NOTE 5   STOCK-BASED COMPENSATION

On June 29, 2016, the Board of Directors amended the 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 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.

As of December 31, 2019, the Company had 3,647,000 time-based stock options outstanding to certain executives, key employees and consultants under the Plan, of which 1,400,000, net of forfeitures, were issued during the twelve months ended December 31, 2019.  The Company also had 1,000,000 performance-based options outstanding under the Plan as of December 31, 2019, to its President and Chief Executive Officer, of which all were issued during the twelve months ended December 31, 2019.

On February 20, 2019, the Board of Directors of the Company approved an increase in compensation for each non-employee director from $25,000 to $50,000 annually effective January 1, 2019, and an additional $10,000 annually for the chair of each Board committee effective February 20, 2019, in each case to be paid quarterly half in cash and half in common stock at the end of each fiscal quarter.  On September 30, 2019, the Board of Directors of the Company named R. John Fletcher, a current KORU director, as Chairman, replacing Executive Chairman, Daniel S. Goldberger, who will remain as a non-executive member of KORU’s Board of Directors.  In Mr. Fletcher’s role as Chairman, he will receive an additional $50,000 in annual compensation, to be paid quarterly in shares of KORU common stock based on the closing price of the stock on the last day of each quarter.

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 on April 1, 2019.  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 year ended December 31, 2019, and December 31, 2018 was $1.33 and $0.83, 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 year ended December 31, 2019, and December 31, 2018. 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 Company’s stock option plan:

Total stock-based compensation expense, net of forfeitures, for stock option awards totaled $594,956 and $248,040 for the year ended December 31, 2019, and 2018, respectively.  Cash received from option exercises for the years ended December 31, 2019 and 2018 was $58,900 and $51,250, respectively.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2019, and 2018, was $2,202,678 and $1,255,234 respectively. The total intrinsic value of options exercised during the years ended December 31, 2019, and 2018, was $58,900 and $51,250, respectively.

The following table presents information pertaining to options outstanding as of December 31, 2019:

As of December 31, 2019, there was $2,188,008 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 44 months. The total fair value of vested options was $539,553 and $258,666 at December 31, 2019, and December 31, 2018, respectively.

Performance-Based Stock Options

The per share weighted average fair value of stock options granted during the year ended December 31, 2019, and 2018, was $1.16 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 year ended December 31, 2019, and December 31, 2018.  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 $293,363 and zero for the years ended December 2019 and 2018, respectively.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2019 and 2018, was $1,162,561 and zero, respectively.

The following table presents information pertaining to performance-based options outstanding as of December 31, 2019:

As of December 31, 2019, there was $869,198 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 31 months. The total fair value of shares vested as of December 31, 2019, and 2018 was zero for both periods.