NOTE 6 - STOCK-BASED COMPENSATION

In 2019, we adopted the BT Brands, Inc. 2019 Incentive Plan (the “Plan”), under which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units, and other stock and cash awards to eligible participants. As of June 29, 2025, 775,750 shares were available for grant under the 2019 Incentive Plan.

In 2024, we issued a total of 15,000 ten-year options to the then-existing outside member of our Board of Directors to purchase shares at $1.61 per share; we also granted 5,000 fully vested options to purchase shares at $1.70 per share to a new member of the Board. In 2022, we granted 216,000 options, including 175,000 options to Company officers and 41,000 options to employees and a consultant to purchase shares at $2.58 per share.

In 2023, we granted a consultant a warrant to purchase 100,000 shares at $2.50 per share for seven years. The warrant vests monthly over five years, so long as the consultant continues in this capacity. Assuming the consulting agreement continues to full term, we project that approximately $112,000 in stock-based compensation will be recognized at $32,000 per year in each of the next three years, and $16,000 will be recognized in 2028.

Compensation expense equal to the fair value of the options at the grant date is recognized in general and administrative expense over the applicable service period. Total equity-based compensation expenses for stock options and warrants for the 26-week periods in 2025 and 2024 were $93,735 and $110,000, respectively. Based on current estimates, we project that approximately $100,000 in stock-based compensation expense for stock options will be recognized over the next two years: $12,000 in the remainder of 2025 and $41,000 in 2026.

Subject to the discretion of the Compensation Committee of the board of directors at the time of grant, generally,  stock options granted to employees and directors vest 20% upon grant and 20% in annual installments for four years. Unless modified by the board of directors, options expire ten years from the date of the grant and terminate 90 days following termination of employment. 

During July 2025, the Board approved a grant of 37,500 stock options with an exercise price of $1.50 per share. This grant included 17,500 fully vested options and 20,000 options vested 20% on the date of grant and 20% vesting on each of the following four anniversary dates. 

We utilize the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:

Information regarding our stock options is summarized below: 

On February 27, 2023, the Company finalized a Contingent Incentive Share Award with senior executives. The Contingent Incentive Share Awards provides that so long as the Company’s publicly traded warrants are outstanding, senior management of the Company will be deemed to earn an aggregate award of 250,000 shares of common stock upon the Company’s share price reaching $8.50 per share for 20 consecutive trading days, provided, however, participants must be employed by the Company at the time the Incentive Shares are earned.  The estimated expense associated with this award was determined to be $265,000. Assumptions used in the model include a risk-free rate of 4.4% and volatility of 63%. We project that the remainder of $36,000 of stock-based compensation in connection with these awards will be recognized in 2025.