Note 12 – Stock-Based Compensation and Warrants

Effective May 18, 2022, the Board and the Company’s stockholders approved a 4,500,000 increase to the number of shares available for issuance under the 2019 Equity Incentive Plan (“2019 Equity Plan”). As of March 31, 2023, the Company had 3,538,498 shares available for issuance under the 2019 Equity Plan.

Stock-based compensation cost for the three months ended March 31, 2023 and 2022 was $1.3 million and $0.9 million, respectively. Stock-based compensation is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. Included in stock-based compensation cost was $0.1 million of stock granted to directors for the three months ended March 31, 2023 and 2022. Such grants were awarded consistent with the Board of Director’s compensation practices. Stock-based compensation for the three months ended March 31, 2023 included $0.2 million of compensation costs for the vesting of market condition-based stock units (“RSUs”).

Stock Option Activity

Stock options in the table below include both time based and market condition-based awards. Changes in stock options during the three months ended March 31, 2023 were as follows:

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All outstanding stock options were vested as of June 30, 2022.

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Restricted Stock Unit Activity

The Company issues restricted stock units under the 2019 Equity Plan. RSUs in the table below include both time based and market condition-based awards. The fair value of time-based RSUs is determined based upon the closing fair market value of the Company’s common stock on the grant date.

RSU awards granted during September 2022 included 500,000 RSUs awarded to our Chief Executive Officer with both a market condition and time element (the “CEO RSUs”). The CEO RSUs may be earned based on achieving common stock price targets within a 48-month period and, if earned, the CEO RSUs will vest and be settled based on a time element as outlined in the RSU agreement governing the CEO RSUs. To value the CEO RSUs, the Company, with the assistance of a third-party specialist, calculated the fair value of CEO RSUs using the Monte Carlo Simulation, a risk-free rate of 3.31%, a starting common stock value of $6.95, volatility of 73%, and a standard normal distribution. The Company valued the CEO RSUs at $2.9 million and will amortize this amount evenly over 48 months. For the first quarter of 2023, the Company recorded $0.2 million of stock-based compensation expense associated with these awards.

A summary of the status of RSUs and changes during the three months ended March 31, 2023 is presented below:

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As of March 31, 2023, the Company had approximately $10.1 million of total unrecognized compensation costs related to RSUs, which will be recognized over a weighted average period of 2.7 years.

Warrants

As of March 31, 2023 and December 31, 2022, there were outstanding warrants to purchase 125,000 shares of common stock at an exercise price of $1.63.