Stockholders' Equity

12 Months Ended

Dec. 31, 2022

Equity [Abstract]

Stockholders' Equity

11. Stockholders’ Equity

Preferred stock

The Amended and Restated Certificate of Incorporation authorizes the Company to issue up to 5,000,000 shares of $0.001 par value preferred stock.

Common stock

The Amended and Restated Certificate of Incorporation authorizes the Company to issue up to 100,000,000 shares of $0.001 par value common stock.

Shares reserved for future issuance

The Company has reserved shares of common stock for future issuances as follows:

	December, 31	December, 31
	2022	2021
Warrants to purchase common stock	77,842	77,842
Common stock options issued and outstanding	2,290,596	2,175,685
Common stock available for future grants	374,099	1,934,095
Restricted stock units issued and outstanding	1,247,059	394,750
Common stock available for ESPP	62	401,164

2008 Stock Plan, as amended (the 2008 Plan)

In November 2008, the Company established its 2008 Stock Plan, as amended (the 2008 Plan) which provides for the granting of stock options to employees, directors, and consultants of the Company. Options granted under the 2008 Plan may be either incentive stock options (ISOs) or nonstatutory stock options (NSOs), as determined by the Administrator at the time of grant. The term of each option shall be stated in the Option Agreement; however, the term shall be no more than ten years from the date of the grant. Options

granted under the 2008 Plan generally vest 25% one year after the vesting announcement date and ratably thereafter over the next 36 months.

In the case of an ISO granted to an optionee who at the time the option is granted owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent subsidiary, the exercise price of the option shall not be less than 110% of the fair market value of a share on the date of grant. The exercise price of an ISO or NSO granted to any other employee or nonemployee, respectively, shall not be less than 100% of the fair market value of a share on the date of grant.

2021 Equity Incentive Plan, as amended (the 2021 Plan)

In October 2021, the Company established its 2021 Stock Incentive Plan, as amended (the 2021 Plan) which provides granting of stock options, restricted stock, restricted stock units, stock appreciation rights, and performance awards to employees, directors and consultants of the Company. The number of shares of common stock available under the 2021 Plan will be increased by any shares of common stock subject to awards outstanding under the 2008 Plan that on or after the effectiveness of the 2021 Plan, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Registrant for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Registrant die to failure to vest.

Options granted under the 2021 Plan may be either ISOs or NSOs, as determined by the Administrator at the time of grant. The term of each option shall be stated in the Option Agreement; however, the term shall be no more than ten years from the date of the grant. Options granted under the 2021 Plan generally vest 25% one year after the vesting announcement date and ratably thereafter over the next 36 months.

In the case of an ISO granted to an optionee who at the time the option is granted owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent subsidiary, the exercise price of the option shall not be less than 110% of the fair market value of a share on the date of grant. The exercise price of an ISO or NSO granted to any other employee or nonemployee, respectively, shall not be less than 100% of the fair market value of a share on the date of grant.

Options

A summary of stock option activity is set forth below (in thousands, except share and per share data):

	Number of Shares Underlying Outstanding Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, December 31, 2021	2,175,685	$	9.27	8.7	$	2,856
Options granted	354,800	$	1.88
Options exercised	(57,654)	$	0.61
Options forfeited or cancelled	(182,235)	$	9.38
Outstanding, December 31, 2022	2,290,596	$	8.33	8.0	$	1
Shares exercisable December 31, 2022	1,605,804	$	9.54	7.6	$	-
Vested and expected to vest, December 31, 2022	2,290,596	$	8.33	8.0	$	1

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money as of December 31, 2022 and 2021.

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021 was $0.1 million and $1.8 million, respectively.

The total fair value of options that vested during the years ended December 31, 2022 and 2021 was $4.4 million and $6.0 million, respectively. The options granted during the years ended December 31, 2022 and 2021 had a weighted-average per share grant-date fair value of $1.22 per share and $8.18 per share, respectively. As of December 31, 2022, the total unrecognized stock-based compensation expense related to unvested stock options was $4.6 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.2 years.

Early exercise of stock options

The terms of the Plan permit the exercise of certain options granted under the Plan prior to vesting, subject to required approvals. The shares are subject to the Company’s lapsing repurchase right upon termination of employment at the original purchase price. The proceeds initially are recorded in accrued current liabilities from the early exercise of stock options and are reclassified to additional paid-in capital as the Company’s repurchase right lapses. During the years ended December 31, 2022 and 2021, the Company had no repurchases of common stock. As of December 31, 2022 and 2021, there were 188,025 and 377,709 shares that were subject to

repurchase, respectively. The aggregate exercise prices of early exercised shares as of December 31, 2022 and 2021 were $0.1 million and $0.2 million, respectively, which were recorded in other current liabilities on the balance sheets.

Restricted Stock Units

During 2022, the Company granted 1,485,629 restricted stock units under 2021 Plan, established by the Company in October 2021.

A summary of RSU activity is set forth below:

	Number of Shares Underlying Outstanding Restricted Stock	Weighted Average Grant Date Fair Value
Unvested, December 31, 2021	394,750	$	5.17
Granted	1,485,629	$	2.57
Released	(535,122)	$	4.36
Forfeited or cancelled	(98,198)	$	3.05
Unvested, December 31, 2022	1,247,059	$	2.58

As of December 31, 2022, the total unrecognized stock-based compensation expense related to unvested restricted stock units was $2.2 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.9 years. As of December 31, 2021, the total unrecognized stock-based compensation expense related to unvested restricted stock units was $1.9 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.0 years.

2021 Employee Stock Purchase Plan, as amended (ESPP)

In October 2021, the board of directors adopted, and the stockholders approved the Company’s 2021 Employee Stock Purchase Plan (ESPP), which became effective on October 20, 2021, the business day prior to the effectiveness of the registration statement relating to the IPO. A total of 401,164 shares of common stock were initially reserved for issuance under the ESPP.

The ESPP provides for consecutive offering periods that typically have a duration of approximately twelve months in length and are comprised of two sequential purchase periods, or tranches, of approximately six months in length. The offering periods are scheduled to start on the first trading day on or after June 1 and December 1 of each year. The first offering period commenced on June 1, 2022.

The ESPP provides eligible employees with an opportunity to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their eligible compensation. A participant may purchase up to a maximum of 10,000 shares of common stock within the IRS limit of $25,000 grant date share value during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each six-month purchase period. The purchase price of the shares shall be 85% of the lower of the fair market value of the common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the related offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment.

On November 30, 2022, the exercise date for the first purchase period, the exercise share price was determined to be lower than the grant date share price initiating the ESPP's reset and rollover provisions. As a result, the first offering period was terminated as of November 30, 2022, the exercise of the shares associated with the first purchase period occurred at the fair market value on June 1, 2022, net of 15% discount. A new twelve-months offering period commenced as of December 1, 2022.

The fair value of the predicted share purchase rights granted under the ESPP upon the commencement of the offering period was estimated on the date of grant using the Black-Scholes option pricing model applying the following assumptions as of June 1, 2022: (i) risk-free interest rate 2.15%, (ii) dividend rate 0%, (iii) expected terms 0.5 years and 1.0 years, and (iv) volatility 74.52% and 65.14%, for the two tranches, respectively.

As of December 31, 2022 a total of 401,102 shares were purchased by the participants of the ESPP.

Compensation expense of approximately $0.3 million was recorded into the statement of operations for the year ended December 31, 2022. As of December 31, 2022, the total unrecognized compensation cost is $0.4 million and will be amortized over the weighted-average periods of approximately 0.8 years.

Stock-based compensation associated with awards to employees and non-employees

Total stock-based compensation expense recognized was as follows (in thousands):

	Years Ended December 31,
	2022		2021
Cost of goods sold	$	314	$	274
Sales and marketing		2,575		2,137
Research and development		44		136
General and administrative		4,045		4,270
Total	$	6,978	$	6,817

The above stock-based compensation expense related to the following equity-based awards (in thousands):

	Years Ended December 31,
	2022		2021
Stock options	$	3,909	$	6,722
RSU		2,727		95
ESPP		342		—
Total	$	6,978	$	6,817

The Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of stock options was estimated using the following weighted-average assumptions:

	Years Ended December 31,
	2022		2021
Expected dividends		0%		0%
Expected volatility		70.8%-72.4%		72.8% - 78.0%
Risk-free interest rate		1.9%-4.2%		0.6% - 1.3%
Expected term		6 years		5 - 6 years

The assumptions are as follows:

Expected volatility. The expected volatility was determined by examining the historical volatilities for comparable publicly traded companies within the medical device industry using an average of historical volatilities of the Company’s industry peers.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the option in effect at the time of grant.

Dividend yield. The expected dividend is assumed to be zero as dividends have never been paid and the Company has no current plans to pay dividends on its common stock.

Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

Fair Value of Common Stock. Prior to the IPO the fair value of the Company’s common stock is determined by the board of directors with assistance from management and, in part, on input from an independent third-party valuation firm. The board of directors determines the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price.

In addition to the assumptions used in the Black-Scholes option-pricing model, the Company recognizes the actual forfeitures by reducing the employee stock-based compensation expense in the same period the forfeiture occurs.

The Company will continue to use judgment in evaluating the expected volatility, risk-free interest rates, dividend yield and expected term utilized for stock-based compensation on a prospective basis.