Equity-based compensation

9 Months Ended

Sep. 30, 2022

Equity-based compensation

Equity-based compensation

Note 6. Equity-based compensation

On May 18, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective, and the 2020 Plan reserved a total of 19,417 shares of common stock for issuance. The 2020 Plan provides for options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. Options granted generally vest over a period of three years and have a maximum term of ten years from the date of grant. On April 20, 2021, the Board approved an amendment increasing the number of shares available for issuance under the 2020 Plan from 41,123 to 93,366, which was approved by the Company’s stockholders on July 1, 2021. In accordance with the “evergreen” provision in the 2020 Plan, an additional 50,895 shares of common stock were automatically made available for issuance on the first day of 2022, which represents 4% of the number of shares of common stock outstanding on December 31, 2021.  As of September 30, 2022, 144,262 shares of common stock were reserved for issuance under the 2020 Plan and there are  42,674 shares available for issuance at September 30, 2022.

Furthermore, as a result of the Merger, the Company assumed the TardiMed 2019 Equity Incentive Plan (the “2019 Plan”) from Timber Sub. The 2019 Plan permits the granting of incentive units (the “Incentive Units”). The maximum aggregate Incentive Units that may be subject to awards and issued under the Plan is 13,989. At September 30, 2022, Incentive Units outstanding under the 2019 Plan were 4,546 units and 7,190 units as of December 31, 2021, all comprised of VARs.

During the three and nine months ended September 30, 2022, and 2021, respectively, equity-based compensation expenses were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
General and administrative value appreciation right awards	$	3,402	$	8,621	$	(1,504)	$	34,089
Research and development value appreciation right awards		—		555		—		1,647
General and administrative stock options		145,194		21,650		638,692		21,650
Research and development stock options		35,665		156,910		129,931		238,298
General and administrative restricted stock units		40,288		—		109,637		—
	$	224,549	$	187,736	$	876,756	$	295,684

Value Appreciation Rights

In 2019 the Company granted equity-based awards similar to stock options under the 2019 Plan as VARs. The VARs have an exercise price, a vesting period and an expiration date, in addition to other terms similar to typical equity option grant terms.

During the three months and nine months ended September 30, 2022, there were no grants of VARs.  1,058 VARs were forfeited, and 1,587 VARs were exercised during the nine months ended September 30, 2022.  There were no grants, forfeitures or VARs exercised during the three and nine months ended September 30, 2021. The following is a summary of VARs outstanding as of September 30, 2022:

						Weighted
						Average
		Weighted				Remaining
		Average		Total Intrinsic		Contractual Life
	Number of Units	Exercise Price		Value		(in years)
Outstanding as of December 31, 2021	7,190	$	0.50	$	136,038	7.6
Exercised	(1,587)	$	0.50			-
Forfeited	(1,058)	$	0.50			-
Outstanding as of September 30, 2022	4,546	$	0.50	$	25,000	6.8
Value appreciation right awards vested and exercisable at September 30, 2022	2,883	$	0.50	$	15,859	6.8

As of September 30, 2022, 2022, the unrecognized compensation costs were approximately $0.02 million, which will be recognized over an estimated weighted-average amortization period of 0.2 years.

Stock Options

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model. The Company was historically a private company and lacked company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Additionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption for employee grants is based on a permitted simplified method, which is based on the vesting

period and contractual term for each tranche of awards. The mid-point between the weighted-average vesting term and the expiration date is used as the expected term under this method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

During the three months ended September 30, 2022, the Company granted stock options to purchase 600 shares of common stock to one employee.  During the nine months ended September 30, 2022, the Company granted stock options to purchase 34,680 shares of common stock to its executive officers, non-employee directors and employees.  The options vest over a period of two to four years.

The Company granted stock options to purchase 49,464 shares of common stock to its executive officers, non-employee directors and employees during the three and nine-month periods ended September 30, 2021, respectively.

The following is a summary of the options outstanding as of September 30, 2022:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Options	Exercise Price		Term (Years)	Value
Outstanding at December 31, 2021	53,929	$	54.50	9.6		—
Granted	34,680		15.00
Forfeited	(777)		143.50	-
Outstanding at September 30, 2022	87,833	$	38.00	9.1	$	300
Exercisable at September 30, 2022	18,652	$	58.5	8.8	$	—

As of September 30, 2022, the unrecognized compensation costs related to stock options were approximately $0.6 million, which will be recognized over an estimated weighted-average amortization period of 1.04 years.

The following was used in determining the fair value of stock options granted during the three and nine months ended      September 30, 2022:

	Three and
	Nine Months Ended
	September 30,
	2022
Expected life	5-7 years
Expected volatility	73.5%-77.38%
Risk-free interest rate	2.79% -2.83%
Expected dividend yield	—

As part of the Merger, the Company assumed the following legacy stock options and warrants:

				Weighted
	Shares			Average
	Underlying	Weighted		Remaining	Aggregate
	Options and	Average		Contractual	Intrinsic
	Warrants	Exercise Price		Term (Years)	Value
Legacy BioPharmX options - September 30, 2022	316	$	3,763.55	0.6	$	—
Legacy BioPharmX warrants - December 31, 2021	4,280	$	4,360.50	1.8	$	—
Expired	(44)	$	11,250.00	—		—
Legacy BioPharmX warrants - September 30, 2022	4,235	$	4,288.50	1.04	$	—

Restricted Stock Units

During the nine months ended September 30, 2022, the Company issued 9,000 Restricted Stock Units (RSUs).  The fair value of the grant is the value of the Company’s stock price at the date of grant multiplied by the number of units.  The RSUs vest monthly and are immediately converted into company stock on the vesting dates.  The Company issued no RSUs in the three-month period ended September 30, 2022.  The following is a summary of the RSUs outstanding at September 30, 2022:

				Weighted
	Shares			Average
	Underlying			Remaining	Aggregate
	Restricted	Grant Date		Contractual	Intrinsic
	Stock Units	Fair Value		Term (Years)	Value
Outstanding at December 31, 2021	—	$	—	—	$	—
Granted	9,000	$	15.50	1.0		139,500
Vested	(3,750)	$	15.50	—	$	—
Unvested at September 30, 2022	5,250	$	15.50	0.6	$	81,376