EQUITY INCENTIVE PLAN

9 Months Ended

Sep. 30, 2022

EQUITY INCENTIVE PLAN [Abstract]

EQUITY INCENTIVE PLAN

9. EQUITY INCENTIVE PLAN

The Company currently issues stock awards under its 2017 Stock Option and Incentive Plan, as amended (the “2017 Plan”) which will expire on June 5, 2027. The shares authorized for issuance under the 2017 Plan were 3,852,853 at September 30, 2022, of which 152,842 were available for future grant. The shares authorized under the 2017 Plan are

subject to annual increases on January 1 by 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or such lessor number of shares determined by the Company’s Board of Directors or Compensation Committee. During the nine months ended September 30, 2022, the shares authorized for issuance increased by 1,135,422 shares.

Stock Options.

The Company accounts for all stock-based compensation payments to employees and directors, including grants of employee stock options, at fair value at the date of grant and expenses the benefit in operating expense in the condensed consolidated statements of operations over the service period of the awards. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.

During the nine months ended September 30, 2022, the Company granted stock options to purchase up to 1,114,000 shares of common stock at a weighted average exercise price of $1.51 per share. These awards have vesting periods of up to four years and had a weighted average grant date fair value of $1.45. The fair value calculation of options granted during the nine months ended September 30, 2022 used the follow assumptions: risk free interest rates of 1.60% to 3.55%, based on the U.S. Treasury yield in effect at the time of grant; expected life of six years; and volatility of 166% based on historical volatility of the Company’s common stock over a time that is consistent with the expected life of the option.

The following table summarizes stock option activity under our plans during the nine months ended September 30, 2022:

	Number of	Weighted-Average
	Options	Exercise Price
Outstanding at January 1, 2022	2,635,287	$	3.38
Granted	1,114,000		1.51
Forfeited	(50,575)		2.43
Outstanding at September 30, 2022	3,698,712	$	2.83
Exercisable at September 30, 2022	1,998,581	$	3.33

As of September 30, 2022, there were 3,229,938 options that were vested or expected to vest with zero aggregate intrinsic value and a remaining weighted average contractual life of 8.4 years.

During the nine months ended September 30, 2021, there were 1,907,347 options granted with a weighted average exercise price of $2.89 per share, 81,594 options forfeited with a weighted average exercise price of $2.83 per share and 1,229 options exercised with a weighted average exercise price of $2.04.

Based on Company policy, stock options will become 100% vested in the event of an employee retirement, with retirement defined as someone who has attained the age of 65 and has served as an employee for the three-year period immediately preceding the retirement date. In connection with the retirement of a former employee in March 2022, the Company accelerated the vesting of shares of previously unvested stock options pursuant to the terms of certain Company stock option agreements previously issued between March 2019 and January 2022. During the nine months ended September 30, 2022, the Company accelerated 481,637 shares of previously unvested stock options and recorded $1.1 million of non-cash stock-based compensation expense for the accelerated awards. The Company also extended the remaining contractual term of all outstanding stock options of the former employee as of the retirement date. The Company determined this to be a modification of the stock options which would result in incremental fair value. Management calculated the change in fair value due to the modification to be a non-cash stock-based compensation expense of $0.5

million which is included within operating expense in the accompanying statements of operations during the nine months ended September 30, 2022.

For the three and nine months ended September 30, 2022, we recorded non-cash stock-based compensation expense for all stock awards of $0.7 million and $3.4 million, respectively, within operating expense in the accompanying statements of operations. For the three and nine months ended September 30, 2021, we recorded compensation expense for all stock awards of $0.5 million and $1.3 million, respectively, within operating expense in the accompanying statements of operation. As of September 30, 2022, the unrecognized compensation expense related to unvested stock awards was $3.5 million, which is expected to be recognized over a weighted-average period of 2.7 years.