10. Share-based Compensation

The 2019 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares of common stock of the Company up to an amount of 871,429 shares of common stock, all of which may be delivered pursuant to incentive stock options. Subject to adjustments pursuant to the 2019 Plan, the maximum number of shares of common stock with respect to which stock option or SARs may be granted to an executive officer during any calendar year is 14,286 shares of common stock.

Incentive stock options

On March 8, 2023, the Company granted a contractor an option to purchase up to 17,532 shares of the Company’s common stock at a per share exercise price of $2.00 under the Company’s 2019 Plan. This option award vests over a period of 12 months.

On August 17, 2023, the Company granted options to purchase up to 90,000 shares of the Company’s common stock at a per share exercise price of $2.05 to members of the Board of Directors, all of which vests over a period of one year with 25% vested upon issuance.

The following table contains information about the 2019 Plan as of September 30, 2023:

 Schedule of Information about Incentive Plan

The following table summarizes the Company’s incentive stock option activity and related information for the period ended September 30, 2023:

 Schedule of Incentive Stock Option Activity

As of September 30, 2023, vested outstanding stock options had $469 thousand intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock, respectively. As of September 30, 2023, there was no unrecognized share-based compensation related to unvested stock options, excluding options fully contingent upon certain sales-based milestones being achieved within 18 to 36 months of commercial release.

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following assumptions were used to calculate share-based compensation expense for the period ended September 30, 2023:

 Schedule of Assumptions used in Share-based Compensation

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method” to estimate the expected term of its share-based awards. The simplified method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two.

Based on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility on a weighted-average of the historical volatility of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage.

Restrictive Stock Awards

Effective as of August 1, 2022, the Company granted a restricted stock award of 84,750 shares of the Company’s common stock to certain officers and employees, all of which shares vest in four equal installments on each of January 1, 2023, January 1, 2024, January 1, 2025 and January 1, 2026. Under ASC 718, the Company has measured the value of the 84,750 shares granted based on a closing price of the closing price of the Company’s stock at the grant date of the RSU Grant ($1.82 per share).

Effective as of January 1, 2022, the Company granted a restricted stock award of 11,364 shares of the Company’s common stock to Adam Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated November 4, 2021, all of which shares vested monthly from January 1, 2022 through December 31, 2022. Under ASC 718, the Company has measured the value of the 11,364 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($4.40 per share).

Effective as of January 3, 2023, the Company granted a restricted stock award of 37,037 shares of the Company’s common stock to Adam Levy for his service as our Chief Executive Officer pursuant to the terms of his Executive Employment Agreement dated December 30, 2022, all of which shares vested monthly from January 3, 2023 through December 31, 2023. Under ASC 718, the Company has measured the value of the 37,037 shares granted based on the closing price of the Company’s stock at the grant date of the RSU Grant ($1.35 per share).

Schedule of Restricted Stock Units Granted

Compensation expense will be recognized ratably over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. As of September 30, 2023, there was $99 thousand unrecognized share-based compensation related to unvested RSUs, which the Company expects to recognize through December 2026.

Stock based compensation and restricted stock vesting of $120 thousand and $231 thousand has been recorded for the nine months ended September 30, 2023, and 2022, respectively.

Warrants

The following table shows a summary of common stock warrants through September 30, 2023:

 Summary of Common Stock Warrants

As of September 30, 2023, vested outstanding warrants had $0 intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock.