STOCK-BASED COMPENSATION | 9. STOCK-BASED COMPENSATION 2018 Equity Incentive Plan The Company’s 2018 Stock Incentive Plan (the “2018 Plan”), provided for the Company to grant qualified incentive options, nonqualified options, stock grants and other stock-based awards to employees and non-employees to purchase the Company’s common stock. Upon the effectiveness of the 2021 Plan (as defined below), no further issuances will be made under the 2018 Plan. 2021 Stock Option and Incentive Plan The 2021 Equity Incentive Plan (the “2021 Plan”) was approved by the board of directors on January 27, 2021, and the Company’s stockholders on January 28, 2021 and became effective on the execution of the underwriting agreement related to the initial public offering. The 2021 Plan, which superseded the Company’s previous equity incentive plan, provides for the grant of incentive stock options to employees, including employees of any parent or subsidiary corporations, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The number of shares initially reserved for issuance under the 2021 Plan was 5,000,000 , which began automatically increasing on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 4.0 % of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the board of directors. As of June 30, 2022, 2,463,559 shares remained available for issuance pursuant to the 2021 Plan. 2021 Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was approved by the Company’s board of directors on January 27, 2021 and became effective on the execution of the underwriting agreement related to the initial public offering. A total of 333,333 shares of common stock were initially reserved for issuance under the 2021 ESPP, which will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 through January 1, 2031, by an amount equal to 1.0 % of the total shares of common stock outstanding on December 31st of the preceding calendar year. The purchase price of the shares under the 2021 ESPP are at 85 % of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the purchase date. As of June 30, 2022, the Company had issued 49,178 shares under the 2021 ESPP. As of June 30, 2022, 590,245 shares were available to be issued under the 2021 ESPP. The Company recognized $ 9 thousand share-based compensation expense related to the ESPP for the six months ended June 30, 2022. Stock Options During 2022, the Company has granted options to purchase shares of common stock to employees and nonexecutive directors pursuant to the 2021 Plan at a weighted average fair value of $2.62 per share. The Company uses the Black-Scholes option-pricing model to estimate the fair value of the stock options on the applicable grant dates. The following is a summary of the stock option award activity during the six months ended June 30, 2022: Number Weighted- Weighted- Aggregate Outstanding at December 31, 2021 3,026,464 $ 10.84 8.51 $ 6,403 Granted 999,554 $ 3.39 Exercised ( 73,784 ) $ 3.22 Forfeited ( 386,520 ) $ 8.90 Expired ( 113,360 ) $ 14.12 Outstanding at June 30, 2022 3,452,354 $ 8.95 8.62 $ 97 Options expected to vest as of June 30, 2022 2,212,456 $ 6.92 9.02 $ 97 Exercisable at June 30, 2022 1,239,898 $ 12.59 7.90 $ — The aggregate intrinsic value of stock options exercised in the six months ended June 30, 2022 was $ 0.1 million . The grant date fair value of options vested during the six months ended June 30, 2022 was $ 5.7 million . At June 30, 2022, there was approximately $ 13.4 million of unrecognized stock-based compensation expense associated with the stock options, which is expected to be recognized over a weighted-average period of 2.62 years. Restricted Stock Units The Company has granted restricted stock units with service vesting based conditions. The following is a summary of the restricted stock unit activity during the six months ended June 30, 2022: Restricted Stock Units Weighted- Unvested at December 31, 2021 — $ — Granted 239,963 $ 3.74 Forfeited ( 14,133 ) $ 4.30 Unvested at June 30, 2022 225,830 $ 3.70 Pursuant to the 2021 Plan, the Company granted restricted stock units which vest annually over a period of one , two , three or four years . No restricted stock units vested during the six months ended June 30, 2022. At June 30, 2022, there was approximately $ 0.8 million of unrecognized stock-based compensation expense associated with the restricted stock units which is expected to be recognized over a weighted-average period of 3.18 years. Common Stock Warrants The following is a summary of the employee-issued common stock warrant activity during the six months ended June 30, 2022: Number Weighted- Weighted- Aggregate Outstanding at December 31, 2021 57,004 $ 6.94 2.91 $ 2 Granted — $ — Exercised — $ — Expired — $ — Outstanding and exercisable at June 30, 2022 57,004 $ 6.94 2.41 $ — As of June 30, 2022 there was no unrecognized stock-based compensation expense associated with the common stock warrants. For the six months ended June 30, 2022 , the Company utilized the Black-Scholes option-pricing model for estimating the fair value of the stock options granted. The following table presents the assumptions and the Company’s methodology for developing each of the assumptions used: Six Months Ended June 30, 2022 2021 Volatility 94 %- 97 % 91 %- 98 % Expected life (years) 5.5 - 7 5.5 - 6.1 Risk-free interest rate 1.7 %– 3.2 % 0.5 %- 1.1 % Dividend rate —% —% • Volatility—The Company estimates the expected volatility of its common stock at the date of grant based on the historical volatility of comparable public companies over the expected term. • Expected life—The expected life is estimated as the contractual term. • Risk-free interest rate—The risk-free rate for periods within the estimated life of the stock award is based on the U.S. Treasury yield curve in effect at the time of grant. • Dividend rate—The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. Stock-based compensation expense was recorded in the following line items in the condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Research and development $ 480 $ 639 $ 1,035 $ 1,148 General and administrative 916 1,106 1,876 1,946 Total stock-based compensation expense $ 1,396 $ 1,745 $ 2,911 $ 3,094 |