CV Sciences, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

As of December 31, 2021, there are 38,976,000 shares authorized for issuance under the CV Sciences, Inc. Amended and Restated 2013 Equity Incentive Plan (the "2013 Plan"). As of December 31, 2021, the Company had 5,225,876 authorized unissued shares reserved and available for issuance upon exercise and conversion of outstanding awards under the Amended 2013 Plan. On June 11, 2019, the Company’s stockholders approved the addition of an automatic “evergreen” provision regarding the number of shares to be annually added to the 2013 Plan. As a result, the number of shares of common stock that may be automatically added to the 2013 Plan on January 1 of each year during the term of the plan, starting with January 1, 2020, would be the lesser of: (a) 4% of the total shares of the Company’s common stock outstanding on December 31st of the prior year, (b) 4,000,000 shares of the Company’s common stock, or (c) a lesser number of shares of the Company’s common stock as determined by the Company’s Board of Directors. On January 1, 2022, the Company did not add any shares to the 2013 Plan.

In March 2022, the Company cancelled 9,000,000 outstanding stock options. In addition, on March 30, 2022 the Company's Board of Directors reduced the shares available for issuance under the 2013 Plan by 8,000,000 shares.

The stock options are exercisable at no less than the fair market value of the underlying shares on the date of grant, and restricted stock and restricted stock units are issued at a value not less than the fair market value of the common stock on the date of the grant. Generally, stock options awarded are vested in equal increments ranging from two to four years on the annual anniversary date on which such equity grants were awarded. The stock options generally have a maximum term of 10 years.

The Company recognized stock-based compensation expense of $3.2 million and $3.9 million for the years ended December 31, 2021 and 2020, respectively.

In June 2020, the Company’s board of directors approved a stock option modification that reduced certain employees’ and directors’ stock option exercise prices to $0.66. No other terms were modified. Stock options to purchase a total of 2,130,000 shares of common stock were modified. The modification to the existing stock options resulted in $0.2 million incremental value of the stock options. The incremental value associated with the modification will be recognized over the life of the remaining service period of the options. During the years ended December 31, 2021 and 2020, the Company recorded $41 thousand and $159 thousand in stock-based compensation associated with the repriced options, respectively.

As of December 31, 2021, total unrecognized compensation cost related to non-vested stock-based compensation arrangements was $2.1 million, which is expected to be recognized over a weighted-average period of 1.09 years.

The following summarizes activity related to the Company's stock options (in thousands, except per share data):


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contract Term (in years)	Aggregate Intrinsic Value
Outstanding - December 31, 2020	25,225	$	0.48	5.7	$	2,186
Granted	6,900	0.54		—	—
Exercised	(2)	0.26		—	—
Forfeited	(1,960)	0.58		—	—
Outstanding - December 31, 2021	30,163	0.49		5.5	—

Exercisable - December 31, 2021	24,240	0.48		4.6	—
Vested or expected to vest - December 31, 2021	30,163	$	0.49	5.5	$	—

The Company has established performance milestones in connection with the drug development efforts for its lead drug candidate CVSI-007. The above table includes 5,000,000 vested performance-based options as of December 31, 2021, which were issued outside of the 2013 Plan. As of December 31, 2021, there were 8,000,000 remaining unvested stock options granted outside of the 2013 Plan which are not included in the table above. These stock options vest upon the completion of future performance conditions, including those related to the Settlement Agreement with Mona Jr. (refer to Note 12).

The total intrinsic value of stock options exercised during the years ended December 31, 2021 and 2020 was zero and $0.1 million, respectively.

The following table presents the weighted average grant date fair value of stock options granted and the weighted-average assumptions used to estimate the fair value on the date of grant using the Black-Scholes valuation model:


	For the years ended December 31,
	2021	2020
Volatility	133.2%	132.9%
Risk-Free Interest Rate	0.9%	0.5%
Expected Term (in years)	5.61	5.33
Dividend Rate	0.0%	0.0%
Fair Value Per Share on Grant Date	$0.48	$0.36

The risk-free interest rates are based on the implied yield available on U.S. Treasury constant maturities with remaining terms equivalent to the respective expected terms of the options. Expected volatility is based on the historical volatility of the Company's common stock. The Company estimates the expected term for stock options awarded to employees, non-employees, officers and directors using the simplified method in accordance with ASC Topic 718, Stock Compensation, because the Company does not have sufficient relevant historical information to develop reasonable expectations about future exercise patterns. In the future, as the Company gains historical data for the actual term over which stock options are held, the expected term may change, which could substantially change the grant-date fair value of future stock option awards, and, consequently, compensation of future grants.