Note 8 - Stock Options, Restricted Stock Units and Warrants:

On December 16, 2020, the Company adopted its 2020 Long-Term Incentive Plan ( the “2020 Plan”). Under the 2020 Plan, there are 5,333,333 shares of the Company’s common stock available for issuance and the 2020 Plan has a term of 10 years. The available shares in the 2020 Plan will automatically increase on the first trading day in January of each calendar year during the term of this Plan, commencing with January 2021, by an amount equal to the lesser of (i) five percent (5%) of the total number of shares of common stock issued and outstanding on December 31 of the immediately preceding calendar year, (ii) 1,000,000 shares of common stock or (iii) such number of shares of common stock as may be established by the Company’s Board of Directors.

The Company grants equity-based compensation under its 2020 Plan and its 2016 Equity Incentive Plan (the “2016 Plan”). The 2020 Plan and 2016 Plan allows the Company to grant incentive and nonqualified stock options, and shares of restricted stock to its employees, directors and consultants. On June 14, 2019, the Board of Directors of the Company approved increasing the number of shares allocated to the Company’s 2016 Equity Incentive Plan from 5,500,000 to 7,333,333.

Under the 2016 Plan and the 2020 Plan, upon the exercise of stock options and issuance of fully vested restricted common stock, shares of common stock may be withheld to satisfy tax withholdings. The Company intends to net settle certain employee options to ensure adequate authorized shares under the Incentive Plan.

Stock-based compensation:

The Company recognized total expenses for stock-based compensation during the three months ended March 31, 2022 and 2021, which are included in the accompanying statements of operations, as follows (in thousands):

Stock Options:

The Company provides stock-based compensation to employees, directors and consultants under both the 2016 and 2020 Plans. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The risk-free interest rate is determined by referencing the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

A summary of activity under the 2016 and 2020 Plans for the three months ended March 31, 2022 is as follows:

During the three months ended March 31, 2022, the Company cancelled 568,332 stock options with a weighted average exercise price of $3.39. Of these stock option cancellations, 33,332 were related to a swap for restricted stock units (see restricted stock units below) and 535,000 were cancelled in connection with employee departures.

Restricted stock units:

A summary of the Company’s restricted stock activity during the three months ended March 31, 2022 is as follows:

During the three months ended March 31, 2022, 33,332 restricted stock units (“RSUs) were swapped for 33,332 cancelled stock options. The cancellation of the stock options and the issuance of the RSUs were accounted for as a modification of the equity awards and during the three months ended March 31, 2022, the Company recognized incremental stock-based compensation of $0.1 million.

Warrants:

In connection with the SLOC, the Company issued a warrant for 200,000 shares of common stock with an exercise price of $2.00, and a total fair value of approximately $0.2 million. This amount is included in the condensed Balance Sheet as deferred debt issuance costs included in other assets. A summary of the Company’s warrant (excluding penny warrants) activity during the three months ended March 31, 2022 is as follows:

The Company estimated the fair value of the warrants using the Black-Scholes pricing model as follows: