QS Energy Inc (QSEP)

[As I See It]

This is great news. Once again a member of the Board of Directors has put more of his own money into QSEP common stock thru the exercise of both warrants and stock options. Of particular note is the exercise of Dr. Bunting's 178,002 stock options. The time component of the stock options had nearly the full ten years remaining before expiration. Why would he exercise now when he could wait to see how things play out before putting in his own money? Not only that, he will have to pay taxes on the "bargain element" now instead of deferring to a later time..... I believe that an extremely compelling reason to exercise now is the more favorable long term tax consequences if you believe the stock will appreciate significantly over the next ten years. Here is why from Investopedia:

For non-qualified stock options (NSO):

The grant is not a taxable event.
Taxation begins at the time of exercise. The bargain element of a non-qualified stock option is considered "compensation" and is taxed at ordinary income tax rates. For example, if an employee is granted 100 shares of Stock A at an exercise price of $25, the market value of the stock at the time of exercise is $50. The bargain element on the contract is ($50 - $25) x 100=$2,500. Note that we are assuming that these shares are 100% vested.

Non-qualified stock options differ from incentive stock options in two ways. First, NSOs are offered to non-executive employees and outside directors or consultants. By contrast, ISOs are strictly reserved for employees (more specifically, executives) of the company. Secondly, nonqualified options do not receive special federal tax treatment, while incentive stock options are given favorable tax treatment because they meet specific statutory rules described by the Internal Revenue Code (more on this favorable tax treatment is provided below).

By exercising now while the "bargain element" is small (roughly $0.12 per share) most of the taxation on any significant gains would be at the long term capital gains rate with only a small portion at the higher ordinary income tax rate. This is a very bullish signal from a member of the Board of Directors.