NOTE 7 – STOCK OPTIONS

On January 1, 2021, the Company granted stock options to purchase 6,667 shares of common stock pursuant to the terms on the Company’s employment agreement with Mr. Yakov. The grant shall vest at the rate of 1/3 beginning on each anniversary of the effective date of grant. The options have an exercise price of $0.001 per share and expire in three years after each vest date. The aggregate fair value of the options totaled $32,793 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.001, 0.16% risk free rate, 135.03% volatility (expected volatility based on weighted-average historical volatility of the Company on the grant date) and expected life of the options of 3 years. The fair value is being amortized over the applicable vesting period and credited to additional paid in capital.

On July 28, 2021, the Company entered into an exclusive agreement with Cai Energy Blockchain, Inc. (“CAI”) whereby CAI provided the Company with an exclusive natural gas supply agreement (the “Services”). In exchange for the Services, the Company granted CAI options to purchase up to 767,918 shares of Common Stock, $0.0001 par value (with a fair market value equal to $4.5 million on the date of grant) at an exercise price of $0.0001 per share (the “CAI Options”). The aggregate fair value of the options totaled $4,499,952 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.0001, 1.26% risk free rate, 143.3% volatility (expected volatility based on weighted-average historical volatility of the Company on the grant date) and expected life of the options of 10 years. On November 22, 2022, Mr. Ronny Yakov purchased the CAI Options, in a privately negotiated transaction, for $700,000 using his personal funds.

In January 2022, the Company entered into new employment contracts with Mr. Yakov (CEO) and Mr. Smith (Vice President, Finance). Pursuant to the terms on the employment agreements they were entitled to stock options to purchase shares of common stock (200,000 – Mr. Yakov (similar amount granted annually during employment contract) and 275,000 – Mr. Smith (granted only in 2022)). The options had an exercise price of $0.001 per share. Options of Mr.Yakov vested during the year, and options of Mr. Smith vested equally over five years. However, as per 2020 Equity Incentive Plan then in force, only 178,162 stock options remained authorized for issue on that date. Therefore only 178,162 stock options were considered granted initially (the number has been allocated between Mr. Yakov and Mr. Smith pro rata). The aggregate fair value of the options totaled $368,627 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.001, 1.325% risk free rate, 125.9% volatility (expected volatility based on weighted-average historical volatility of the Company on the grant date) and expected life of the options of 4 years.

On December 22, 2022 shareholders of the Company have approved Amended and Restate Equity Incentive Plan, increasing the number of stock options Company is allowed to use in stock-based compensation agreements with employees.

Simultaneously, the Company modified the stock option agreements with Mr. Yakov and Mr. Smith as follows.

Out of stock options to purchase 200,000 shares of common stock granted to Mr. Yakov, 100,000 options immediately vested with an additional 50,000 vested on January 1, 2023, and the remaining 50,000 vesting on January 1, 2024. Mr. Yakov is entitled to a similar grant annually during his employment period. The options have an exercise price of $0.01 per share. The aggregate fair value of the options totaled $1,217,264 based on the Black Scholes pricing model using the following estimates: exercise price of $0.01, risk free rates ranging from 3.9% to 4.6%, 118% volatility (expected volatility based on weighted-average historical volatility of the Company on the grant date) and expected life of the options of ranging from 1 to 3 years.

Out of stock options to purchase 275,000 shares of common stock granted to Mr. Smith, 137,500 options immediately vested with an additional 68,750 vested on January 1, 2023, and the remaining 68,750 vesting on January 1, 2024. The options have an exercise price of $0.01 per share. The aggregate fair value of the options totaled $279,412 based on the Black Scholes pricing model using the the same estimates as stated above.

Modification of option contracts with 2 officers of the Company in December 2022 resulted in total incremental compensation cost of $91,361.

A summary of the status of the Company’s outstanding stock options and changes during the year ended December 31, 2022 is presented below:

Weighted-average remaining contractual term of options outstanding as at December 31, 2022 is 7.8 years. Weighted-average remaining contractual term of options exercisable as at December 31, 2022 is 8.1 years.

Total compensation cost related to nonvested awards not yet recognized as of December 31, 2022 amounted to $1,335,923. The weighted-average period over which it is expected to be recognized is 4.3 years.