NOTE 5 – STOCK-BASED COMPENSATION

Amended 2017 Equity Incentive Plan

In October 2017, the Company’s Board approved the 2017 Equity Incentive Plan (the “Plan”) with 1,000,000 shares of common stock reserved for issuance. In January 2020 and August 2021, the Board approved increases in the number of shares reserved for issuance under the Plan by 333,334 and 1,333,334 shares, respectively. In January 2023, February 2024 and February 2025, the Company’s stockholders approved increases in the number of shares reserved for issuance under the Plan by an additional 2,000,000, 3,000,000 and 3,000,000 shares, respectively. Under the Plan, eligible employees, directors and consultants may be granted a broad range of awards, including stock options, stock appreciation rights, restricted stock, performance-based awards and restricted stock units (“RSUs”). The Plan is administered by the Board or, in the alternative, a committee designated by the Board. 

Stock-Based Compensation Expense

Stock options granted by the Company generally vest over 36 months and have a 10-year term. As of March 31, 2025, the unamortized compensation cost related to stock options was approximately $1,369,000 and is expected to be recognized as expense over a weighted-average period of approximately 1.9 years.

In October 2023, under its Two-Part FDA Submission and Clearance Milestone Bonus Program (the “Bonus Program”), the Company granted stock options for 909,533 shares, which are subject to vesting based upon the achievement of certain performance milestones by the Company and continued service by the optionees. In January 2024, options to purchase 625,326 shares (net of forfeitures), which were granted under part one of the Bonus Program, vested upon the Company’s submission to the FDA. In August 2024, options to purchase 242,307 shares (net of forfeitures), which were granted under part two of the Bonus Program, were canceled, as the Company did not receive clearance from the FDA for its MODD1 product by August 1, 2024. In August 2024, the Company granted new options to purchase 339,298 shares (the “Clearance Options”), which were subject to vesting based upon the Company’s receipt of clearance from the FDA for its MODD1 product by December 31, 2024 and continued service by the optionees. The Clearance Options vested in full in September 2024 upon the Company’s receipt of clearance from the FDA for its MODD1 product.

During the year ended March 31, 2025, the Company granted options to purchase 157,500 shares that vested immediately when granted.

The weighted-average grant date fair values of stock options granted during the years ended March 31, 2025 and 2024 was $1.31 and $0.99, respectively. The following assumptions were used in the fair-value method calculations:

The fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model, which includes simplified methods to establish the fair term of options. The expected volatility is based on the historical volatility of the Company’s stock price. The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates, as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. A dividend yield of zero was applied because the Company has never paid dividends and has no intention to pay dividends in the foreseeable future. The Company accounts for forfeitures as they occur.

The following table summarizes the activity in the shares available for grant under the Plan during the years ended March 31, 2025 and 2024:

During the years ended March 31, 2025 and 2024, the Company issued 15,500 and 25,390 shares, respectively, to its non-employee directors under the Company’s outside director compensation plan. For the years ended March 31, 2025 and 2024, the Company recorded stock-based compensation expense for these share awards of approximately $24,000 and $37,000, respectively.

A summary of RSU activity under the Plan is presented below.  

The total intrinsic value of RSUs outstanding as of March 31, 2025 was approximately $113,543. The unamortized compensation cost at March 31, 2025 was approximately $96,000 related to RSUs and is expected to be recognized as expense over a period of approximately 1.25 years.

The following table summarizes the range of outstanding and exercisable options as of March 31, 2025:

The intrinsic value per share is calculated as the excess of the closing price of the common stock on the Company’s principal trading market over the exercise price of the option at March 31, 2025.