock units, which vested on May 21, 2020 and 95,238 restricted stock units vesting on January 1, 2021, and (ii) an option to purchase up to 400,000 shares of the Company’s common stock at an exercise price of $11.21 per share prior to February 1, 2021, which can be settled in cash in lieu of common stock at the Company’s sole discretion, provided that the number of shares of common stock and/or amount of cash paid by the Company upon exercise will be capped at a value of $16.21 per share.  The option was recorded at $347,008, the estimated fair value of the option using the Black-Scholes option pricing model with a volatility rate of 52.68% and a risk-free rate of 0.17%.  The Settlement Agreement includes mutual releases and covenants not to sue for any claim arising before May 20, 2020 and the Company covenants not to challenge any EMED patents that were the subject of the Claims unless EMED asserts them in the future against Company products.  This was a non-cash settlement from which we recognized expense in the amount of $2.2 million in the second quarter of 2020.

Effective January 1, 2021, each non-employee director of the Company (other than the Chairman of the Board) and Board advisor are eligible to receive of $75,000 annually, to be paid quarterly $12,500 in cash and $6,250 in common stock.  In addition, for chairing the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee, each non-employee director is eligible to receive annually $15,000, $11,500 and $7,500 respectively, to be paid quarterly in cash and subject to proration for partial quarter service.  The Chairman of the Board is eligible to receive $100,000 annually, to be paid quarterly $12,500 in cash and $12,500 in common stock.  

Prior to January 1, 2021, each non-employee director of the Company was eligible to receive $50,000 annually (effective January 1, 2019), plus $10,000 for chairing a Board committee (effective February 20, 2019), all to be paid quarterly half in cash and half in common stock.  The Chairman of the Board was eligible to receive an additional $50,000 annually (effective October 1, 2019), all to be paid in common stock.  All payments were pro-rated for partial service.  The Company issued an aggregate 32,181 shares of common stock to its non-employee directors during the year ended December 31, 2020, respectively.

Pursuant to Daniel S. Goldberger’s employment agreement dated October 12, 2018, on February 1, 2019, when Donald B. Pettigrew was appointed to President and Chief Executive Officer, Mr. Goldberger was awarded a performance bonus in the amount of $270,000 to be paid half in cash and half in stock.  The number of shares that were issued totaled 90,604 and was based upon the closing price of the common stock of the Company on February 1, 2019, as reported by the OTCQX.  These shares were issued on April 3, 2019.

2015 STOCK OPTION PLAN, as amended

Time-Based Stock Options

The per share weighted average fair value of stock options granted during the years ended December 31, 2020 and December 31, 2019 was $6.53 and $1.33, respectively.  The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the years ended December 31, 2020 and December 31, 2019.  Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options.  The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.  These assumptions are subjective and generally require significant analysis and judgment to develop.  We have recognized tax benefits associated with stock-based compensation of $62,393 and $61,333 for the years ended December 31, 2020 and 2019, respectively.

The following table summarizes the status of the Company’s stock option plan:

Total stock-based compensation expense, net of forfeitures, for stock option awards totaled $874,869 and $594,956 for the years ended December 31, 2020 and 2019, respectively.  Cash received from option exercises for the years ended December 31, 2020 and 2019 was $95,880 and $58,900, respectively.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2020, and 2019, was $2,350,264 and $2,202,678, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2020 and 2019, was $397,962 and $58,900, respectively.

The following table presents information pertaining to options outstanding as of December 31, 2020:

As of December 31, 2020, there was $3,376,990 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan.  That cost is expected to be recognized over a weighted-average period of 48 months.  The total fair value of shares vested was $803,171 and $539,553 at December 31, 2020, and December 31, 2019, respectively.

Performance-Based Stock Options

The per share weighted average fair value of stock options granted during the years ended December 31, 2020, and 2019, was zero and $1.16, respectively.  The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the years ended December 31, 2020 and December 31, 2019.  Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options.  The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.

The following table summarizes the status of the Plan with respect to performance-based stock options:

Total performance stock-based compensation expense totaled $502,904 and $293,363 for the years ended December 2020 and 2019, respectively.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2020 and 2019 was zero and $1,162,561, respectively.

The following table presents information pertaining to performance-based options outstanding as of December 31, 2020:

As of December 31, 2020, there was $366,294 of total unrecognized compensation cost related to non-vested performance share option-based compensation arrangements granted under the Plan.  That cost is expected to be recognized over a weighted-average period of 25 months. The total fair value of shares vested as of December 31, 2020 and 2019 was $387,520 and zero, respectively.