Note 6. Stock-based Compensation

The Company grants certain employees and board members stock option awards where vesting is contingent upon a service period, as it believes that such awards better align the interests of its employees with those of its shareholders. Stock option awards are granted with an exercise price equal to or above the market price of the Company’s stock at the date of grant. Certain stock option awards provide for accelerated vesting if there is a change in control, as defined in the Nonstatutory Stock Option Agreement. Unvested stock options forfeit when an employee leaves the Company.

Time-based grants generally vest quarterly based on 3 years continuous service for executive directors and employees, or 12 months continuous service for directors and have 10-year contractual terms. The Company also grants stock option awards where vesting is contingent upon meeting various departmental and company-wide performance goals, including FDA and CE Mark regulatory approval and certain EBITDA and funding thresholds. Such performance-based stock options are expected to vest when the performance criteria and metrics have been met. These stock options have contractual lives of ten years.

2023 Equity Incentive Plan

On March 15, 2023, the Company’s Board of Directors adopted the 2023 Equity Incentive Plan (as amended, the “Equity Incentive Plan”). The Company's shareholders approved the Equity Incentive Plan at the Company's 2023 annual shareholder meeting held on January 17, 2024. The Equity Incentive Plan provides for the grant of nonstatutory stock options, incentive stock options, restricted stock, RSUs, performance units, performance shares, and other share-based awards. On November 27, 2023, the Company's Board of Directors approved and entered into Amendment No. 1 to the Equity Incentive Plan to increase the initial number of shares issuable under the Plan from 25,000 shares to 85,000 shares.

On July 9, 2025, the Company’s Board of Directors approved and entered into Amendment No. 2 to the Equity Incentive Plan, to increase the maximum aggregate number of shares of the Company’s Common Stock, $0.001 par value per share, that may be issued under the Equity Incentive Plan to 1,000,000 shares of Common Stock, plus such number of shares of Company's Common Stock, which is equal to the lesser of (i) 25% of the total number of shares of all classes of Company's Common Stock and the Company’s preferred stock, $0.001 par value per share (the “Preferred Stock”), as converted to Common Stock, outstanding on the last day of each the immediately preceding fiscal year, and (ii) a lesser number of shares of our common stock determined by the Administrator (as defined in the Equity Incentive Plan) (collectively, the “Evergreen Shares”).

On November 28, 2025, the Company’s Board of Directors approved and entered into Amendment No. 3 to the Equity Incentive Plan to increase the maximum aggregate number of shares of the Company’s Common Stock, that may be issued under the Equity Incentive Plan to 1,250,000 shares of Common Stock. The number of shares of Common Stock available for issuance under the Equity Incentive Plan will be subject to automatic increase on the first day of each fiscal year of the Company beginning with fiscal year beginning May 1, 2026, so that the number of shares of Common Stock available for issuance under the Equity Incentive Plan is equal to the lesser of: (i) 25% of the total number of shares of all classes of Common Stock and preferred stock of the Company as converted to Common Stock outstanding on the last day of the immediately preceding fiscal year, and (ii) a lesser number of shares of Common Stock determined by the Administrator (as defined in the Equity Incentive Plan). The amendment was approved at the annual shareholder meeting held on April 30, 2026.

On June 22, 2026, in connection with the execution of the Merger Agreement, the Board approved and entered into Amendment No. 4 to the Equity Incentive Plan to increase the maximum aggregate number of shares of Common Stock that  may be issued under the plan by an additional 475,000 shares and the Evergreen Shares. The amendment is subject to approval of the Company’s shareholders and shall be considered and voted upon by the Company’s shareholders as part of the stockholder proposals to be submitted to the Company’s shareholders in connection with Merger Agreement.

On June 23, 2026, the Company's Board of Directors deemed that the execution of the Merger Agreement satisfied the vesting conditions of a total of 101,250 RSUs and 260,000 options granted to Mark Hilz, a former officer and director of the Company, who ceased being the Company's director due to his passing on April 1, 2026. The RSUs were settled into 101,250 shares of the Company's Common Stock in June 2026. During the three months ended July 31, 2026, the Company recognized stock compensation of approximately $0.3 million related to the accelerated vesting of Mr. Hilz's options and approximately $0.2 million related to the accelerated vesting of Mr. Hilz's RSUs. 

The following is a summary of service-based stock option activity during the three months ended July 31, 2026:

The following is a summary of performance-based stock option activity during the three months ended July 31, 2026:

During the three months ended July 31, 2026 and 2025, the Company recognized stock-based compensation for stock options of approximately $0.5 million and $0.2 million, respectively.

As of July 31, 2026, there was approximately $0.3 million of unrecognized compensation costs related to non-vested service-based Common Stock options and approximately $0.1 million of unrecognized compensation costs related to non-vested performance-based Common Stock options.

Restricted Stock Units and Restricted Shares Issued

The following is a summary of RSUs and restricted stock award activity during the three months ended  July 31, 2026. 

In connection with the execution of the Merger Agreement and subject to closing, the Compensation Committee of the Board (the “Compensation Committee”) granted an award of 425,000 restricted shares of Common Stock (the “Shares”) to the Company's Chief Executive Officer under the Equity Incentive Plan as a retention bonus in connection with the transactions to lead the Company’s and the Merger Sub’s efforts to close the transactions and to lead the current legacy business of the Company after the closing, and to provide public-company, SEC-reporting and capital-markets guidance and transition support to the Company following the closing. The Shares will be non-voting until they vest. The Shares were issued on  June 22, 2026, before the signing of the Merger Agreement. The Shares shall vest in full subject to the satisfaction of all of the following conditions (the “Conditions”): (i) occurrence of the Closing and (ii)(x) one-fourth of the Shares shall vest on the three-month anniversary of the date of the Closing (the “Initial Vesting Date”) and (y) thereafter, one-fourth of the Shares shall vest on each subsequent three-month anniversary of the Initial Vesting Date (each an “Additional Initial Vesting Date” and together with the Initial Vesting Date, the “Vesting Dates”), such that all of the Shares shall fully vest on the one-year anniversary of the date of the Closing.

On July 7, 2026, the Compensation Committee granted an award of 25,000 RSUs to the Company's Chief Financial Officer under the Equity Incentive Plan. The RSUs vest in full subject to the satisfaction of all of the following conditions: (i) occurrence of the Closing and (ii)(x) one-fourth shall vest on the Initial Vesting Date and (y) thereafter, one-fourth shall vest on each subsequent additional initial vesting date, such that all of the RSUs shall fully vest on the one-year anniversary of the date of the Closing.

During the three months ended July 31, 2026, the Company recognized stock-based compensation for vested RSUs of approximately $0.2 million. As of July 31, 2026, total unrecognized stock-based compensation expense related to performance-based non-vested RSUs totaled approximately $0.3 million.  As of July 31, 2026, total unrecognized stock-based compensation expense related to time-based non-vested RSUs and restricted stock awards totaled approximately $1.2 million.