Ernexa Therapeutics Inc. Stock Compensation Disclosure
| 15) | Stock-Based Compensation |
Equity Incentive Plans
The Company’s stock-based compensation plans consist of the Restated 2020 Equity Incentive Plan (the “Restated 2020 Plan”) and the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). The Company’s board of directors has designated its compensation committee as the administrator of the foregoing plans (the “Plan Administrator”). Among other things, the Plan Administrator selects persons to receive awards under the foregoing plans and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award.
The Restated 2020 Plan provides for (a) approximately shares of common stock that can be issued under the Restated 2020 Plan, which includes an increase to the Restated 2020 Plan of that was approved by the Company’s stockholders at the 2023 annual meeting of stockholders in June 2023, and (b) an annual increase in the number of shares reserved for issuance on January 1 of each year from 2022 through 2031 equal to the lesser of (i) % of the number of shares of common stock outstanding on the immediately preceding December 31 and (ii) such smaller number of shares of common stock as may be determine by the board of directors (the provision providing for the increase described in clause (b) is referred to as the “evergreen provision”). Pursuant to the evergreen provision, shares issuable under the Restated 2020 Plan was increased by approximately in the aggregate.
Awards under the Restated 2020 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the Restated 2020 Plan may either be incentive stock options or nonqualified stock options, may have a term of up to , and are exercisable at a price per share not less than the fair market value, as defined in the Restated 2020 Plan, on the date of grant.
As of December 31, 2024, there were approximately stock options outstanding and RSUs outstanding under the Restated 2020 Plan. As of December 31, 2024, there were approximately shares of common stock remaining to be issued under the Restated 2020 Plan.
The 2021 Inducement Plan provides for the grant of up to share-based awards as material inducement awards to new employees in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide (the Company’s common stock was listed on the NYSE American at the time the 2021 Inducement Plan was adopted). The 2021 Inducement Plan expires in May 2031. As of December 31, 2024, there were approximately shares of common stock remaining to be issued under the 2021 Inducement Plan. As of December 31, 2023, there were stock options outstanding and less than RSUs outstanding under the 2021 Inducement Plan.
Equity Awards
Stock Options
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Weighted average risk-free rate | 4.44 | % | 3.82 | % | ||||
| Weighted average volatility | 98.09 | % | 95.15 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected term | years | years | ||||||
The risk-free rate is based on the observed interest rates appropriate for the expected life. The expected life (estimated period of time outstanding) of the stock options granted is estimated using the “simplified” method as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility is based on the volatility of the Company’s peer group over the expected life of the stock option granted, and the Company assumes no dividends. Forfeitures are recognized as incurred.
| Outstanding Options | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate
Intrinsic Value | |||||||||||||
| Outstanding January 1, 2023 | 359 | $ | 57 | 7.57 | $ | |||||||||||
| Granted | 237 | 4 | ||||||||||||||
| Cancelled | (207 | ) | 19 | |||||||||||||
| Outstanding December 31, 2023 | 389 | 45 | 7.04 | |||||||||||||
| Granted | 2,488 | 2 | ||||||||||||||
| Cancelled | (248 | ) | 8 | |||||||||||||
| Outstanding December 31, 2024 | 2,629 | $ | 8 | 8.77 | $ | |||||||||||
| Options vested and exercisable at December 31, 2024 | 257 | $ | 61 | 5.58 | $ | |||||||||||
The per-share weighted average grant-date fair value of stock options granted during the year ended December 31, 2024 and 2023 was $ and $, respectively.
As of December 31, 2024, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $ million with a weighted average remaining requisite service period of years. The Company expects to amortize this expense over the remaining requisite service period of these stock options.
Vesting of all stock options is subject to continuous service with the Company through their applicable vesting dates.
On January 1, 2024, Sanjeev Luther was appointed as President, Chief Executive Officer and a director of the Company. Upon his appointment, he was granted a non-qualified stock option to purchase approximately shares of the Company’s common stock. The stock option has an exercise price of $ per share, which was equal to the fair market value (as defined in the 2020 Restated Equity Incentive Plan) of the Company’s common stock on the date of grant, will vest over , with % of the shares vesting on the first anniversary of the grant date and the remaining % of the shares vesting in equal over the thereafter, in each case, subject to continued service. The stock option was granted pursuant to the terms of Mr. Luther’s employment agreement and as a material inducement to his joining the Company in accordance with Nasdaq Listing Rule 5635(c)(4).
On April 26, 2024, the vesting terms of Mr. Luther’s stock option award were amended so that the option vests over , with % of the shares vesting on the first anniversary of the grant date and the remaining % of the shares will vest in equal over the remaining , in each case, subject to continued service.
Since the only modification to Mr. Luther’s stock option award was to the vesting terms, there was no change to the fair value of the stock option and the total compensation cost was unchanged. However, the total compensation cost will be recognized over three years rather than four years, and as a result, the Company recognized approximately $ million in additional stock-based compensation expense during the year ended December 31, 2024 as a result of the modification.
Restricted Stock Units
| Outstanding Restricted Stock Units | Weighted Average Fair Value per Share | |||||||
| January 1, 2023 | 4 | $ | 236 | |||||
| Cancelled | (3 | ) | 199 | |||||
| December 31, 2023 | 1 | 322 | ||||||
| December 31, 2024 | 1 | $ | 322 | |||||
| Balance expected to vest at December 31, 2024 | 1 | $ | 322 | |||||
The Company recognizes the fair value of RSUs granted as expense on a straight-line basis over the requisite service period. For performance based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable.
Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date.
In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. During the years ended December 31, 2024 and 2023, less than RSUs vested in each year.
Stock-Based Compensation Expense
| Years ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Research and development | $ | 89 | $ | 234 | ||||
| General and administrative | 1,431 | 1,008 | ||||||
| Total | $ | 1,520 | $ | 1,242 | ||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.