NOTE

Equity Incentive Plan

April 23, 2019,

the Company's stockholders approved the adoption of the

2019

Equity Incentive Plan (the

“2019

Plan”), under which the Company is authorized to issue incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards and restricted stock units, other stock awards and performance awards that

may

be settled in cash, stock, or other property. The

2019

Plan is designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company's employees, directors and consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants

may

be given an opportunity to benefit from increases in the value of the Company's common stock. Following adoption of the

2019

Plan, all previous plans were frozen, and on forfeiture, cancellation and expiration, awards under those plans are

not

assumed by the

2019

Plan.

The aggregate number of shares of common stock authorized for issuance under the

2019

Plan was initially

1,600,000

shares, which was increased through an amendment to the

2019

Plan adopted by the Company's stockholders on

June 8, 2020,

8,000,000

(the “Plan Amendment”), subject to standard adjustments in the event of a stock split, stock dividend or other extraordinary dividend, or other similar change in the Company's common stock or capital structure. Further amendments to the

2019

Plan to increase the share reserve would require stockholder approval. Awards that expire or are canceled generally become available for issuance again under the

2019

Plan. Awards have a maximum term of

ten

years from the grant date and

may

vest over varying periods, as specified by the Company's board of directors for each grant.

March 2020,

the Company granted

411,000

performance-based restricted stock unit (“PRSU”) awards to employees which vest upon the achievement of certain performance conditions by

December 31, 2020,

subject to each employee's continued service relationship with the Company. As of

September 30, 2020

, all of these

411,000

PRSUs were outstanding. The related compensation cost, which is based on the grant date fair value of the Company's common stock multiplied by the number of PRSUs granted, is recognized as an expense ratably over the estimated vesting period when achievement of the performance condition is considered probable. Based on the Company's evaluation of the probability of achieving the performance condition as of

September 30, 2020

, the Company recognized

$101,000

and

$632,000

of related expense during the

three

and

nine

months ended

September 30,

2020

, respectively.

March 24, 2020,

the board of directors of the Company approved the grant of an aggregate of

2,610,000

options with an exercise price of

$1.70

per share (the closing price of the Company's common stock on

March 24, 2020) (

the

“March

Option Awards”), which vest as to

25%

of the underlying shares of common stock on the date of grant and thereafter in

twenty-four

(

) equal monthly installments from

May 1, 2020

until

April 1, 2022;

provided that the stock options were

not

exercisable until the approval by the stockholders of the Plan Amendment. On

June 8, 2020,

the stockholders approved the Plan Amendment and at such time the

March

Option Awards became exercisable, subject to the vesting schedule noted previously.

A summary of stock option transactions in the

nine

months ended

September 30,

2020

, is as follows:

							Weighted
	Shares			Number of			Average
	Available			Options			Exercise
	For Grant			Outstanding			Price

Balance at January 1, 2020		295,180			1,811,652		$	2.74
2019 Plan Amendment		6,400,000			—		$	—
PRSUs granted, net of tax forfeitures		(278,535	)		—		$	—
Granted		(4,957,800	)		4,957,800		$	2.10
Exercised		—			(305,179	)	$	1.32
Forfeited		85,910			(85,992	)	$	0.39
Canceled		9,573			(57,751	)	$	10.57

Balance at September 30, 2020		1,554,328			6,320,530		$	2.27

As of

September 30, 2020

, there were

6,320,530

options outstanding with a weighted average exercise price of

$2.27,

a weighted average remaining term of

9.18

years and an aggregate intrinsic value of

$28.7

million. Of these options,

2,539,452

were vested, with a weighted average exercise price of

$2.79,

a weighted average remaining term of

8.90

years and an aggregate intrinsic value of

$10.8

million. The Company received

$402,000

for the

305,179

options exercised during the

nine

months ended

September 30,

2020

, which had an intrinsic value of

$1.6

million.

options were exercised during the

nine

months ended

September 30,

2019

June 15, 2020,

the Company awarded

900,000

performance-based options and

845,280

time-based options with an exercise price of

$2.46

per share (the closing price of the Company's common stock on the grant date) to its new Chief Executive Officer. Vesting of the time-based options will be as follows:

25%

on the

first

anniversary of the grant date and

75%

in equal monthly installments over the

three

-year period commencing on such

first

anniversary, with accelerated vesting with respect to

50%

of any then-unvested option shares upon a substantial strategic agreement, as determined by the Board, and with accelerated vesting in full in the event of a “Change in Control” (as defined under the

2019

Plan).

Vesting of the performance-based options would occur if the Company achieved a specified closing price during any

ten

consecutive trading days by

November 30, 2020,

with

one

third

based on a closing price of

$5.00,

one

third

based on a closing price of

$7.50

and

one

third

based on a closing price of

$10.00,

subject to continuing employment. Utilizing a Monte Carlo Simulation and assumptions of the fair value of Common Stock of

$2.46,

estimated volatility of

105%,

a risk-free interest rate of

0.35%,

zero

dividend rate and an expected term of

5.23

years, the Company determined the weighted average fair value of these options on the issuance date to be

$0.31

per share, or

$279,000,

which was initially being expensed over the estimated vesting term, assuming vesting occurs by

November 30, 2020,

for each tranche.

The tranches based on closing prices of

$5.00,

$7.50

and

$10.00

vested on

July 9, 2020,

July 20, 2020

and

July 24, 2020,

respectively, so the unamortized balance as of

June 30, 2020,

was expensed in the

three

months ended

September 30, 2020.

The weighted average grant date fair value of all other options awarded in the

nine

months ended

September 30,

2020

and

2019

, was

$1.98

and

$0.55,

respectively. Fair values were estimated using the following assumptions:

	Nine Months Ended September 30,
	2020			2019

Risk-free interest rate		0.40% - 0.88%			1.89% - 2.31%
Expected term	5.22 - 10.00 Years			5.39 - 6.08 Years
Expected volatility		94% - 108%			83% - 85%
Dividend yield		—	%		—	%

The Company measures the fair value of all stock-based awards on the grant date and records the fair value of these awards, net of estimated forfeitures, to compensation expense over the service period. Total stock-based compensation recognized for options and PRSUs was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Research and development	$	268	$	63	$	1,405	$	222
General and administrative		647		83		2,466		268
Total stock-based compensation	$	915	$	146	$	3,871	$	490

As of

September 30, 2020

, the unrecognized stock-based compensation cost related to outstanding unvested stock options and PRSUs that are expected to vest was

$5.4

million, which the Company expects to recognize over an estimated weighted average period of

2.35

years.