Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

NOTE 7. STOCK-BASED COMPENSATION

2021 Equity Incentive Plan

The 2021 Equity Incentive Plan (the “2021 Plan”), which provides for the grant of incentive stock options to employees, and the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and

consultants, became effective on June 30, 2021. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan was 7,698,282 shares, which is the sum of (1) 3,550,000 new shares, plus (2) 667,104 shares that remained available for issuance under the Company’s Amended and Restated Stock Performance Plan that was adopted by the Board and stockholders on April 8, 2013 (as amended from time to time, most recently on November 20, 2020, the “2013 Plan”) at the time the 2021 Plan became

effective, plus (3) any shares subject to outstanding stock options or other stock awards that were granted under the 2013 Plan that, on or after the 2021 Plan became effective, terminate or expire prior to exercise or settlement, are settled in cash, are forfeited or repurchased because of the failure to vest, or are reacquired or withheld to satisfy a tax withholding obligation or the purchase or exercise price in accordance with the terms of the 2013 Plan. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the fiscal year before the date of each automatic increase, or a lesser number of shares determined by the Board prior to the applicable January 1. The maximum number of shares of the Company’s common stock that may be issued upon the exercise of incentive stock options under the 2021 Plan is 12,000,000. As of December 31, 2021, 4,217,104 shares were authorized for issuance under the 2021 Plan and 3,857,481 shares remained available for issuance under the 2021 Plan. The 2013 Plan provided for the grant of incentive stock options, nonstatutory stock options, issuance of shares of restricted stock and other equity awards to the Company’s employees, officers, directors, consultants and advisors. All outstanding awards issued under the 2013 Plan remain subject to the terms of the 2013 Plan. As of December 31, 2021, there were 3,475,995 options outstanding under the 2013 Plan.

Stock Options

The Black-Scholes option-pricing model was used to estimate the fair value of stock options granted during the year ended December 31, 2021 with the following weighted average assumptions:


Risk-free interest rate		0.4% – 1.3%
Expected term (in years)		5.3 – 6.1
Expected volatility		90%
Expected dividend yield		0%

The weighted average grant date fair value of options granted during the year ended December 31, 2021, was $1.93 per share. The Company did not grant any options during the year ended December 31, 2020.

Prior to its IPO, the fair value of the Company’s common stock underlying the stock options has historically been determined by the Board with assistance from management and, occasionally with input from an independent third-party valuation firm. For the year ended December 31, 2020, management engaged an independent third-party valuation firm to provide an estimate of the fair value of its common stock. The fair value of common stock was determined 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.

As of December 31, 2020, management, with the assistance of an independent third-party valuation firm, estimated the fair value of a share of commonstock to be $0.83 utilizing the following assumptions:


Risk-free interest rate		0.13 %
Expected time to liquidity event (in years)		2.0
Expected volatility		90%
Expected dividend yield		0%

he stock options granted after December 31, 2017 vest monthly over 24 or 36 months and have a

ten-year

contractual term. Stock options granted prior to December 31, 2017 were either fully vested upon grant or generally vested monthly over a range of three to 24 months and have a

ten-year

term. The Company became publicly traded in July 2021 and lacks 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. Due to the lack of historical exercise history, the expected term of the Company’s stock options has been determined using the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award 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 table reflects summarized stock option activity:


	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020		1,001,517		$	1.13
Granted		2,839,284			2.99
Exercised		(5,183	)		2.85
Outstanding at December 31, 2021		3,835,618		$	2.51		8.5	$	19,458
Vested and exercisable at December 31, 2021		1,004,510		$	1.56		6.9	$	5,523

The intrinsic value of stock options exercised during the year ended December 31, 2021 was

approximately $54,000.

No options were exercised during the year ended December 31, 2020. As of December 31, 2021, total unrecognized compensation costs related to unvested stock option awards granted was approximately $4.7 million, which the Company expects to recognize over a weighted-average period of approximately 3.0 years.

The Company recorded stock-based compensation expense related to stock options in the following expense categories of its statements of operations for the periods shown (in thousands):


	Year Ended December 31,
	2021		2020
General and administrative	$	690	$	103
Research and development		232		51
Total stock-based compensation	$	922	$	154

Employee Stock Purchase Plan

The 2021 Employee Stock Purchase Plan (the “ESPP”), which permits employees to purchase shares of the Company’s common stock, became effective on June 30, 2021. A total of

375,000

shares of the Company’s common stock were initially reserved for sale under the ESPP. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 through January 1, 2031, by the lesser of (1)

of the total number of shares of the Company’s common stock outstanding on the last day of the fiscal year before the date of the automatic increase, and (2)

800,000

shares; provided that before the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of December 31, 2021, there have been

purchases of shares under the ESPP.