NOTE 3 — STOCK-BASED COMPENSATION

Prior to May 9, 2024, the Company maintained a stock option plan and an omnibus equity incentive plan under which it granted options and other equity incentive awards to certain executives, key employees and consultants, as well as a non-employee director compensation plan under which it granted shares of common stock to non-employee directors. As of May 9, 2024, a new omnibus equity incentive plan replaced these plans with respect to awards made after that date to employees, consultants and non-employee directors. The Company has also made inducement awards of equity-based compensation outside of the plans. The Company issued warrants to purchase common stock in connection with our loan financing agreement with our lender.

The fair value of each option and warrant grant is estimated on the date of the grant using the Black-Scholes option-pricing model. All options and warrants are charged against income at their fair value.  The entire compensation expense of the grant is recognized over the vesting period.

Restricted stock units (“RSUs”) and performance share units (“PSUs”) are equity classified and measured at the fair value of the underlying stock at the grant date.

Shares of stock granted for non-employee director fees are recorded at the fair value of the shares at the grant date.

Restricted stock awards are equity classified and measured at the fair value of the underlying stock at the grant date. The fair value of restricted stock awards vesting at certain market capitalization thresholds were estimated on the date of grant using the Brownian Motion Monte Carlo lattice model. The fair value of other restricted stock awards were estimated on the date of grant at the current stock price. We recognize restricted stock expense using the straight-line attribution method over the requisite service period and account for forfeitures as they occur.

The Company has three equity incentive plans: the 2015 Stock Option Plan, as amended (the “2015 Plan”), the 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), and had the Non-Employee Director Compensation Plan (the “Director Plan”) prior to May 9, 2024. No new awards have been or will be issued pursuant to the 2015 Plan, the 2021 Plan or the Director Plan from and after May 9, 2024. The Company has also issued employment inducement awards to certain key executives.

The 2015 Plan provides for the grant of incentive stock options and nonqualified stock options. As of September 30, 2024, there were 2,237,500 shares reserved for outstanding awards under the 2015 Plan.

The 2021 Plan provides for the grant of incentive stock options, nonqualified stock options, stock awards, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, consultants and directors. As of September 30, 2024, there were 419,244 shares reserved for outstanding awards under the 2021 Plan.

The 2024 Plan provides for the grant of incentive stock options, nonqualified stock options, stock awards, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, consultants and directors. As of September 30, 2024, there were 769,257 shares reserved for outstanding awards and 2,407,804 shares available for issuance under the 2024 Plan. In addition, awards previously made under the 2015 Plan and the 2021 Plan that are forfeited or cancelled after May 9, 2024 will be available for issuance under the 2024 Plan.

Each non-employee director of the Company (other than the Chairman of the Board) is eligible to receive $110,000 annually, to be paid quarterly $12,500 in cash and $15,000 in common stock.  The Chairman of the Board is eligible to receive $140,000 annually, to be paid quarterly $12,500 in cash and $22,500 in common stock. Prior to May 9, 2024 in the periods presented in this report, non-employee director compensation was paid pursuant to the Non-Employee Director Compensation Plan. From and after May 9, 2024 non-employee director compensation is paid pursuant to the 2024 Plan. All payments were and are pro-rated for partial service.

Time-Vesting Stock Options

The following table summarizes the inputs into the Black-Scholes model for all time-vesting stock options granted during the nine months ended September 30, 2024:

The following table summarizes the status of the stock options outstanding at September 30, 2024:

Total stock-based compensation expense for time-vested stock options was $1,122,128 for the nine months ended September 30, 2024. No cash was received from option exercises for the nine months ended September 30, 2024.

The following table presents information pertaining to options outstanding at September 30, 2024:

As of September 30, 2024, there was $1,958,795 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plans.  That cost is expected to be recognized over a weighted-average period of 42 months.

Performance-Vesting Stock Options

 The following table summarizes the activities for our unvested performance-vesting stock option awards for the nine months ended September 30, 2024:

Total stock-based compensation expense for performance-vesting stock options was $24,366 for the nine months ended September 30, 2024.

As of September 30, 2024, there was $151,979 of unrecognized compensation cost related to unvested employee performance-vesting options. This amount is expected to be recognized over a weighted-average period of 26 months.

Restricted Stock Awards, RSUs, and PSUs

The following table summarizes the activities for our restricted stock awards, RSUs, and PSUs for the nine months ended September 30, 2024:

Total stock-based compensation expense for restricted stock awards, RSUs, and PSUs was $399,082 for the nine months ended September 30, 2024.

As of September 30, 2024, there was $1,175,828 of unrecognized compensation cost related to unvested employee restricted stock awards, RSUs, and PSUs. This amount is expected to be recognized over a weighted-average period of 23 months.

Common Stock Warrants

The following table summarizes the activities for our common stock warrants issued in connection with our loan financing agreement with our lender for the nine months ended September 30, 2024:

As of September 30, 2024, there was $26,064 of unrecognized cost related to unvested warrants.