NOTE 10 – STOCK BASED COMPENSATION

Common Stock Options and Warrants

During 2007, the Board of Directors of the Company adopted the 2007 Employee Stock Plan (“2007 Plan”) that was approved by the shareholders. Under the 2007 Plan, the Company is authorized to grant options to purchase up to 10,000,000 shares of common stock to directors, officers, employees and consultants who provide services to the Company.  The 2007 Plan is intended to permit stock options granted to employees under the 2007 Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2007 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (“Non-Statutory Stock Options”).

Effective June 24, 2016, the 2007 Plan was terminated. As of June 30, 2025, options to purchase 453,000 shares of common stock have been issued and are outstanding under the 2007 Plan.

During 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan (“2016 Plan”) that was approved by the shareholders at the 2016 annual meeting of shareholders on May 20, 2016. Under the 2016 Plan, the Company is authorized to grant awards of incentive and non-qualified stock options and restricted stock to purchase up to 3,000,000 shares of common stock to employees, directors and consultants. Effective May 16, 2019, the number of shares of the Company’s common stock available for issuance under the 2016 Plan was increased from 3,000,000 to 8,000,000 shares. Effective May 25, 2023, the number of shares of the Company’s common stock available for issuance under the 2016 Plan was increased from 8,000,000 to 13,000,000 shares and awards of restricted stock units are authorized for issuance. Effective May 15, 2025, the 2016 Plan was terminated. As of June 30, 2025, options to purchase 7,647,340 shares of common stock have been issued and are outstanding, 498,694 restricted shares of common stock have been granted, net of forfeitures, and 2,187,501 performance stock units have been granted under the 2016 Plan.

During 2025, the Board of Directors of the Company adopted the 2025 Equity Incentive Plan (“2025 Plan”) that was approved by the shareholders at the 2025 annual meeting of shareholders on May 15, 2025. Under the 2025 Plan, the Company is authorized to grant awards of incentive and non-qualified stock options and restricted stock to purchase up to 6,000,000 shares of common stock to employees, directors and consultants. As of June 30, 2025, options to purchase 210,000 shares of common stock have been issued and are outstanding and 583,225 restricted stock units have been granted under the 2025 Plan. As of June 30, 2025, 5,206,775 shares of common stock remain available for grants under the 2025 Plan.

These plans are administered by the Company’s Board of Directors or its compensation committee which determines the persons to whom awards will be granted, the number of awards to be granted, and the specific terms of each grant. Subject to the provisions regarding Ten Percent Shareholders, (as defined in the 2025 Plan), the exercise price per share of each option cannot be less than 110% of the fair market value of a share of common stock on the date of grant. Options granted under the 2025 Plan are generally exercisable for a period of 10 years from the date of grant and may vest on the grant date, another specified date or over a period of time.

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award, with the following assumptions for the six-month period ended June 30, 2025: no dividend yield, expected volatility, based on the Company’s historical volatility, 78.7% to 80.8%, risk-free interest rate between 4.18% to 4.48% and expected option life of 10 years, which is based on the legal contractual life of the options.

The Black-Scholes option pricing model assumptions for six-month period ended June 30, 2024 are as follows: no dividend yield, expected volatility, based on the Company’s historical volatility, 76.3% to 77.1%, risk-free interest rate between 3.91% to 4.28% and expected option life of 10 years.

As of June 30, 2025, there was $1,709,499 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through June 2028. As of June 30, 2024, there was $3,777,227 of unrecognized compensation expense related to non-vested market-based share awards that is expected to be recognized through June 2027.

Share-based compensation was recognized as follows:

The following tables summarize all stock option and warrant activity of the Company during the six months ended June 30, 2025:

The aggregate intrinsic value of options and warrants outstanding and exercisable as of June 30, 2025 was $1,194,861 and $1,143,837, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and warrants and the closing stock price of $1.24 for the Company’s common stock on June 30, 2025. During the six-month period ended June 30, 2025, 1,632,500 options were exercised for proceeds of $204,000 and no warrants were exercised.

Restricted Stock Awards and Units

On June 18, 2024, the Compensation Committee of the Board of Directors approved grants totaling 92,475 Restricted Stock Awards to the Company’s five outside directors. Each RSA had a grant date fair value of $3.33 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSAs were granted under the 2016 Plan and vested in total 15,455 shares on June 18, 2024, with the remaining vesting in 10 equal quarterly installments of 7,702 shares each beginning July 1, 2024.

On August 1, 2024, the Compensation Committee of the Board of Directors approved a grant totaling 12,924 Restricted Stock Awards to one of the Company’s outside directors. Each RSA had a grant date fair value of $3.16 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSA was granted under the 2016 Plan and vests in 9 equal quarterly installments of 1,436 shares beginning September 1, 2024.

On September 4, 2024, the Compensation Committee of the Board of Directors approved a grant totaling 11,488 Restricted Stock Awards to one of the Company’s outside directors. Each RSA had a grant date fair value of $2.68 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSA was granted under the 2016 Plan and vests in 8 equal quarterly installments of 1,436 shares beginning October 1, 2024.

On December 10, 2024, the Compensation Committee of the Board of Directors approved a grant totaling 85,000 Restricted Stock Awards to two of the Company’s executives and 25,000 Restricted Stock Awards to an outside director for consulting services. Each RSA had a grant date fair value of $2.65 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. The RSAs were granted under the 2016 Plan and cliff vest on March 10, 2025 for the outside director and on June 10, 2025 for the executives.

On February 17, 2025, executive leadership team approved a grant totaling 20,000 Restricted Stock Awards to a Company’s employee. Each RSA had a grant date fair value of $1.50 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSAs were granted under the 2016 Plan and vest in 12 quarterly installments beginning April 1, 2025.

On May 14, 2025, executive leadership team approved a grant totaling 140,000 Restricted Stock Awards to certain Company employees. Each RSA had a grant date fair value of $0.99 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSAs were granted under the 2016 Plan and vest in 12 quarterly installments beginning June 1, 2025.

On June 20, 2025, executive leadership team approved a grant totaling 180,000 Restricted Stock Units to a Company’s employee. Each RSU had a grant date fair value of $1.22 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSUs were granted under the 2025 Plan and vest in 12 quarterly installments beginning August 19, 2025.

On June 30, 2025, the Compensation Committee of the Board of Directors approved grants of 80,645 Restricted Stock Units to each of the Company’s five outside directors. Each RSU had a grant date fair value of $1.24 which shall be amortized on a straight-line basis over the vesting period into stock-based compensation expenses within the Statement of Comprehensive Loss. Such RSUs were granted under the 2025 Plan and vest in 4 quarterly installments beginning July 15, 2025.

Upon the occurrence of a Change in Control, 100% of the unvested RSAs and RSUs shall vest as of the date of the Change in Control. Upon vesting, the restrictions on the shares lapse.

The fair value of restricted stock awards and units is estimated by the market price of the Company’s common stock at the date of grant. Restricted stock activity during the six-month period ended June 30, 2025 is as follows:

Restricted stock awards and units are being amortized to expense over the shorter of the requisite service period or the vesting period. As of June 30, 2025 and 2024, the unamortized value of the restricted stock awards was $353,061 and $536,714, respectively. As of June 30, 2025 and 2024, the unamortized value of the restricted stock units was $708,487 and $0, respectively.

Performance Stock Units

During the six months ended June 30, 2025, the Company granted 2,187,501 performance stock units (PSUs) subject to both performance-based and service vesting requirements to the Company’s executives. Performance vesting requirements are tied to various individual and corporate goals related to the Company’s commercialization, as measured over a one-year performance period. Some PSUs vest annually, while others vest 1/3^rd annually over a three-year period. The grant date fair value of the PSUs granted was $2,029,126, as determined by the Company’s closing common stock price on the date of the grant. The grant date fair value per share was $0.93. The Company determined that achievement of some performance conditions is probable as of June 30, 2025, and accordingly has recognized expense for the portion of the awards expected to vest, on a straight-line basis over the requisite service period for each tranche. For the three and six months ended June 30, 2025, the Company recorded $384,925 stock-based compensation expense related to the PSU vesting. As of June 30, 2025, a total of 2,187,501 PSUs remain outstanding. No PSUs were outstanding or expensed in the comparable periods of 2024.