NOTE 4  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 at their annual meeting on April 23, 2019.

On January 15, 2021, under the Plan, the Company issued to James M. Beck, its Interim Chief Executive Officer, a non-qualified option to purchase up to 150,000 shares of the Company’s common stock at an exercise price of $4.37 per share, of which 100,000 vested on January 15, 2021 and 50,000 vested on March 22, 2021.

On March 15, 2021, under the Plan, the Company issued to Linda Tharby, its incoming President and Chief Executive Officer, a non-qualified stock option to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $3.875 per share, subject to vesting as follows: 25% on March 15, 2022 and 25% each twelve months thereafter.

As of March 31, 2021, the Company had options to purchase 3,172,494 shares of Common Stock outstanding to certain executives, key employees and consultants under the Plan, of which 1,250,000 were issued during the three months ended March 31, 2021.

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.

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.  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.  All payments were and are pro-rated for partial service.

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.  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, which vested 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 was not exercised.

On February 16, 2021, Donald Pettigrew, the Company’s former Chief Executive Officer, exercised options held by him for an aggregate 1,000,000 shares of common stock for an aggregate exercise price of $1,230,000.

On March 22, 2021, our Board of Directors adopted the 2021 Omnibus Equity Incentive Plan (the “2021 Equity Plan”), subject to approval of our shareholders at their annual meeting to be held on May 18, 2021.  There have been no awards made pursuant to the 2021 Equity Plan to date.

2015 STOCK OPTION PLAN, as amended

Time Based Stock Options

The per share weighted average fair value of stock options granted during the three months ended March 31, 2021 and March 31, 2020 was $3.06 and zero, 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 three months ended March 31, 2021 and March 31, 2020.  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.  We have recognized tax benefits associated with stock-based compensation of $43,067 and $15,598 for the three months ended March 31, 2021 and 2020, respectively.

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

Total stock-based compensation expense was $1,086,681 and $175,239 for the three months ended March 31, 2021 and March 31, 2020, respectively.  Cash received from option exercises for the three months ended March 31, 2021 and 2020 was $1,230,000 and $85,500, respectively.

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2021 and March 31, 2020, was $3.8 million and zero, respectively.  There were 1.0 million options exercised during the three months ended March 31, 2021 and 175,000 during the three months ended March 31, 2020.

The following table presents information pertaining to options outstanding at March 31, 2021:

As of March 31, 2021, there was $6.1 million 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 46 months.  The total fair value of shares vested as of March 31, 2021 and March 31, 2020, was $1,230,434 and $868,012, respectively.

Performance Based Stock Options

The per share weighted average fair value of stock options granted during the three months ended March 31, 2021 and 2020 was zero for both periods.  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 three months ended March 31, 2021 and March 31, 2020. 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 ($408,747) and $125,727 for the three months ended March 31, 2021 and 2020, respectively.

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2021 and March 31, 2020, was zero for both periods.

The following table presents information pertaining to performance-based options outstanding at March 31, 2021:

As of March 31, 2021, there was zero dollars of total unrecognized compensation cost related to non-vested performance share option based compensation arrangements granted under the Plan.   The total fair value of shares vested as of March 31, 2021 and 2020 was zero for both periods.