In 2013, LBS adopted the 2013 Employee, Director, and Consultant Equity Incentive Plan, (as amended and restated, the “2013 Plan”). Upon the closing of the Merger, each outstanding, unexercised and unexpired LBS option under the 2013 Plan, whether vested or unvested, was assumed by the Company and converted into an option to purchase common stock of the Company and became exercisable by the holder of such option in accordance with its terms, with (i) the number of shares of common stock subject to each option multiplied by the Exchange Ratio and (ii) the per share exercise price upon the exercise of each option divided by the Exchange Ratio. In connection with the closing of the Merger, no further awards will be made under the 2013 Plan.

In April 2021, in connection with the closing of the Merger, the Company’s stockholders approved the Palisade Bio, Inc. 2021 Equity Incentive Plan (the “2021 EIP Plan”). The maximum number of shares of the Company’s common stock available for issuance under the 2021 EIP Plan will not exceed 1,502,583 shares. In addition, such aggregate number of shares of the Company's common stock available for issuance will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 4% of the total number of shares of the Company's common stock outstanding on December 31st of the preceding year; provided, however, that the board of directors of the Company may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock. As of September 30, 2022, there were 717,010 shares of the Company's common stock available for issuance under the 2021 EIP Plan.

Also in April 2021, the Company stockholders approved the Palisade Bio, Inc. 2021 Employee Stock Purchase Plan (the "2021 ESPP"). The 2021 ESPP was adopted in order to provide eligible employees of the Company an opportunity to purchase shares of the Company's common stock. The maximum number of shares of the Company’s common stock available for issuance under the 2021 ESPP will not exceed 693,500 shares. In addition, such aggregate number of shares of the Company's common stock available for issuance will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to 1% of the total number of shares of the Company's common stock outstanding on December 31st of the preceding year; provided, however, that the board of directors of the Company may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock. As of September 30, 2022, there have been no shares issued under the ESPP.

In November 2021, the Company's compensation committee of the board of directors of the Company adopted the Palisade Bio, Inc. 2021 Inducement Award Plan (the "2021 Inducement Plan"). The 2021 Inducement Plan was adopted in order to grant share-based awards to individuals not previously employed by the Company, as an inducement to join the Company. Subject to certain changes in the capitalization of the Company, as provided in the 2021 Inducement Plan document, the aggregate number of shares of the Company's common stock that may be issued under the 2021 Inducement Plan will not exceed 750,000 shares of common stock. As of September 30, 2022, there are 308,250 shares of the Company's common stock available for issuance under the 2021 Inducement Plan.

The Company believes that stock options align the interests of its employees, consultants and directors with the interests of its stockholders. Stock option awards are generally granted with an exercise price equal to the market price of Company’s stock at the date the grants are awarded, a term as determined by the Company's board of directors but generally not to exceed ten-years, and generally vest in equal proportions each quarter over three years. Vesting would be accelerated in the event of retirement, disability, or death of a participant, or change in control of the Company, as defined in the individual stock option agreements or employment agreements. Stock awards are valued as of the measurement date, which is the grant date, and are generally amortized on a straight-line basis over the requisite vesting period for all awards. The Company's plans allow for the issuance of both incentive stock options and non-statutory stock options.

The fair value of options granted in the nine months ended September 30, 2022 and September 30, 2021 is estimated as of the grant date using the Black-Scholes option pricing model using the assumptions in the following table:


	Nine Months Ended September 30,
	2022			2021
Weighted-average exercise price per share	$	0.81		$	17.72
Weighted-average expected term (years)		5.81			5.00
Weighted-average risk-free interest rate		2.30	%		0.88	%
Weighted-average expected dividend yield		—			—
Weighted-average volatility		73.66	%		76.05	%

Risk-free interest rate. The Company bases the risk-free interest rate assumption on observed interest rates appropriate for the expected term of the stock option grants.

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends.

Expected volatility. Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption is based on historical volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry.

Expected term. The expected term represents the period of time that options are expected to be outstanding. As the Company does not have sufficient historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

The following table summarizes stock option activity and related information under the 2013 Plan, the 2021 EIP Plan and the 2021 Inducement Plan for the nine months ended September 30, 2022:


	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		1,956,855	$	7.32		8.12	$	—
Granted		792,600		0.81		9.50		—
Exercised		—		—		—		—
Forfeited, expired or cancelled		162,479		—		—		—
Outstanding at September 30, 2022		2,586,976		5.65		7.83		—
Vested and expected to vest at September 30, 2022		2,586,976		5.65		7.83		—
Exercisable at September 30, 2022		1,392,169		9.20		5.64		—

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2022 was $0.52 per share. The fair value of the options vested during nine months ended September 30, 2022 was approximately $0.95 million.

The allocation of stock-based compensation for all stock awards is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Research and development expense	$	63	$	26	$	174	$	349
General and administrative		189		77		772		859
Total	$	252	$	103	$	946	$	1,208

As of September 30, 2022, the unrecognized compensation cost related to outstanding options was $1.1 million, which was expected to be recognized over a weighted-average period of approximately 2.02 years.

The Company’s former Chief Development Officer was terminated in February 2021. As part of the separation and settlement agreement, the Company’s board of directors agreed to (i) accelerate vesting by four months for the former employee’s outstanding options and (ii) allow up to seven years from the termination date for the former employee to exercise all vested options. The Company concluded the actions taken by the Company resulted in modification accounting for the stock options. The Company determined the incremental fair value of the modified stock options was $225,000, which was expensed to research and development expenses in the condensed consolidated statements of operations during the three months ended March 31, 2021.