Note K - Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

K. Stock-Based Compensation

The Company maintains a stock-based compensation plan (the “Incentive Stock Plan”) that governs stock awards made to employees and directors prior to completion of the IPO.  

In  November 2014, the Board of Directors of the Company ("the Board"), and in  April 2015, the Company’s stockholders, approved the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), which became effective in  April 2015. The 2014 Plan provides for the grant of stock options, other forms of equity compensation, and performance cash awards. In  June 2021, the Company's stockholders approved an Amended and Restated 2014 Equity Incentive Plan (the "A&R 2014 Plan"), following its adoption by the Board in April 2021, which among other things added 4,900,000 shares to the maximum number of shares of common stock to be issued under the plan and extended the annual automatic increases (discussed further below) until  January 1, 2031 and eliminated individual grant limits that applied under the 2014 Plan to awards that were intended to comply with the exemption for "performance-based compensation" under Code Section 162(m). The maximum number of shares of common stock that  may be issued under the A&R 2014 Plan is 8,271,497 as of  December 31, 2023. The number of shares of common stock reserved for issuance under the A&R 2014 Plan will automatically increase on  January 1 of each year, beginning on  January 1, 2016, and ending on and including  January 1, 2031, by 4% of the total number of shares of the Company’s capital stock outstanding on  December 31 of the preceding calendar year, or a lesser number of shares determined by the Board. Pursuant to the terms of the A&R 2014 Plan, on  January 1, 2024, the common stock reserved for issuance under the A&R 2014 Plan automatically increased by 1,661,386 shares.

During the year ended December 31, 2023, 7,500 stock options were exercised. During the year ended December 31,2022, no stock options were exercised.

In June 2021, the Company's stockholders approved an Employee Stock Purchase Plan (the "ESPP"), following its adoption by the Board in April 2021. The maximum number of shares of common stock that may be issued under the ESPP is 1,500,000. The first offering period under the ESPP began on October 1, 2021, and the first purchase date occurred on May 31, 2022. As of  December 31, 2023, 159,828 shares have been issued under the ESPP.

In January 2023, our Board approved the 2023 Employment Inducement Award Plan (as amended, the “2023 Plan”). The maximum number of shares of common stock that may be issued under the 2023 Plan is 1,500,000. In February 2024, our Board approved an amendment to the 2023 Plan to increase the aggregate number of shares of common stock available for issuance under the 2023 Plan from 1,500,000 shares to 4,500,000 shares.

In May 2023, the Board approved the Ninth Amended and Restated Non-Employee Director Compensation Policy (the "Non-Employee Director Compensation Policy"). The equity compensation made pursuant to the Non-Employee Director Compensation Policy will be granted under the A&R 2014 Plan.

Stock-based compensation expense recorded under the Incentive Stock Plan, A&R 2014 Plan, ESPP, and 2023 Plan is included in the following line items in the accompanying consolidated statements of operations (in thousands):

	Year ended December 31,
	2023		2022
Research and development	$	2,664	$	1,443
General and administrative		3,290		2,851
Total stock-based compensation expense	$	5,954	$	4,294

There was no stock-based compensation expense related to performance-based awards recognized during the year ended December 31, 2023. There was $0.4 million of stock-based compensation related to performance-based awards recognized during the year ended December 31, 2022.

As a result of the Mickle Transition Agreement and the Pascoe Transition Agreement, as further discussed in Note P, certain stock options were modified, resulting in a net decrease in stock-based compensation expense of $1.2 million for the year ended December 31, 2023. The effects of these modifications are reflected in the table above within selling, general and administrative expenses. 

 

Stock Option Awards

The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires the use of subjective assumptions, including the expected term of the option, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, the Company uses the simplified method to estimate the expected term for its “plain vanilla” stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Some options, for example those that have exercise prices in excess of the fair value of the underlying stock, are not considered “plain vanilla” stock options. For these options, the Company uses an expected term equal to the contractual term of the option. Expected volatility is based on the Company’s historical volatility over the estimated expected term of the stock options. The Company assumes no dividend yield because dividends are not expected to be paid in the near future, which is consistent with the Company’s history of not paying dividends.

The Company recognizes compensation expense related to stock-based payment transactions upon satisfaction of the requisite service or vesting requirements. Forfeitures are estimated at the time of grant and revised based on actual forfeitures, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

Using the Black-Scholes option-pricing model, the weighted-average fair value of awards granted during the years ended December 31, 2023, and 2022, fair value was $3.65 and $5.01 per share, respectively. The assumptions used to estimate fair value are as follows:

	Year Ended December 31,
	2023	2022
Risk-free interest rate	3.34% - 4.79%	1.70% - 3.80%
Expected term (in years)	5.50 - 10.00	5.50 - 7.00
Expected volatility	89.48% - 93.67%	91.28% - 98.91%
Expected dividend yield	0	0

The activity under the Incentive Stock Plan, A&R 2014 Plan, and 2023 Plan  for the year ended December 31, 2023 , is summarized as follows:

			Weighted		Weighted Avg		Aggregate
	Number of		Average		Remaining		Intrinsic
	Options		Exercise Price		Contractual Term		Value
Outstanding balance at January 1, 2023		2,456,407	$	16.84		8.51	$	11,819
Granted		5,779,679	$	4.68		—		—
Exercised or released		7,500	$	4.67		—		—
Canceled or forfeited		205,444	$	4.70		—	$	122
Expired		—		—		—		—
Outstanding balance at December 31, 2023		8,023,142	$	8.40		8.68	$	11,089
Exercisable at December 31, 2023		2,408,165	$	16.28		7.81	$	1,778
Vested and expected to vest at December 31, 2023		6,972,858	$	8.96		8.62	$	9,112

Information regarding currently outstanding and exercisable options as of December 31, 2023, is as follows:

	Options Outstanding				Options Exercisable
			Weighted Avg				Weighted Avg
	Number of		Remaining		Number of		Remaining
Exercise Price	Shares		Contractual Term		Shares		Contractual Term
$2.848 to $10.00		7,742,171		8.84		2,127,194		8.25
$10.01 to $30.00		69,375		7.17		69,375		7.17
$30.01 to $50.00		68,514		5.11		68,514		5.11
$50.01 to $70.00		41,866		3.08		41,866		3.08
$70.01 to $327.20		101,216		2.70		101,216		2.70
		8,023,142		8.68		2,408,165		7.81

The total fair value of stock options vested during the years ended December 31, 2023 and 2022, was$9.2 million and $3.7 million, respectively.

Unvested stock options as of December 31, 2023 and 2022, were as follows:

	Number of Unvested Shares
	December 31,
Exercise Price	2023		2022
$2.848 to $10.00		5,614,977		1,824,285
$30.01 to $50.00		—		17,121
Total number of unvested stock options		5,614,977		1,841,406

As of December 31, 2023, there was $13.8 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the A&R 2014 Plan and 2023 Plan. That compensation cost is expected to be recognized over a weighted-average period of 2.87 years. There was no stock-based compensation expense related to performance-based awards recognized during the year ended December 31, 2023. There was $0.4 million of stock-based compensation expense related to performance-based awards recognized during the year ended December 31, 2022.