Quarterly report pursuant to Section 13 or 15(d)

Equity Incentive Plan

v3.24.1.1.u2
Equity Incentive Plan
3 Months Ended
Mar. 31, 2024
Equity Incentive Plan  
Equity Incentive Plan

5. Equity Incentive Plan

 

Under the Company’s 2021 Plan as amended, the Company may grant options to purchase shares of Common Stock, restricted stock awards, performance stock awards, incentive bonus awards, other cash-based awards or directly issue shares of Common Stock to employees, directors, and consultants of the Company. At the Company’s 2023 Annual Meeting of Stockholders held on August 3, 2023, the Company’s stockholders approved an amendment to the Company’s 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder by 513,150 shares to 629,069 shares. Further, effective January 1 each year, an evergreen provision contained in the Company’s 2021 Plan increases the total number of shares of common shares issuable under the 2021 Plan in an amount equal to one percent of the Company’s common shares outstanding as of December 31 the prior calendar year. This evergreen provision resulted in an additional 39,308 and 7,701 shares of Common Stock issuable pursuant to the 2021 Plan as of January 1, 2024, and 2023, respectively.

Stock awards may be granted at an exercise price per share of not less than 100% of the fair market value at the date of grant. Stock awards granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years for employees and one year for directors of the Company’s Board and consultants.

 

As of March 31, 2024, there remain 205,108 shares reserved for issuance under the 2021 Plan, as amended.

 

Fair Value Measurement

 

The Company uses the Black-Scholes option valuation model, which requires the use of highly subjective assumptions, to determine the fair value of stock-based awards. The fair value of each employee stock option is estimated on the grant date under the fair value method using the Black-Scholes model. The estimated fair value of each stock option is then expensed over the requisite service period, which is generally the vesting period. The assumptions and estimates that the Company uses in the Black-Scholes model are as follows:

 

 

·

Fair Value of Common Stock. The fair value of Common Stock is measured as the Company’s closing price of Common Stock on the date of grant.

 

 

 

 

·

Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the options.

 

 

 

 

·

Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding, which is calculated using the simplified method, as the Company has insufficient historical information to provide a basis for an estimate. The simplified method calculates the expected term as the average of the vesting term plus the contractual life of the options. 

 

 

·

Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has limited trading history for its Common Stock price. Industry peers consist of several public companies in the biotechnology industry with comparable characteristics, including clinical trials progress and therapeutic indications.

 

 

 

 

·

Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends to common shareholders and, therefore, the Company has used an expected dividend yield of zero.

The following table presents the weighted-average assumptions used for stock options granted during the following periods:

 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

2023

 

Grant date fair value

 

$ 0.51

 

 

$ 4.23

 

Risk-free interest rate

 

 

4.0 %

 

 

3.9 %

Dividend yield

 

 

0.00 %

 

 

0.00 %

Expected life in years

 

 

5.9

 

 

 

6.1

 

Expected volatility

 

 

110 %

 

 

112 %

 

Stock-based Compensation Expense

 

In general, stock-based compensation is allocated to research and development expense or general and administrative expense according to the classification of cash compensation paid to the employee, director, or consultant to whom the stock award was granted.

 

The following table summarizes the total stock-based compensation expense related to stock options included in the Company’s statements of operations:

 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$ 237,337

 

 

$ 48,425

 

General and administrative

 

 

349,897

 

 

 

82,835

 

 

 

$ 587,234

 

 

$ 131,260

 

 

Stock Option Award Activity

 

A summary of the Company’s 2021 Plan stock option activity is as follows:

 

 

 

Number of

Options

Outstanding

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term (in

Years)

 

Balance at December 31, 2023

 

 

102,074

 

 

$ 40.77

 

 

 

7.8

 

Options granted

 

 

410,000

 

 

 

0.61

 

 

 

-

 

Options exercised

 

 

-

 

 

 

-

 

 

 

-

 

Options cancelled

 

 

(101,831 )

 

 

40.65

 

 

 

-

 

Balance at March 31, 2024

 

 

410,243

 

 

$ 0.66

 

 

 

9.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at March 31, 2024

 

 

11,905

 

 

$ 2.47

 

 

 

9.7

 

In January 2024, the Board unanimously approved to provide employees and directors of the Company the opportunity to cancel outstanding, out-of-the-money, stock options without consideration, in accordance with an option cancellation agreement. Accordingly, 101,831 of the 102,074 stock options outstanding as of December 31, 2023, were cancelled in February 2024.

 

In accordance with accounting guidance provided in ASC 718, since the stock option cancellations were not accompanied by a concurrent grant, or offer to grant, a replacement award, any unrecognized compensation cost was recognized at the cancellation date. Accordingly, the Company recognized stock-based compensation expense of $568,372 resulting from the stock option cancellation during the first quarter of 2024.  

 

The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2024, is calculated as the difference between the exercise price of the underlying options and the closing market price of the Company’s Common Stock on March 28, 2024, which was $0.4108 per share. The intrinsic value of options outstanding and exercisable as of March 31, 2024, was zero.

 

As of March 31, 2024, total unrecognized compensation cost related to stock options was approximately $0.2 million and the weighted average period over which this cost is expected to be recognized is 1.8 years.