The 2018 Amended and Restated Equity Incentive Plan of Fuse Medical, Inc. (“2018 Equity Plan”) is the Company’s stock-based compensation plan. The Company’s Board adopted the 2018 Equity Plan on April 5, 2017, and subsequently amended and restated the 2018 Equity Plan on December 13, 2018. The 2018 Equity Plan provides for the granting of equity awards, including qualified incentive and non-qualified stock options, stock appreciation awards, and restricted stock awards to employees, directors, consultants, and advisors. Awards granted pursuant to the 2018 Equity Plan are subject to a vesting schedule set forth in individual agreements.

The Company’s management estimates the fair value of stock-based compensation utilizing the Black-Scholes option pricing model. Black-Scholes option pricing is calculated using several variables, including the expected option term, expected volatility of the Company’s stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company’s management believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. The Company’s management estimates of fair value may not be reflective of actual future values or amounts ultimately realized by recipients of these grants. The Company recognizes stock compensation expense on a straight-line basis over the requisite service period for each award.

The Company’s management utilizes the simplified method to estimate the expected life for stock options granted to employees, as the Company does not have sufficient historical data regarding stock option exercises. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company’s management believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

For the three and nine months ended September 30, 2019, the Board granted 150,000 and 1,350,000 Non-qualified Stock Options (“NQSO”) to the Company’s product advisory board members, certain key employees and marketing representatives. For the three months ended September 30, 2019 and September 30, 2018 the Company recognized a benefit of $11,583 and amortized $259,639 relating to the vesting of stock options which is included in selling, general, administrative, and other expenses on the Company’s accompanying unaudited condensed consolidated statement of operations. For the nine months ended September 30, 2019 and September 30, 2018 the Company amortized $487,524 and $485,955 relating to the vesting of stock options which is included in selling, general, administrative, and other expenses on the Company’s accompanying unaudited condensed consolidated statement of operations. The Company will recognize $1,276,256 as an expense in future periods as the stock options vest. The Company recognizes stock compensation expense on a straight-line basis over the requisite service period for each award, which are subject to a vesting schedule as set forth in individual agreements.

A summary of the Company’s stock option activity for the nine months ended September 30, 2019, is presented below:

	No. of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance outstanding at December 31, 2018		3,915,000		$	0.78		7.0	$	443,000
Granted		1,350,000			0.69		-		-
Exercised		-			-		-		-
Forfeited		(1,210,000	)		1.07		-		-
Expired		-			-		-		-
Balance outstanding at September 30, 2019		4,055,000		$	0.67		6.6	$	222,000
Exercisable at September 30, 2019		1,984,999		$	0.50		4.0	$	222,000

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2019 was $0.64.

For the three and nine months ended September 30, 2019, the Company did not have restricted stock awards (“RSAs”) to amortize. The Company amortized an expense relating to the vesting of RSAs of $52,722 and $210,888 for the three and nine months ended September 30, 2018.

	Number of Shares		Fair Value		Weighted Average Grant Date Fair Value
Non-vested, December 31, 2018		4,378,615	$	2,060,000	$	0.47
Granted		-		-		-
Vested		-		-		-
Forfeited		-		-		-
Non-vested, September 30, 2019		4,378,615	$	2,060,000	$	0.47

The non-vested RSAs, as of September 30, 2019, were granted to the Company’s Board members as compensation. These awards vest only upon: (i) the occurrence of a Change in Control or listing of the Company’s Common Stock on a national exchange, and (ii) the director’s notification to the Company of such accelerating events, within a specified period (“Triggering Events”). On August 7, 2019, to reflect its original intent, the Company’s board modified certain award agreements to remove the director’s termination of continuous service as a Triggering Event. Thereby all non-vested RSA’s are now structured with uniform vesting conditions.