Kiora Pharmaceuticals, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

Equity Incentive Plans

In 2005, the Company approved the 2005 Equity Incentive Plan (the “2005 Plan”). The 2005 Plan provides for the granting of stock options (incentive and nonqualified), restricted stock or other stock-based awards to employees, officers, directors, consultants, and advisors. During 2010, the maximum number of shares of Common Stock that may be issued pursuant to the 2005 Plan was increased to 59,414 shares. The Board of Directors (the “Board”) is responsible for administration of the 2005 Plan. The Company’s Board determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. Incentive stock options may be granted to any officer or employee at

an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of fair value in the case of holders of more than 10% of the Company’s voting stock) and with a term not to exceed ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company’s voting stock). Nonqualified stock options may be granted to any officer, employee, consultant, or director at an exercise price per share of not less than the par value per share. Following adoption of the 2014 Equity Incentive Plan (the “2014 Plan”), no further grants were made under the 2005 Plan. General terms of the 2014 Plan remain the same as that of the 2005 plan.

The Company’s Board adopted the 2014 Plan and the Employee Stock Purchase Plan (the “ESPP”), and the Company’s Stockholders approved the 2014 Plan and the ESPP Plan in February 2015. In January 2023, the number of shares of common stock issuable under the 2014 Plan automatically increased by 76,632 shares pursuant to the terms of the 2014 Plan. Additionally, pursuant to a shareholder vote on September 27, 2023, the 2014 Plan was increased by 1,000,000 shares. As of September 30, 2023, the maximum number of shares of Common Stock that may be issued pursuant to the ESPP was 284, of which 191 shares were available for future issuance. As of September 30, 2023, the maximum number of shares of Common Stock that may be issued pursuant to the 2014 Plan was 1,297,363 of which 165,300 shares were available for awards.

Stock-based compensation expense is presented in the same expense line items as cash compensation earned and for the three and nine months ended September 30 is as follows:


	Three months ended September 30				Nine months ended September 30
	2023		2022		2023		2022
Research and Development	$	118,439	$	19,625	$	249,352	$	78,786
General and Administrative	146,426		110,528		323,248		338,542
Total Stock-Based Compensation Expense	$	264,865	$	130,153	$	572,600	$	417,328

Stock Options

The Company grants time-based stock options which generally vest one-third of the underlying shares on the one-year anniversary of the grant date and the remainder vest ratably over a 24-month period. The Company has also issued grants with a four year vesting term, of which one-fourth of the underlying shares vested immediately, one-fourth on the one-year anniversary of the grant date and the remainder vest ratably over a 24-month period.The fair value of time-based stock options is determined using the Black-Scholes Option Pricing Model, with such value recognized as expense over the service period, which is typically three years, net of actual forfeitures. A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the nine months ended September 30, 2023 and 2022 is shown in the following table.


	Nine months ended September 30
	2023		2022
Risk-Free Interest Rate	4.54	%	2.42	%
Expected Life (years)	5.52		5.00
Expected Stock Price Volatility	141	%	140	%
Expected Dividend Yield	—	%	—	%

The weighted average grant date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $1.01 and $27.02, respectively. The expected term of the options granted is calculated in accordance with the simplified method, whereby for service-based awards the expected life is calculated as a midpoint between the vest and expiry period. The Company uses the simplified method as there is not a sufficient history of share option exercises. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option. Unamortized compensation expense related to the options amounted to $1.0 million as of September 30, 2023 and is expected to be recognized over a weighted average period of approximately 2.33 years.

Following is a summary of stock option activity for the nine months ended September 30, 2023:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Term in Years
Outstanding at December 31, 2022	84,722	$	36.90	9.59
Granted	764,400	$	1.11
Expired	(417)	$	86.42
Forfeited	(17,452)	$	6.05
Outstanding at September 30, 2023	831,253	$	4.61	9.60
Exercisable and vested at September 30, 2023	149,764	$	16.58	9.78

The stock options outstanding and exercisable as of September 30, 2023 had an aggregate intrinsic value of $1,184. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices lower than $0.57, the closing price of the Company’s stock on September 30, 2023.

Restricted Stock Awards

Restricted stock compensation expense is recognized over the vesting period, which is typically one-third of the underlying shares on the one-year anniversary of the grant date and the remainder vest ratably over a 24-month period. Unamortized compensation expense related to the restricted stock awards amounted to $0.4 million as of September 30, 2023 and is expected to be recognized over a weighted average period of approximately 2.79 years. The following is a summary of restricted stock activity for the nine months ended September 30, 2023:


	Number of Units	Weighted Average Grant Date Fair Value		Weighted Average Remaining Term in Years
Non-vested Outstanding at December 31, 2022	30,000	$	6.78	2.79
Awarded	270,050	$	1.06
Released	(58,834)	$	0.72
Forfeited	(3,300)	$	3.83
Non-vested Outstanding at September 30, 2023	237,916	$	1.82	2.79

Employee Stock Purchase Plan

The Company has a non-qualified Employee Stock Purchase Plan ("ESPP"), which provides for the issuance of shares of the Company’s common stock to eligible employees of the Company that elect to participate in the plan and purchase shares of common stock through payroll deductions at a discounted price. Six month offering periods are made at the Board’s discretion. The ESPP provides for 284 aggregate shares of the Company’s common stock for participants to purchase. As of September 30, 2023 and 2022, the remaining shares reserved for future offerings was 191.