Equity-based compensation

12 Months Ended

Dec. 31, 2022

Equity-based compensation

Equity-based compensation

Note 7. 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.  The 2020 Plan was subsequently amended in April 2021 to increase the maximum aggregate number of shares of Common Stock which may be issued to participants under the 2020 Plan to 93,366 shares.

Furthermore, the Company maintains its 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan permits the granting of incentive units (the “Incentive Units”), including VARs. The maximum aggregate Incentive Units that may be subject to awards and issued under the Plan is 13,989.

During the years ended December 31, 2022 and 2021, stock-based compensation expenses were as follows:

	Year Ended December 31,
	2022		2021
General and administrative value appreciation right awards	$	1,871	$	42,668
Research and development value appreciation right awards		—		1,654
General and administrative stock options		754,596		87,467
Research and development stock options		162,892		504,304
General and administrative restricted stock units		129,954		—
	$	1,049,313	$	636,093

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.  At December 31, 2022 and 2021, Incentive Units outstanding under the 2019 Plan were 4,546 and 7,190 units, respectively.

The following is a summary of VARs issued and outstanding as of December 31, 2022 and 2021, respectively:

						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 December 31, 2022	4,546	$	0.50	$	5,682	6.5
Value appreciation right awards vested and exercisable at December 31, 2022	2,883	$	0.50	$	3,604	6.5

No VARs were cancelled or forfeited during the year ended December 31, 2021. 1,058 VARS were forfeited during the year ended December 31, 2022 as a result of Zachary Rome’s resignation.

As of December 31, 2022, the unrecognized compensation costs were approximately $0.01 million, which will be recognized over an estimated weighted-average amortization period of 1.1 years.

Stock Options

During the year ended December 31, 2022, the Company granted 36,480 options to purchase shares of the Company’s common stock to employees and board members. The following is a summary of the options outstanding as of December 31, 2022 and 2021, respectively:

				Weighted
				Average
	Shares	Weighted		Remaining	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Options	Exercise Price		Term (Years)	Value
Outstanding at December 31, 2021	53,930	$	54.50	9.6		—
Granted	36,480		15.00
Forfeited	(777)		143.50	-
Outstanding at December 31, 2022	89,633	$	38.00	9.1	$	306
Exercisable at December 31, 2022	23,056	$	56.96	8.5	$	—

There were no options canceled during the years ended December 31, 2022 and 2021, respectively.  There were no forfeitures during the year ended December 31, 2021.

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 - December 31, 2022 and 2021	316	$	3,763.55	0.4	$	—
Legacy BioPharmX warrants - December 31, 2021	4,280	$	4,360.50	1.8	$	—
Expired	(2,253)	$	4,280.06	—		—
Legacy BioPharmX warrants - December 31, 2022	2,027	$	5,250.00	1.8	$	—

The fair value of stock option grants are 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.

The following are the key assumptions used to estimate the fair value of the stock options granted during the years ended December 31, 2022 and 2021, respectively:

	Year Ended	Year Ended
	December 31,	December 31,
	2022	2021
Expected life	5-7 years	5-7 years
Expected volatility	73.45%-78.71%	70.6%-73.3%
Risk-free interest rate	2.79% -3.98%	0.79% - 1.40%
Expected dividend yield	—	—

As of December 31, 2022, the unrecognized compensation costs related to stock options were approximately $0.5 million, which will be recognized over an estimated weighted-average amortization period of 0.9 years.  

Restricted Stock Units

During the year ended December 31, 2022, the Company granted restricted stock units to the independent members of the Company’s board of directors. The following is a summary of the restricted stock units outstanding as of December 31, 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	$	15.35	1.0		139,500
Vested	(6,000)	$	15.35	—	$	—
Unvested at December 31, 2022	3,000	$	15.35	0.2	$	—

As of December 31, 2022, the unrecognized compensation costs related to restricted stock units were approximately $0.008 million, which will be recognized over an estimated weighted-average amortization period of 0.2 years.