Note 13 – Stock-Based Compensation

On December 22, 2022, the Company adopted its 2022 Long-Term Incentive Plan (the “2022 Plan”). Under the 2022 Plan, there are 4,200,000 shares of the Company’s common stock available for issuance and the 2022 Plan has a termination date of October 31, 2032.

The available shares in the 2022 Plan will automatically increase on the first trading day in January of each calendar year during the term of 2022 Plan, commencing with January 2023, by such number of shares of common stock as are necessary so that the total number of shares reserved for issuance under the 2022 Plan shall be equal to 19.9% of the total number of outstanding shares of common stock, determined on a fully diluted basis as of the applicable trading date (the “Stipulated Percentage”); (b) our Board of Directors may act prior to January 1st of a given calendar year to provide that (i) there will be no such automatic annual increase in the number of shares reserved for issuance under the 2022 Plan or (ii) the increase in the number of shares for such calendar year will be a lesser number of shares than necessary to maintain the Stipulated Percentage of shares reserved for issuance under the 2022 Plan; and (c) unless an increase in shares reserved for issuance under the 2022 Plan in excess of the Initial Share Limit has been approved by our shareholders, the maximum number of shares of common stock that may be delivered pursuant to incentive stock options shall not exceed the Initial Share Limit or, if greater, the number of shares of common stock subsequently approved by the requisite vote of our shareholders entitled to vote thereon.

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 year ended December 31, 2023 and the year ended December 31, 2022, which are included in the accompanying statements of operations, as follows (in thousands):

As of December 31, 2023, the total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $0.1 million, which the Company expects to recognize over an estimated weighted-average period of 1.2 years. 

Restricted stock units:

A summary of the Company’s restricted stock activity during the year ended December 31, 2023 is as follows:

During the year ended December 31, 2023, the Company granted 1,992,345 restricted stock units (“RSUs”) to employees and members of its board of directors with a fair value of approximately $0.5 million vested over the service period.

During the year ended December 31, 2022, the Company granted 676,350 restricted stock units (“RSUs”) to employees and members of its board of directors with a fair value of approximately $0.9 million. Included in the RSUs granted during 2022, 33,332 RSUs were exchanged for 33,332 cancelled stock options. The cancellation of the stock options and the issuance of the RSUs was accounted for as a modification of the equity awards, and during the year ended December 31, 2022, the Company recognized incremental stock-based compensation of $0.1 million.

During the year ended December 31, 2022, the Company accelerated the vesting of 423,779 RSUs. The accelerated vesting was accounted for as a modification of the equity awards, and during the year ended December 31, 2022 the Company reversed $0.4 million of stock-based compensation related to the incremental fair value of the awards.

During the year ended December 31, 2023, the Company recognized stock-based compensation of approximately $0.5 million, related to restricted stock. As of December 31, 2023, unrecognized stock-based compensation totaled approximately $0.3 million, which is expected to be recognized over a weighted-average period of 0.6 years.

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 that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

During the year ended December 31, 2023, the Company granted 225,000 options to purchase shares of the Company’s common stock to members of the Company’s Board of Directors, employees and consultants. The options have a fair value of approximately $38,000. The following was used in determining the fair value of stock options granted during the year ended December 31, 2023 and December 31, 2022.

A summary of activity under the 2016 and 2020 Plans for the year ended December 31, 2023 is as follows:

During the year ended December 31, 2023, the Company recognized stock-based compensation of approximately $0.2 million related to stock options. As of December 31, 2023, unrecognized stock-based compensation totaled approximately $0.1 million, which is expected to be recognized over a weighted-average period of 1.2 years.