Equity Compensation Plan

9 Months Ended

Sep. 30, 2022

Equity [Abstract]

Equity Compensation Plan

Note 7 – Equity Compensation Plan

On June 18, 2019, the Board of Directors and a majority of the Company’s shareholders approved the 2019 Equity Compensation Plan (the “2019 Plan”). The 2019 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, restricted stock, performance shares and performance units to employees, directors and consultants of the Company and its affiliates. The 2019 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s common stock on the date of grant, or 110% of fair value in the case of incentive options granted to a ten-percent stockholder.

On March 11, 2020, the Company granted the following 10 ten-year options to purchase shares of common stock at an exercise price of $1.50 per share to the Company’s then newly appointed Executive Chairman and Acting Chief Executive Officer under the 2019 Plan: (i) an option to purchase 965,850 shares of common stock that vests ratably on a monthly basis over two years and (ii) an option to purchase 321,950 shares of common stock that vests based on performance criteria to be mutually agreed to by the Board and the executive. The grant was reduced to 500,000 options, including 375,000 options and 125,000 options respectively under the two categories, due to limitations under the 2019 Plan. The terms of the 125,000 performance-based options were established in the quarter ended December 31, 2020. The terms of the performance-based options were met during the quarter ended March 31, 2021.

From June 1 to June 22, 2021, the Company granted five and 10 ten-year options to purchase 388,246 shares of common stock at an exercise price of $2.90 to $3.93 per share to employees, an advisory board member and board members under the 2019 Plan that vest over two to five years.

On September 22, 2021, upon the resignation of our then Chief Executive Officer and Chairman, a total of 1,911,160 unvested options that he previously received were forfeited as of such date. On such date, the Company also provided the acceleration of 25,000 unvested stock options previously issued which were to vest as of September 25, 2021. The impact of the modification of the stock option was not material.

On December 30, 2021, the Company granted five and 10 ten-year options to purchase 445,000 shares of common stock at an exercise price of $1.77 per share to employees, an advisory board member and board members under the 2019 Plan that vest over one to four years.

On February 9, 2022, subject to the shareholders’ approval, the Board of Directors approved that the aggregate number of shares authorized for issuance as awards under the 2019 Plan shall be 4,600,000 shares plus an annual increase on the first day of each fiscal year for the rest of the term of the Plan in an amount equal to the lesser of (i) 5% of the outstanding shares of common stock of the Company on the last day of the immediately preceding year or (iii) an amount determined by the Board of Directors.

On April 26, 2022, the Company granted to Mr. Davidson an option to purchase 650,000 shares of the Company’s common stock at $1.66 per share. The option will vest at the rate of 25% per year on the anniversary date from the first day of his employment starting from April 1, 2023. The option will be subject to acceleration in vesting in connection with the occurrence of a change of control event during the term of Mr. Davidson’s employment.

The stock option activity from January 1, 2021 through September 30, 2022 is as follows:

	Shares			Weighted-Average Exercise Price per share		Weighted-Average Remaining Contractual Life (years)
Balance, December 31, 2020		3,257,410		$	1.50		9.1
Options granted		833,246			2.67		6.7
Options exercised		(45,625	)		1.50		—
Options expired		(735,625	)		1.50		—
Options forfeited		(1,911,160	)		1.50		—
Balance, December 31, 2021		1,398,246			2.20		6.3
Options granted		650,000			1.66		9.6
Balance, September 30, 2022		2,048,246			2.03		6.6
Vested options at September 30, 2022		669,395		$	1.98		1.96

The following table summarizes the outstanding options at September 30, 2022 by exercise price.

Exercise price		Outstanding options		Exercisable options
$	1.66		650,000		0
$	1.50		565,000		460,000
$	1.77		445,000		75,833
$	3.93		268,000		106,000
$	2.90		70,246		17,562
$	3.55		50,000		10,000
			2,048,246		669,395

At September 30, 2022, the Company has 2,236,129 shares of common stock available to grant under the 2019 Plan.

The Company has estimated the fair value of all stock option awards as of the date of grant by applying the Black-Scholes option-pricing model. In applying the Black-Scholes option pricing model, the Company used the following weighted average assumptions for issuances during the nine months ended September 30, 2022 and 2021:

	2022			2021
Risk-free interest rate		2.77	%		1.10	%
Expected term		7.0 years			7.5 years
Expected volatility		100.4	%		81	%
Expected dividends		0			0
Grant date fair value of common stock	$	1.38/share			$ 2.45 share

During the nine months ended September 30, 2022, the Company recognized stock-based compensation expense related to stock options of approximately $717,000, of which approximately $283,000 was recorded as part of research and development expenses and $416,000 was included within general and administrative expenses and $18,000 of which was included within cost of revenues on the consolidated statements of operations. See Note 11 for further discussion. During the nine months ended September 30, 2021, the Company recognized stock-based compensation expense related to stock options of approximately $1,123,000 ($1,023,000 of which was included within general and administrative expenses, $69,000 of which was included in research and development expenses, and $31,000 of which was included within cost of revenues).

As of September 30, 2022, there was unamortized stock-based compensation of approximately $1,690,000 which the Company expects to recognize over approximately 3.0 years. At September 30, 2022, the intrinsic value of outstanding and vested stock options was nil.