10. Stock-based Compensation Expense

Stock-Based Compensation

The Company uses stock-based compensation, including restricted stock units, to provide long-term performance incentives for its employees and board directors. The Company measures employee and director stock-based compensation awards based on the award’s estimated fair value on the date of grant. Forfeitures are recognized as they occur. Expense associated with these awards is recognized using the straight-line attribution method over the requisite service period for stock options, restricted stock units (“RSUs”) and restricted stock and is reported in our condensed statements of stockholders’ equity.

The fair value of the Company’s stock options is estimated using the Black-Scholes option-pricing model. The resulting fair value is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for the award. The Company has elected to recognize forfeitures as they occur. Stock options generally vest over four years and have a contractual term of ten years.

Determining the grant date fair value of options requires management to make assumptions and judgments. These estimates involve inherent uncertainties and if different assumptions had been used, stock-based compensation expense could have been materially different from the amounts recorded.

The assumptions and estimates for valuing stock options are as follows:

Equity Incentive Plans

In February 2013, the Company’s Board of Directors adopted the 2013 Equity Incentive Plan (“2013 Plan”). The 2013 Plan authorizes the award of stock options, stock appreciation rights, restricted stock awards, stock appreciation rights, RSUs, performance awards, and other stock or cash awards.

In October 2021, the Company’s Board of Directors adopted the Cyngn Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan replaces the 2013 Plan. However, awards outstanding under the 2013 Plan will continue to be governed by their existing terms.

In November 2023, the shareholders of the Company approved an amendment to the Company’s 2021 Equity Incentive Plan to increase the number of shares authorized for issuance by 334 shares of common stock. In June 2024, the shareholders of the Company approved an amendment to allow an annual increase to the 2021 Plan equal to the lesser of (i) 15% of the outstanding common stock on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, or (ii) such lesser amount as determined by the Board. In December 2025, the shareholders of the Company approved an amendment to the Company’s 2021 Equity Incentive Plan to increase the number of shares authorized for issuance by 4,000,000 shares of common stock. The additional shares were registered with the SEC in January 2026 on a Registration Statement on Form S-8.

As of June 30, 2026 and  December 31, 2025, approximately 4,896,697 and 55,770 shares of common stock were reserved and available for issuance under the 2021 Plan, respectively. Options issued under the Plans generally vest based on continuous service provided by the option holder over a four-year period. Compensation expense related to these options is recognized on a straight-line basis over the four-year period based upon the fair value at the grant date.

The following table summarizes information about the Company’s stock options outstanding as well as stock options vested and exercisable as of  June 30, 2026, and activity during the three month period then ended:

The following table summarizes information about the Company’s stock options outstanding as well as stock options vested and exercisable as of  June 30, 2026, and activity during the six month period then ended:

For the three and six months ended June 30, 2026, no restricted stock units (RSUs) were granted nor vested.

The fair value of a stock option is estimated using the Black-Scholes option-pricing model that takes into account as of the grant date the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the option. The Company has used the simplified method in calculating the expected term of all option grants based on the vesting period and contractual term. Compensation costs related to share-based payment transactions are recognized in the financial statements upon satisfaction of the requisite service or vesting requirements.

The weighted average per share grant-date fair value of options granted during the three months ended June 30, 2026 and 2025 was $1.65 and $0.00, respectively.

The following weighted average assumptions were used in estimating the grant date fair values during the three months ended June 30, 2026 and 2025: 

The Company recorded stock-based compensation expense from stock options and RSUs of approximately $376,483 and $456,887 for the three months ended June 30, 2026 and 2025, respectively, and $762,772 and $993,131 for the six months ended June 30, 2026 and 2025, respectively.

As of June 30, 2026 total stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $1.2 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 0.92 years. Income tax benefits recognized from stock-based compensation expense recognized for the three months ended  June 30, 2026 were immaterial due to cumulative losses and valuation allowances.