Stock Option Plan – During the year ended December 31, 2023, we had one active fixed stock option plan, the 2001 Nonqualified Stock Plan (the “2001 Plan”), under which we were authorized to grant nonqualified stock options, stock appreciation rights, and stock awards to employees and directors for up to 8,000,000 shares of common stock. As of December 31, 2023, there were 1,577,130 shares available for grant under the 2001 Plan.

On January 17, 2024, our shareholders approved the Aware, Inc. 2023 Equity and Incentive Plan (the “2023 Plan”), which replaced the 2001 Plan. The 2023 Plan provides for the grant of various equity-based awards, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, dividend equivalent rights, and cash awards. The 2023 Plan authorizes the issuance of an aggregate of 1,277,130 shares of common stock, plus an additional number of shares equal to the number of shares subject to outstanding awards under the 2001 Plan that are forfeited, expire unexercised, or are repurchased or withheld to cover taxes or exercise prices, up to a maximum of 2,590,000 shares. As of December 31, 2024, there were 2,175,211 shares available for grant under the 2023 Plan.

Options are granted with exercise prices as determined by the Board of Directors and have a maximum term of ten years. Options generally vest over three to five years.

The following table presents stock-based compensation expenses included in our consolidated statements of operations and comprehensive loss (in thousands):


	For the Year Ended December 31,
	2024		2023
Research and development		156		309
Selling and marketing		63		88
General and administrative		913		1,128
Stock-based compensation expense	$	1,132	$	1,525

Stock-based compensation expense in the preceding table includes expenses associated with grants of: i) stock options, ii) unrestricted shares of our common stock; and iii) performance share awards. The methods used to determine stock-based compensation expense for each type of equity grant are described in the following paragraphs.

Stock Option Grants. During the year ended December 31, 2024, we granted 640,000 common stock options to purchase our common stock under the 2023 plan. We did not grant any stock options during the year ended December 31, 2023. We estimate the fair value of stock options using the Black-Scholes valuation model.

The Black-Scholes valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions. The assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield. We account for forfeitures as they occur. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

On January 17, 2024, our stockholders approved a stock option exchange program (the “Exchange Offer”) pursuant to which eligible employees, primarily consisting of our executive officers and senior management, were able to exchange certain stock options (the “Eligible Options”) for replacement stock options with modified terms (the “New Options”) as described below. We commenced the Exchange Offer on January 19, 2024.

The Exchange Offer expired on February 20, 2024. Pursuant to the Exchange Offer, nine employees elected to exchange their Eligible Options, and we accepted for cancellation Eligible Options to purchase an aggregate of 2,180,000 shares of common stock, representing approximately 96% of the total shares of common stock underlying the Eligible Options. Following the expiration of the Exchange Offer, on February 20, 2024, we granted New Options to purchase 933,073 shares of Common Stock, pursuant to the terms of the Exchange Offer and our 2023 Plan.

The exercise price per share of the New Options granted pursuant to the Exchange Offer was $2.21 per share. Each New Option will vest and become exercisable, with respect to 50% of the shares of common stock underlying such New Option on the first anniversary of the grant date and, with respect to the remaining shares of common stock underlying such New Option, in twelve equal monthly installments thereafter, subject to the continuous service of the holder. The other terms and conditions of the New Options will be governed by the terms and conditions of the 2023 Plan and the nonstatutory stock option agreements entered into thereunder.

There was no incremental expense for the New Options as calculated using the Black-Scholes option pricing model. The unamortized expense remaining on the Eligible Options, as of the modification date, will be recognized over the new vesting schedule.

During the year ended December 31, 2024 we expensed an incremental $0.3 million in stock based compensation expense related to the accelerated vesting of stock options of our former Chief Executive Officer.

Specific assumptions used to determine the fair value of options granted during the year ended December 31, 2024, using the Black-Scholes valuation model were as follows:


	Year ended December 31,
	2024
Expected term (1)	6.25 years
Expected volatility factor (2)		53	%
Risk-free interest rate (3)		4.2	%
Expected annual dividend yield	n/a

(1) The expected term for each grant was determined based on the simplified method.

(2) The expected volatility for each grant is estimated based on an average of historical volatility over the expected term of the stock options.

(3) The risk-free interest rate for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for a period equal to the expected term of the stock option.

Restricted Stock Units. The 2023 Plan permits us to grant restricted stock units to our directors, officers, and employees. Upon vesting, each restricted stock unit entitles the recipient to receive a number of shares of common stock as set forth in the relevant restricted stock unit agreement. Stock-based compensation expense for restricted stock units is determined based on the fair market value of our stock on the date of grant, provided the number of shares in the grant is fixed on the grant date.

We granted 284,814 restricted stock units to directors, officers, and employees during the year ended December 31, 2024. Of the restricted stock units granted in 2024, 70,406 vested shortly after June 30, 2024 and 70,408 vested shortly after December 31, 2024. Of the remaining 144,000 restricted stock units, 15,000 vested in November 2024, 6,000 vested in December 2024 and 18,000 are scheduled to vest in June 2025, 2026 and 2027 in 6,000 increments. The remaining 105,000 restricted stock units were forfeited in 2024 as a result of employee terminations.

Unrestricted Stock Grants. Our 2001 Plan, which was replaced by our 2023 Plan, permitted us to grant shares of unrestricted stock to our directors, officers, and employees. Stock-based compensation expense for stock grants is determined based on the fair market value of our stock on the date of grant; provided the number of shares in the grant is fixed on the grant date.

We granted 134,211 shares of unrestricted stock to directors, officers, and employees during the year ended December 31, 2023. Of these shares granted in 2023, 67,104 were issued shortly after June 30, 2023 and 67,107 were issued shortly after December 31, 2023. 15,000 shares were issued in August 2024 related to a grant in August 2022 and the remaining 15,000 unrestricted stock grants were forfeited in September 2024 as a result of employee termination.

Stock Options. Total options outstanding at December 31, 2024 and 2023 were as follows:


	2024					2023
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		2,260,000		$	4.88		2,560,000		$	4.96
Granted (1)		1,573,073			2.14		-			-
Exercised		-			-		-			-
Forfeited or cancelled (1)		(2,257,984	)		4.80		(300,000	)		4.94
Outstanding at end of year		1,575,089		$	2.27		2,260,000		$	4.88
Exercisable at year end		644,082		$	2.51		1,681,037		$	4.94

(1) Includes 933,073 options granted and 2,180,000 cancelled pursuant to the Exchange Offer.

At December 31, 2024, the weighted average remaining contractual term for total options outstanding and total options exercisable was approximately 6.02 and 0.25 years, respectively.

At December 31, 2024, the aggregate intrinsic value of options outstanding and exercisable was $0. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The following table summarizes the stock options outstanding at December 31, 2024:


	Options Outstanding						Options Exercisable
Exercise Price Range	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Number		Weighted Average Exercise Price
$2 to $3		1,495,089	$	2.14		9.43		567,416	$	2.21
$3 to $4		—	$	—		-		—	$	—
$4 to $5		80,000	$	4.73		6.15		76,666	$	4.73
		1,575,089	$	2.27		6.98		644,082	$	2.51

At December 31, 2024, unrecognized compensation expense related to non-vested stock options was approximately $0.6 million, which is expected to be recognized over a weighted average period of 3.2 years.

We issue common stock from previously authorized but unissued shares to satisfy option exercises and purchases under our Employee Stock Purchase Plan.

Employee Stock Purchase Plan – In May 2021, we adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”) under which eligible employees could purchase common stock at a price equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six-month offering period. Participation in the 2021 ESPP is limited to $25,000 worth of stock for each calendar year, may be terminated at any time by the employee, and automatically ends on termination of employment. A total of 1,000,000 shares of common stock were reserved for issuance under the 2021 ESPP, and as of December 31, 2024, there were 747,404 shares available for future issuance thereunder. We issued 53,440 and 69,591 shares under the 2021 ESPP Plan during the years ended December 31, 2024 and 2023, respectively.

Share Purchases – On March 1, 2022, our Board of Directors authorized a stock repurchase program pursuant to which we may purchase up to $10.0 million of our common stock. On November 30, 2023, our Board of Directors extended the program through December 31, 2025. As of December 31, 2024 we have repurchased $2.0 million of our common stock pursuant to this program. During the years ended December 31, 2024 and 2023 we repurchased 137,086 and 299,780 shares of our common stock, respectively. The program does not obligate us to acquire any particular amount of common stock and the program may be modified or suspended at any time at our Board of Directors discretion.

Dividends – We did not pay dividends in the years ended December 31, 2024 and 2023.