Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

13)	Stock-Based Compensation

Equity Incentive Plans

Brooklyn’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”). Brooklyn’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 and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award.

At Brooklyn’s special meeting of stockholders held on March 15, 2021, the stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which provided for the issuance of up to approximately 3,369,000 shares of common stock. At Brooklyn’s annual meeting of stockholders held on September 3, 2021, the stockholders approved the Restated 2020 Plan, which provides for (1) an increase in the number of shares of common stock that can be issued under the Restated 2020 Plan by 5,116,000 to 8,485,000 shares of common stock in total and (2) 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) 5% 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 “Annual Evergreen Shares”). No other provision of the 2020 Plan were amended. Based on the number of shares of common stock outstanding on December 31, 2021, the maximum increase to the number of Annual Evergreen Shares of common stock that can be issued under the Restated 2020 Plan in 2022 is approximately 2,601,000 shares.

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 ten years, and are exercisable at a price per share not less than the fair market value on the date of grant. As of December 31, 2021, there were approximately 320,000 stock options and 18,000 RSUs outstanding under the Restated 2020 Plan.

In June 2019 Brooklyn adopted the 2019 Performance Incentive Plan (the “2019 Plan”), Upon the approval of the 2020 Plan, no future grants could be made under the 2019 Plan. As of December 31, 2021, all outstanding options under the 2019 Plan either had been exercised or had expired in accordance with the terms of the applicable award or the 2019 Plan.

In May 2021, Brooklyn’s board of directors adopted the 2021 Inducement Plan, which provides for the grant of up to 1,500,000 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 2021 Inducement Plan expires in May 2031. As of December 31, 2021, there were approximately 443,000 nonqualified stock options and 222,000 RSUs outstanding under the 2021 Inducement Plan.

Equity Awards

Stock Options

The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of each stock option award granted with service-based vesting requirements, using the Black-Scholes option pricing model. The Company recognizes the fair value of stock options granted as expense on a straight-line basis over the requisite service period.

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 Company’s historical volatility over the expected life of the stock option granted, and the Company assumes no dividends. Forfeitures are recognized as incurred.

There were no stock options outstanding or granted during the year ended December 31, 2020. The following weighted-average assumptions were used for stock options granted during the year ended December 31, 2021:

	Year ended December 31, 2021
Weighted average risk-free rate		1.09	%
Weighted average volatility		134.64	%
Dividend yield		0	%
Expected term	6.10 years

The following table summarizes stock option activity for the year ended December 31, 2021:

	Outstanding Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding January 1, 2021		-	$	-		-	$	-
Granted		3,988,000		8.40		9.38		-
Outstanding December 31, 2021		3,988,000	$	8.40		9.38	$	-

Options vested and exercisable at December 31, 2021		-	$	-		-	$	-

The per-share weighted average grant-date fair value of stock options granted during the year ended December 31, 2021 was $7.57.

As of December 31, 2021, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $21,915,000 with a weighted average remaining requisite service period of 3.30 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options.

Included in the 3,988,000 stock options granted during the year ended December 31, 2021, the Company issued two stock option grants to Howard J. Federoff, M.D., Ph.D. upon his appointment as the Company’s Chief Executive Officer and President.

Dr. Federoff was granted a nonqualified stock option covering approximately 2,628,000 shares of common stock (the “Time-Based Option”). The Time-Based Option was granted at a per share exercise price equal to the closing price of the common stock on the NYSE American stock exchange on the date of grant. Of the shares covered by the Time-Based Option, 25% will vest on the one-year anniversary of the grant date, and the remaining shares will vest in substantially 36 equal monthly installments thereafter, so long as Dr. Federoff provides continuous service to the Company throughout the relevant vesting date.

Dr. Federoff was also granted a performance-based nonqualified stock option covering approximately 597,000 shares of common stock (the “Milestone Option”). The Milestone Option was granted at a per share exercise price equal to the closing price of common stock on the NYSE American stock exchange on the date of grant, and its fair value is $4,288,738. The Milestone Option will fully vest upon the first concurrence by the U.S. Food and Drug Administration that a proposed investigation may proceed following review of a Company filed investigational new drug application in connection with that the License Agreement. This milestone is subject to Dr. Federoff’s continuous service with the Company through such vesting date.

Both the Time-Based Option and the Milestone Option were granted outside the Company’s equity incentive plans discussed above. The unvested portion of the Time-Based Option and the Milestone Option will be cancelled upon the termination of Dr. Federoff’s employment with the Company for any reason, subject to certain vesting acceleration provisions upon a qualifying termination, as described in his employment agreement with the Company. Unless earlier terminated in accordance with their terms, each of the Time-Based Option and the Milestone Option will otherwise expire on the tenth anniversary of their respective grant date and be subject to the terms and conditions of the respective option agreement approved by the Company. Each of the Time-Based Option and the Milestone Option was intended to constitute an “employment inducement grant” in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide and was offered as an inducement material to Dr. Federoff in connection with his hiring.

During the year ended December 31, 2021, there were 1,300 options exercised for total cash proceeds of $10,202. The options exercised had a total intrinsic value of $47,010. There were no options exercised during the year ended December 31, 2020.

RSUs

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.

There were no RSUs outstanding or granted during the year ended December 31, 2020. The following table summarizes RSU activity for the years ended December 31, 2021:

	Outstanding Restricted Stock Units		Weighted Average Fair Value per Share
January 1, 2021		-	$	-
Granted		240,000		13.80
December 31, 2021		240,000	$	13.80

Balance expected to vest at December 31, 2021		-

No RSUs vested during the year ended December 31, 2021.

The Company recognizes the intrinsic value of RSUs granted as expense on a straight-line basis over the requisite service period. As of December 31, 2021, the unamortized stock-based compensation expense related to outstanding RSUs was approximately $2,935,000 with a weighted average remaining requisite service period of 3.51 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options.

Restricted Stock

Pursuant to the Merger, Brooklyn LLC’s approximately 3,000 outstanding restricted common units were exchanged for approximately 630,000 shares of Brooklyn’s restricted common stock. There were no changes to any conditions and requirements of the restricted common stock. The shares vest quarterly beginning on March 31, 2021 and continuing through December 31, 2022. Due to the modification of the restricted common units, the fair value of the restricted common stock immediately after the Merger was compared to the fair value of the restricted common units immediately prior to the Merger, and the change in fair value of $250,000 was recognized in the statement of operations for year ended December 31, 2021. The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period.

Stock-Based Compensation Expense

Total stock-based compensation expense for the years ended December 31, 2021 and 2020 was approximately $5,235,000 and $91,000, respectively. Stock-based compensation is recorded in general and administrative expense and research and development expense in the statement of operations.