Stock-Based Compensation

6 Months Ended

Jun. 30, 2022

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 7 - STOCK-BASED COMPENSATION

In January 2018, the Company’s board of directors approved its 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock, the grant of restricted and unrestricted share awards and grant of restricted stock units. The Company initially reserved 1,630,000 shares of its common stock under the 2018 Plan; however, upon completion of the Company’s IPO the number of shares reserved for issuance under the 2018 Plan increased to 3,284,480, representing 15% of the Company’s outstanding shares of common stock calculated on a fully diluted basis upon the close of the IPO. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be eligible to receive incentive awards under the 2018 Plan.

In September 2021, the Company’s board of directors approved its 2021 Stock Incentive Plan (“2021 Plan”), which was also approved by the stockholders of the Company at the Company’s annual meeting of stockholders held on November 4, 2021. The 2021 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock, the grant of restricted and unrestricted share awards and grant of restricted stock units. The Company has 4,200,000 shares of its common stock reserved under the 2021 Plan. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be eligible to receive incentive awards under the 2021 Plan.

The following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three and six months ended June 30, 2022 and 2021 for stock options and warrants:

	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022		Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Research and development	$	244,276	$	450,085	$	69,457	$	136,736
General and administrative		950,805		1,922,698		671,078		1,634,214
	$	1,195,081	$	2,372,783	$	740,535	$	1,770,950

As of June 30, 2022, there was approximately $8,045,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted-average period of 2.1 years.

The Company records compensation expense for awards with graded vesting using the straight-line method. The Company recognizes compensation expense over the requisite service period applicable to each individual award, which generally equals the vesting term. The Company estimates the fair value of each option award using the Black-Scholes-Merton option pricing model. Forfeitures are recognized when realized.

The Company estimated the fair value 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 periods of the respective awards. The fair value of stock options issued was estimated using the following assumptions:

	Six Months June 30, 2022
Weighted average exercise price	$	7.13
Weighted average grant date fair value	$	5.39
Assumptions
Expected volatility		90%-97	%
Weighted average expected term (in years)		6.3-10.0
Risk-free interest rate		1.79%-2.54	%
Expected dividend yield		0.00	%

The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility for industry peers and used an average of those volatilities. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity for employee awards and the contractual term for nonemployee awards. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. The Company uses the closing stock price on the date of grant as the fair value of the common stock

The following table summarizes stock option activity during the six months ended June 30, 2022:

	Number of Shares			Weighted- Average Exercise Prices		Weighted- Average Remaining Contractual Term (In Years)		Intrinsic Value
Outstanding at January 1, 2022		2,893,839		$	6.48		8.05	$	9,932,413
Granted		130,000			7.13		—		—
Exercised		(2,037	)		5.00		—		—
Cancelled		(25,249	)		7.99		—		—
Outstanding at June 30, 2022		2,996,553		$	6.47		7.64	$	3,206,962
Exercisable at June 30, 2022		1,560,081		$	5.03		7.00	$	2,621,336

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had strike prices lower than the fair value of the Company’s common stock. The intrinsic value of the options exercised during 2022 was approximately $4,000.

Option Modification

Effective March 21, 2022, one of the members of the Company’s board of directors, Dr. Brian Windsor, resigned. As part of his resignation from the board of directors, modifications were made to Dr. Windsor’s vested and non-vested stock option awards including acceleration of certain non-vested option awards and the extension of the post-termination exercise period of certain stock option awards. During the six months ended June 30, 2022, in accordance with ASC Topic 718, Compensation—Stock Compensation, the Company recorded a one-time, non-cash incremental compensation expense net of the required reversal of previously recognized compensation attributed to non-vested shares in the amount of approximately $339,000, which is included in general and administrative expense in the accompanying condensed consolidated statements of operations.

On June 7, 2022, the Company issued a five-year warrant to purchase 25,000 shares of common stock at $5.70 per share to a consultant. The fair value of the warrant on the grant date was estimated using the Black-Scholes-Merton option pricing model with a common stock value of $5.74 per share, a contractual life of 5.0 years, a dividend yield of 0%, volatility of 96.87% and an assumed risk-free interest rate of 2.99%. The warrant is immediately exercisable. The fair value of the warrant was determined to be approximately $107,000 and was recorded in general and administrative expenses in the condensed consolidated statements of operations for the three and six months ended June 30, 2022.

In determining the fair value for warrants, the expected life of the Company’s warrants was determined using the contractual life. The methodology in determining all other inputs to calculate the fair value utilizing the Black-Scholes-Merton option pricing model is the same as the stock option methodology described above for stock options.