As of December 31, 2022, the only equity compensation plans from which the Company was permitted to issue new awards from was the Company’s 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”) and 2017 Employee Stock Purchase Plan (the “2017 ESPP”), each as more fully described below. Subsequent to December 31, 2022, the Company’s board of directors adopted the 2022 Equity Plan (as defined in Note 19), which was approved by the Company’s stockholders at the Special Meeting on January 12, 2023.

The Company's board of directors adopted the 2013 Plan, which was approved by the Company’s stockholders effective July 26, 2013. Amendments to the 2013 Plan were approved by the Company’s stockholders in June 2014, June 2015, June 2017, June 2019, and June 2022. The 2013 Plan was intended to further align the interests of the Company and its stockholders with its employees, including its officers, non-employee directors, consultants, and advisers by providing equity-based incentives. The 2013 Plan allows for the issuance of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), other stock-based awards and performance awards. The total number of shares of common stock authorized for issuance under the 2013 Plan is 603,121 shares of the Company’s common stock, plus such additional number of shares of common stock (up to 9,174 shares) as is equal to the number of shares of common stock subject to awards granted under the Company’s 2008 Stock Incentive Plan (the “2008 Plan”), to the extent such awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right.

As of December 31, 2022, options to purchase a total of 284,017 shares of common stock and 48,910 unvested RSUs were outstanding, and up to 252,527 shares of common stock remained available for grant under the 2013 Plan. However, on the effective date of the 2022 Equity Plan (as defined in Note 19), all shares remaining available for grant under the 2013 Plan were rolled into the 2022 Equity Plan (as defined in Note 19).

In accordance with the Merger Agreement, the Company assumed and became the sponsor of the Legacy Aceragen’s 2021 Stock Incentive Plan, as amended (the “Legacy Aceragen Plan”). Under the Merger Agreement,

each Legacy Aceragen option that was outstanding and unexercised immediately prior to the effective time of the Aceragen Acquisition was assumed and converted into and became an option to purchase (i) shares of the Company’s common stock (the “Legacy Aceragen Common Options”) and (ii) shares of the Company’s Series Z Preferred Stock (the “Legacy Aceragen Preferred Options”), each on the same terms and conditions as applied to such options immediately prior to the Aceragen Acquisition as adjusted by the exchange ratio pursuant to the Merger Agreement. No additional awards were permitted to be issued from the Legacy Aceragen Plan as of the effective time of the Aceragen Acquisition.

Following stockholder approval of the Conversion Proposal, and pursuant to the terms of the Merger Agreement, in January 2023, each Legacy Aceragen Preferred Option became exercisable solely for shares of the Company’s common stock. See Note 19.

The Company has not made any awards pursuant to other equity incentive plans, including the 2008 Plan, since the Company’s stockholders approved the 2013 Plan. As of December 31, 2022, options to purchase a total of 4,908 shares of common stock were outstanding under the 2008 Plan. In addition, as of December 31, 2022, non-statutory stock options to purchase an aggregate of 19,116 shares of common stock were outstanding that were issued outside of the 2013 Plan to certain employees in 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of new hires’ employment compensation.

The Company’s board of directors adopted the 2017 ESPP which was approved by the Company’s stockholders and became effective June 7, 2017. Amendments to the 2017 ESPP were approved by the Company’s stockholders in June 2019 and June 2022. The 2017 ESPP is intended to qualify as an “employee stock purchase plan” as defined in Section 423 of the Internal Revenue Code of 1986, as amended, and is intended to encourage our employees to become stockholders of ours, to stimulate increased interest in our affairs and success, to afford employees the opportunity to share in our earnings and growth and to promote systematic savings by them. The total number of shares of common stock authorized for issuance under the 2017 ESPP is 59,558 shares of common stock, subject to adjustment as described in the 2017 ESPP. Participation is limited to employees that would not own 5% or more of the total combined voting power or value of the stock of the Company after the grant. As of December 31, 2022, 39,048 shares remained available for issuance under the 2017 ESPP, however, future offering periods have been suspended until further notice.

The 2017 ESPP provides for offerings to employees to purchase common stock with offerings beginning on dates determined by the compensation committee of the board of directors or on the first business day thereafter. Each offering begins a “plan period” during which payroll deductions are to be made and held for the purchase of common stock at the end of the plan period. The compensation committee may, at its discretion, choose a plan period of 12 months or less for subsequent offerings and/or choose a different commencement date for offerings. During each plan period participating employees may elect to have a portion of their compensation, ranging from 1% to 10% of compensation as defined by the plan, withheld and used for the purchase of common stock at the end of each plan period. The purchase price is equal to 85% of the lower of the fair market value of a share of common stock on the first trading date of each plan period or the fair market value of a share of common stock on the last trading day of the plan period, and is limited by participant to $25,000 in fair value of common stock per year as well as other quarterly plan limitations as defined by each plan.

For the years ended December 31, 2022 and 2021, the Company issued 7,788 and 2,889 shares of common stock, respectively, under the 2017 ESPP and received proceeds of less than $0.1 million for each year, as a result of stock purchases.

The Company recognizes non-cash compensation expense for stock-based awards under the Company’s equity incentive plans and employee stock purchases under the Company’s 2017 ESPP as follows:

Total stock-based compensation expense attributable to stock-based payments made to employees and directors and employee stock purchases included in operating expenses in the Company's statements of operations for the years ended December 31, 2022 and 2021 was as follows:


		Year Ended
		December 31,
(in thousands)	2022		2021
Stock-based compensation:
Research and development
Employee Stock Purchase Plan	$	24	$	28
Equity Incentive Plans		258		546
	$	282	$	574
General and administrative
Employee Stock Purchase Plan	$	5	$	3
Equity Incentive Plans		1,901		1,960
	$	1,906	$	1,963
Total stock-based compensation expense	$	2,188	$	2,537

During the years ended December 31, 2022 and 2021, the weighted average fair market value of stock options granted was $5.88 and $26.18, respectively.

Assumptions Used in Determining Fair Value of Stock Options

Inherent in the Black-Scholes option-pricing model are the following assumptions:

●

Volatility. The Company estimates stock price volatility based on the Company’s historical stock price performance over a period of time that matches the expected term of the stock options.

●

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

●

Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised or cancelled in the future.

●

Dividend rate. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.

The fair value of each option award at the date of grant was estimated using the Black-Scholes option pricing model. All options granted during the years ended December 31, 2022 and 2021 were granted at exercise prices equal to the fair market value of the common stock on the dates of grant.

The following weighted average assumptions apply to the options to purchase 68,796 and 79,784 shares of common stock granted to employees and directors during the years ended December 31, 2022 and 2021, respectively:


	2022		2021
Average risk-free interest rate		2.6%		0.4%
Expected dividend yield		—		—
Expected lives (years)		3.8		3.6
Expected volatility		104%		94%
Weighted average exercise price (per share)	$	8.34	$	45.56

All options granted during the years ended December 31, 2022 were granted at exercise prices equal to the fair market value of the common stock on the dates of grant.

Stock Option Activity

The following table summarizes stock option activity for the year ended December 31, 2022.


	Common Stock Options
($ in thousands, except per share data)	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2021	305,838	$	137.08	5.9	$	—
Granted	68,796		8.34
Assumed in connection with Aceragen Acquisition	111,038		6.22
Exercised	—		—
Forfeited	(15,963)		3.27
Expired	(63,535)		148.30
Outstanding at December 31, 2022 ⁽¹⁾	406,174	$	83.00	6.1	$	102
Exercisable at December 31, 2022	239,866	$	132.26	4.1	$	54

	Preferred Stock Options
($ in thousands, except per share data)	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2021	—	$	—	—		—
Assumed in connection with Aceragen Acquisition	19,826		365.96
Forfeited	(2,304)		130.00
Outstanding at December 31, 2022 ⁽¹⁾	17,522	$	397.02	9.1	$	1,073
Exercisable at December 31, 2022	5,229	$	317.43	8.9	$	568

(1)

Includes both vested stock options as well as unvested stock options for which the requisite service period has not been rendered but that are expected to vest based on achievement of a service condition.

In March 2021, the Company accelerated the vesting of 90,328 options, which were previously granted from 2019 to 2021. The modification resulted in an insignificant incremental stock-based compensation charge.

As of December 31, 2022, there was $3.9 million of unrecognized compensation cost related to unvested options, which the Company expects to recognize over a weighted average period of 2.7 years.

Restricted Stock Unit Activity

The following table summarizes restricted stock unit activity for the year ended December 31, 2022:


	Time-based Awards			Market/Performance-based Awards
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested shares at December 31, 2021	4,039	$	39.10	29,814	$	26.14
Granted	16,657		6.79	—		—
Cancelled	—		—	—		—
Vested	(1,600)		41.36	—		—
Nonvested shares at December 31, 2022	19,096	$	10.73	29,814	$	26.14

Time-based Restricted Stock Units

In March 2021, the Company accelerated the vesting of 8,110 unvested time-based RSUs which were previously granted in 2019 and 2020. The modification resulted in an insignificant incremental stock-based compensation charge on the modification date. During the years ended December 31, 2022 and 2021, the Company recognized $0.7 million and $0.3 million of compensation expense related to modified time-based RSUs that would have vested under the original terms of the award.

As of December 31, 2022, there was less than $0.1 million of unrecognized compensation cost related to the Company’s time-based RSUs, which is expected to be recognized over a weighted average period of 0.8 years.

Market/Performance-based Restricted Stock Units

In July 2020, the Company granted RSUs to certain employees, including executive officers, under the 2013 Plan, with vesting that may occur upon a combination of specific performance and/or market conditions. Accordingly, the Company views these RSUs as two separate awards: (i) an award that vests if the market condition is achieved, and (ii) an award that vests whether or not the market condition is achieved, so long as the performance condition is achieved.

The Company recognized compensation expense for these awards over the estimated requisite service period of 2.36 years based on the estimated fair value when considering the market condition of the award, which was determined using a Monte Carlo simulation. During the year ended December 31, 2022, the Company recognized $0.3 million of compensation expense related to these awards. As of December 31, 2022, there was no remaining unrecognized compensation cost for the market-based component of these awards. However, should the performance condition be achieved, the Company would recognize an additional $0.3 million of compensation expense.

Restricted Stock Activity

The following table summarizes restricted stock activity for the year ended December 31, 2022:


	Number of Shares
	Common Stock	Series Z
Nonvested shares at December 31, 2021	—	—
Issued in connection with Aceragen Acquisition ⁽¹⁾	16,763	2,993
Cancelled	—	—
Vested	(1,331)	(237)
Nonvested shares at December 31, 2022	15,432	2,756

(1)

Issued in connection with Aceragen Acquisition to Legacy Aceragen shareholders as part of the merger consideration which include time-based vesting restrictions.