Under the 2014 Stock Option Plan of Hotshine Holdings, Inc. (the “2014 Plan”), we may grant incentive stock options or nonqualified stock options to purchase shares of our common stock to our employees, directors, officers, outside advisors and non-employee consultants.

All stock options granted under the 2014 Plan are equity-classified and have a contractual life of ten years. Under the 2014 Plan, 60% of the shares in a grant contain service-based vesting conditions and vest ratably over a five-year period and 40% of the shares in a grant contain performance-based vesting conditions (“Performance Vesting Options”). The condition for the Performance Vesting Options is a change in control or an initial public offering, where (i) 50% of the Performance Vesting Options vest and become exercisable if the Principal Stockholders receive the Target Proceeds at the Measurement Date and (ii) the remaining 50% of the Performance Vesting Options vest and become exercisable if the Principal Stockholders receive the Maximum Amount at the Measurement Date. In June 2021, we modified all outstanding shares of Performance Vesting Options to remove, subject to the successful completion of the IPO, the requirement that the Principal Stockholders receive the Target Proceeds and the Maximum Amount as conditions for the Performance Vesting Options to vest. The exercise prices for stock options granted under the 2014 Plan were not less than the fair market value of the common stock of the Company on the date of grant. For the avoidance of doubt, the IPO constituted a performance measurement date under the applicable option agreements for the Performance Vesting Options and the Performance Vesting Options vested in full in connection with the IPO.

In June 2021, the Board adopted the 2021 Incentive Award Plan (the “2021 Plan”), which was subsequently approved by our stockholders and became effective on June 25, 2021. Under the 2021 Plan, we may grant incentive stock options, nonqualified stock options, restricted stock units ("RSUs"), restricted stock, and other stock- or cash-based awards to its employees, directors, officers, and non-employee consultants. Initially, the maximum number of shares of our common stock that may be issued under the 2021 Plan is 29,800,000 new shares of common stock, which includes 256,431 shares of common stock that remained available for issuance under the 2014 Plan at June 25, 2021. In connection with the IPO, stock option and RSU awards were granted with respect to 3,726,305 shares. Any shares of common stock subject to outstanding stock awards granted under the 2014 Plan and, following June 25, 2021, terminate, expire or are otherwise forfeited, reacquired or withheld will become available for issuance under the 2021 Plan.

All stock options granted under the 2021 Plan are equity-classified and have a contractual life of ten years. Under the 2021 Plan, the stock options contain service-based vesting conditions and generally vest ratably over a three- or five-year period (collectively with stock options under the 2014 Plan, the “Time Vesting Options”). The exercise prices for stock options granted under the 2021 Plan were not less than the fair market value of the common stock of the Company on the date of grant.

RSUs granted under the 2021 Plan are equity-classified and contain service-based conditions and generally vest ratably over one- to five-year periods. Each RSU represents the right to receive one share of our common stock upon vesting. The fair value is calculated based upon our closing stock price on the date of grant, and the stock-based compensation expense is recognized over the requisite service period, which is generally the vesting period.

The 2014 Plan and 2021 Plan are administered by the Board or, at the discretion of the Board, by a committee thereof. The exercise prices for stock options, the vesting of awards, and other restrictions are determined at the discretion of the Board, or its committee if so delegated.

In June 2021, the Board adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by our stockholders and became effective in June 2021. The 2021 ESPP authorizes the initial issuance of up to 5,000,000 shares of our common stock to eligible employees of the Company or, as designated by the Board, employees of a related company. The 2021 ESPP provides for offering periods not to exceed 27 months, and each offering period will include purchase periods. We determined that offering periods would commence at approximately the six-month period beginning with an enrollment date and ending with the next exercise date, except that the first offering period commenced on the effective date of our registration statement and ended on November 9, 2021.

The 2021 ESPP provides that the number of shares reserved and available for issuance under the 2021 ESPP will automatically increase on January 1 of each calendar year from January 1, 2022 through January 1, 2031 by an amount equal to the lesser of (i) 0.5% of the outstanding number of shares of common stock on the immediately preceding December 31 and (ii) such lesser number of shares of common stock as determined by the Board. The number of shares reserved and available for issuance under the 2021 ESPP as of January 1, 2023 is 7,322,350.

The grant date fair value of Time Vesting Options granted is determined using the Black-Scholes option-pricing model. The grant date fair value of Performance Vesting Options is determined using a Monte Carlo simulation model and a barrier-adjusted Black-Scholes option-pricing model. The grant date fair value of stock purchase rights granted under the 2021 ESPP is determined using the Black-Scholes option-pricing model.

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of stock purchase rights granted under the 2021 ESPP during the periods presented:


	Three Months Ended March 31,	Three Months Ended March 31,
	2023	2022
Expected volatility	53.90%	34.33%
Risk-free interest rate	4.53%	0.07%
Expected term (in years)	0.49	0.49
Expected dividend yield	None	None

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of Time Vesting Options granted under the 2014 Plan and 2021 Plan during the periods presented:


	Three Months Ended March 31,
	2023	2022
Expected volatility	43.74%	-
Risk-free interest rate	4.21%	-
Expected term (in years)	6.26	-
Expected dividend yield	None	-

A summary of our stock option activity during the period presented is as follows:


	Time Vesting Options			Performance Vesting Options			Total Number of Stock Options			Weighted-Average Exercise Price
Outstanding as of December 31, 2022		15,651,622			9,882,278			25,533,900		$	2.31
Granted		1,167,755			-			1,167,755		$	9.25
Exercised		(735,682	)		(698,822	)		(1,434,504	)	$	0.77
Forfeited		(102,398	)		-			(102,398	)	$	11.48
Outstanding as of March 31, 2023		15,981,297			9,183,456			25,164,753		$	2.68
Options vested or expected to vest as of March 31, 2023		15,461,613			9,183,456			24,645,069		$	3.40
Options exercisable as of March 31, 2023		11,562,966			9,183,456			20,746,422		$	1.26

The number and weighted-average grant date fair value of stock options during the period presented are as follows:


	Number of Stock Options			Weighted-Average Grant Date Fair Value
	Time Vesting Options		Performance Vesting Options	Time Vesting Options		Performance Vesting Options
Non-vested as of December 31, 2022		3,704,919	-	$	3.90	$	-
Non-vested as of March 31, 2023		4,396,028	-	$	4.25	$	-
Granted during the period		1,167,755	-	$	4.56	$	-
Vested during the period		377,684	-	$	1.58	$	-
Forfeited/canceled during the period		98,962	-	$	5.03	$	-

We granted 1,167,755 Time Vesting Options with a grant date fair value of $5,325 during the three months ended March 31, 2023. There were no Performance Vesting Options granted during the three months ended March 31, 2023.

The fair value of shares attributable to stock options that vested during the three months ended March 31, 2023 was $3,460.

As of March 31, 2023, the weighted-average remaining contractual life of outstanding stock options was approximately 3.99 years.

The following table summarizes our RSU activity since December 31, 2022:


	Restricted Stock Units			Weighted-Average Grant Date Fair Value
Unvested as of December 31, 2022		2,075,859		$	13.55
Granted		575,672		$	9.25
Vested		(4,296	)	$	11.64
Forfeited		(104,288	)	$	13.27
Unvested as of March 31, 2023		2,542,947		$	12.59

We granted 575,672 RSUs with a grant date fair value of $5,325 during the three months ended March 31, 2023.

The fair value of shares attributable to RSUs that vested during the three months ended March 31, 2023 was $45.

As of March 31, 2023, the weighted-average remaining contractual life of outstanding RSUs was approximately 9.02 years.

We estimated a forfeiture rate of 6.96% for awards with service-based vesting conditions based on historical experience and future expectations of the vesting of these share-based payments. We used this rate as an assumption in calculating stock-based compensation expense for Time Vesting Options, RSUs, and stock purchase rights granted under the 2021 ESPP.

Total stock-based compensation expense, by caption, recorded in the unaudited condensed consolidated statements of operations and comprehensive income for the periods presented is as follows:


	Three Months Ended March 31,
	2023		2022
Cost of labor and chemicals	$	2,050	$	1,871
General and administrative		3,311		3,648
Total stock-based compensation expense	$	5,361	$	5,519

Total stock-based compensation expense, by award type, recorded in the unaudited condensed consolidated statements of operations and comprehensive income for the periods presented is as follows:


	Three Months Ended March 31,
	2023		2022
Time Vesting Options	$	1,596	$	1,920
RSUs		3,479		3,226
2021 ESPP		286		373
Total stock-based compensation expense	$	5,361	$	5,519

As of March 31, 2023, total unrecognized compensation expense related to unvested Time Vesting Options was $10,928, which is expected to be recognized over a weighted-average period of 4.02 years.

As of March 31, 2023, there was no unrecognized compensation expense related to unvested Performance Vesting Options as the completion of the IPO satisfied the performance condition and as a result, all outstanding Performance Vesting Options vested.

As of March 31, 2023, total unrecognized compensation expense related to unvested RSUs was $17,507, which is expected to be recognized over a weighted-average period of 2.42 years.

As of March 31, 2023, total unrecognized compensation expense related to unvested stock purchase rights under the 2021 ESPP was $143, which is expected to be recognized over a weighted-average period of 0.12 years.