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 on April 23, 2019, at the 2019 Annual Meeting of Shareholders.

On May 20, 2020, the Company entered into a Settlement Agreement related to its litigation with EMED as described above in “NOTE 3 — 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.

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 Medical director, as Chairman, replacing Executive Chairman, Daniel S. Goldberger, who remains a non-executive member of KORU Medical’s Board of Directors.  In Mr. Fletcher’s role as Chairman, he receives an additional $50,000 in annual compensation, to be paid quarterly in shares of KORU Medical 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.  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 nine months ended September 30, 2020 and September 30, 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 nine months ended September 30, 2020 and September 30, 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 time based stock options:

Total stock-based compensation expense totaled $572,775 and $473,139 for the nine months ended September 30, 2020 and 2019, respectively.  Cash received from option exercises for the nine months ended September 30, 2020 and 2019 was $95,880 and $58,900, respectively.

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2020 and 2019 was $6.53 and $1.33, respectively.  The total intrinsic value of options exercised during the nine months ended September 30, 2020 and 2019 was $296,226 and $30,022, respectively.

The following table presents information pertaining to options outstanding at September 30, 2020:

As of September 30, 2020, there was $3,679,084 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 as of September 30, 2020 and 2019, was $874,041 and $506,729, respectively.

Performance Based Stock Options

The per share weighted average fair value of stock options granted during the nine months ended September 30, 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 nine months ended September 30, 2020 and September 30, 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 $438,365 and $167,636 for the nine months ended September 30, 2020 and 2019, respectively.

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2020 and 2019, was zero and $1.16, respectively.

The following table presents information pertaining to performance based options outstanding at September 30, 2020.

As of September 30, 2020, there was $430,833 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 September 30, 2020 and 2019 was $387,520 and zero, respectively.