PULSE BIOSCIENCES, INC. Stock Compensation Disclosure

10. Stock-Based Compensation

 

2017 Equity Incentive Plan

 

In May 2017, the Company's Board of Directors (the "Board") adopted, and the Company’s stockholders approved, the Company’s 2017 Equity Incentive Plan (the "2017 Plan").

 

The 2017 Plan has a 10-year term, and provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to employees, directors and consultants of the Company and any parent or subsidiary of the Company.

 

Subject to an annual evergreen increase and adjustment in the case of certain capitalization events, the Company initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards under the 2017 Plan. In addition, shares remaining available under the Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and shares reserved but not issued pursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased by the Company will be added to the shares of common stock available for issuance under the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board. The number of shares of the Company’s common stock available for issuance under the 2017 Plan also include an annual increase on the first day of each fiscal year, equal to the least of (i) 1,200,000 shares, (ii) 4% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. On September 30, 2025, the Company's stockholders approved an amendment to the 2017 Plan, which provided for an increase in the number of shares of common stock reserved for issuance thereunder by 2,000,000 shares. As of December 31, 2025, 1,215,439 shares of common stock remained available for issuance under the 2017 Plan.

 

2017 Inducement Equity Incentive Plan

 

In November 2017, the Board adopted the 2017 Inducement Equity Incentive Plan (the “Inducement Plan”) without stockholder approval and initially reserved 1,000,000 shares of the Company’s common stock for insurance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan has a 10-year term and provides for the grant of equity-based awards, including non-statutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2017 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under the Inducement Plan may have a term up to ten years and have variable vesting provisions. New hire grants generally vest 25% per year starting upon the first anniversary of the grant. Equity-based awards issued under the Inducement Plan are only issuable to individuals not previously engaged as employees or non-employee directors of the Company prior to the Inducement Plan’s adoption date. As of December 31, 2025, 2,304,109 shares of common stock were available for issuance under the Inducement Plan.

 

2017 Employee Stock Purchase Plan

 

In May 2017, the Board adopted, and the Company's stockholders approved, the Company’s 2017 Employee Stock Purchase Plan (the "2017 ESPP").

 

The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 250,000 common shares of the Company were available for purchase at adoption of the 2017 ESPP. Pursuant to the 2017 ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 450,000 shares, (ii) 1.5% of the Company’s common stock outstanding as of  December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. As of December 31, 2025, 851,582 shares of common stock were available for issuance under the 2017 ESPP.

 

A summary of stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the year ended December 31, 2025 is presented below:

 

		Stock Options Outstanding
		Number of shares				Weighted average exercise price				Weighted average remaining life				Aggregate Intrinsic Value
											(in years)				(in thousands)
Balances — December 31, 2024			10,979,332			$	9.59				7.11			$	97,563
Options granted			2,909,743				18.64
Options exercised			(592,612	)			4.22
Options canceled			(209,175	)			7.71
Options expired			(1,000	)			6.84
Balances — December 31, 2025			13,086,288			$	11.87				6.99			$	58,029
Exercisable — December 31, 2025			5,102,332			$	13.34				5.17			$	21,086

 

The aggregate intrinsic value of all stock options exercised during the years ended  December 31, 2025 and 2024 was $7.3 million and $2.0 million, respectively. Intrinsic values of options exercised are calculated as the difference between the exercise price of the underlying options and the fair value of the common stock on the date of exercise. Intrinsic values of options outstanding are calculated as the difference between the exercise price of the underlying options and the fair value of the common stock as of the reporting date.

 

For the years ended December 31, 2025 and 2024, the weighted-average grant date fair value of options granted was $15.16 and $8.35, respectively.

 

The Company has granted stock options with time-based, performance-based, market-based, and both market-based and performance-based vesting conditions. The Company grants time-based options which vest and become exercisable, subject to the individual’s continued employment or service through the applicable vesting date. Time-based options can have various vesting schedules, most commonly new hire grants, which generally vest 25% per year starting upon the first anniversary of the grant.

 

Performance-based stock options granted to certain Company executives and other employees contain performance conditions related to financial measures and achievements of strategic and operational milestones. The options will vest and become exercisable once the specific performance condition is fulfilled.

 

Market-based stock options granted to certain Company executives and other employees contain market conditions related to achievement of market capitalization targets. The options will vest and become exercisable once the specific market capitalization target is fulfilled.

 

Both market-based and performance-based stock options granted to certain Company executives contain market conditions related to the achievement of market capitalization targets as well as the achievement of revenue and margin metrics. The options will vest and become exercisable once both the specific market capitalization targets as well as the specific revenue and margin targets are fulfilled.

 

Modifications

 

In  October 2024, the Board approved changes to the performance-based vesting conditions of certain unvested outstanding common stock option awards that were improbable of vesting. Specifically, 600,113 performance-based stock option awards were modified to time-based vesting criteria and 206,389 performance-based stock option awards were modified to market-based vesting criteria. The modified time-based awards will vest and become exercisable, subject to the individual’s continued employment or service through the applicable vesting date, based upon individually specific vesting schedules with annual vesting milestones. The vesting schedules have a range from two to four years. The modified market-based awards will vest and become exercisable, subject to the individual’s continued employment and service through the applicable vesting date, based upon the achievement of certain market capitalization targets.

 

Additionally, in October 2024, the Board approved a modification to certain market-based awards to adopt a uniform methodology for calculating its market capitalization whereas they aligned all awards to use consecutive calendar days and not consecutive trading days in the calculation. These modifications resulted in approximately $3.2 million of additional stock-based compensation expense for the year ended December 31, 2024.

 

Stock-Based Compensation Expense

 

Total stock-based compensation expense recorded in the consolidated statements of operations and comprehensive loss was as follows (in thousands):

 

		Year Ended December 31,
		2025				2024
Cost of product revenue		$	96			$	—
Research and development			9,555				6,293
Selling, general and administrative			11,806				7,293
Total stock-based compensation expense		$	21,457			$	13,586

 

As of December 31, 2025, not all of the performance conditions of the performance options are probable to be achieved. Stock-based compensation expense has only been recognized for those conditions that are assumed to be probable.

 

Total stock-based compensation expense by award type was as follows (in thousands):

 

		Year Ended December 31,
		2025				2024
Time-based options		$	14,865			$	10,343
Performance-based options			—				38
Market-based options			6,203				2,926
ESPP			389				279
Total stock-based compensation expense		$	21,457			$	13,586

 

As of December 31, 2025 and 2024, the Company had a total of $29.5 million and $18.1 million of unrecognized compensation cost for time-based stock options outstanding, respectively, which is expected to be recognized over a weighted average period of 5.3 and 5.4 years, respectively.

 

As of December 31, 2025 and 2024, the Company had a total of $27.6 million and $11.0 million of unrecognized compensation cost for performance-based, market-based, and both market-based and performance-based stock options outstanding, respectively, which is expected to be recognized over a weighted average period of 2.7 and 1.6 years, respectively.

 

The fair value of time-based and performance-based stock options granted under the 2017 Plan and Inducement Plan and the shares available for purchase under the ESPP were determined using the Black-Scholes option pricing model on the grant date and modification date. The Company estimated the fair value of market-based stock options and both market and performance-based stock options using a Monte Carlo simulation model on the grant date and modification date. The following summarizes the range of assumptions used in calculating the fair value of the awards with stock options grouped by valuation methodology:

 

		Year Ended December 31,
		2025				2024
Time-Based and Performance-Based Stock Options
Expected term (in years)		5.0 - 6.9					2.9 - 6.3
Expected volatility		93% - 100%					91% - 99%
Risk-free interest rate		3.8% - 4.6%					3.8% - 4.5%
Expected dividend yield		—					—
Market-Based Stock Options and Market and Performance-Based Stock Options1
Expected term (in years)		1.0 - 7.8					1.4 - 4.3
Expected volatility		90%					90%
Risk-free interest rate		4.3% - 4.6%					3.5% - 3.7%
Expected dividend yield		—					—
ESPP
Expected term (in years)		0.5 - 1.0					0.5 - 1.0
Expected volatility		53% - 98%					98%
Risk-free interest rate		3.8% - 4.9%					4.4% - 5.3%
Expected dividend yield			—				—

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1  Assumptions for the year ended December 31, 2024, under this header apply only to market-based stock options as market and performance-based stock options were not outstanding during the year ended December 31, 2024.