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Stock-Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

Note 8. Stock-Based Compensation

Restricted Stock Awards

On May 20, 2017, the Company established the Virpax Pharmaceuticals, Inc. Amended and Restated 2017 Equity Incentive Plan (the “Plan”). The Company’s Board of Directors (the “Board”), acting through its Equity Incentive Plan Committee, has determined that it would be to the advantage and best interest of the Company and its stockholders to grant restricted stock awards to certain individuals as compensation to serve as an employee of the Company and as an incentive for increased efforts during such service.

There were 10,420 and 5,506 unvested restricted stock awards issued totaling $61,875 and $50,000 based on a fair value of the Company’s common stock on the date of grant, as of September 30, 2021 and December 31, 2020, respectively. During the three months ended September 30, 2021 and 2020, there were no restricted stock awards granted and 640 and 0 of restricted stock awards were forfeited, respectively. The Company recognized $22,013 and $0 of stock based compensation for vested restricted shares during the three months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021 and 2020, there were 15,000 and 6,952 restricted stock awards granted, respectively, and 640 and 20,225 of restricted stock awards were forfeited, respectively. The Company recognized $57,425 and $156,250 of stock based compensation for vested restricted shares during the nine months ended September 30, 2021 and 2020, respectively.

Stock Options

The Plan provides a means for eligible employees, officers, non-employee directors and other individual service providers (collectively, “eligible persons”) to develop a sense of proprietorship and personal involvement in the development and financial success of the Company and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its stockholders. The Company, by means of the Plan, seeks to retain the services of such eligible persons and to provide incentives for such eligible persons to exert maximum efforts for the success of the Company. The Plan commenced on May 20, 2017 (the “Effective Date”) and is administered by the Compensation Committee of the Board (the “Compensation Committee”); provided that the entire Board may act in lieu of the Compensation Committee on any matter. The maximum aggregate number of shares of common stock which may be issued under all awards granted to participants under the Plan initially shall be 303,382 shares. The number of authorized shares available for issuance under the Plan shall automatically increase on January 1^st of each year commencing on January 1 following the Effective Date and on each January 1 thereafter until the expiration date, in an amount equal to six percent (6%) of the total number of shares of common stock outstanding on December 31^st of the preceding calendar year. The Plan shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time until the earlier of the tenth (10^th) anniversary of the Effective Date. In the event of a termination of continuous service (other than as a result of a change of control, as defined in the Plan), unvested stock options generally shall terminate and, with regard to vested stock options, the exercise period shall be the lesser of the original expiration date or three months from the date continuous service terminates.

On April 25, 2020, the Company amended and restated the Plan to grant stock options to non-employee directors. Stock options to purchase 20,225 shares of common stock shall automatically be granted under the Plan to each non-employee director who is first appointed or elected to the Board. In addition, on January 1 of each year, each then serving non-employee director of the Company shall automatically be granted under the Plan (i) that number of options having a value of $25,000 calculated on the grant date in accordance with the Black-Scholes option pricing model and shall be exercisable as to 100% of the number of shares of common stock covered thereby on the twelve-month anniversary of the grant date, and shall have an exercise price equal to 100% of the Fair Market Value (as defined in the Plan) of a share of Common Stock on the date of grant. Also, on January 1 of each year, each then serving member of the Science and Technology Committee of the Board (the “Science and Technology Committee”) shall automatically be granted stock options to purchase 2,022 shares of Common Stock under the Plan, and the Chair of the Science and Technology Committee shall be granted stock options to purchase an additional 3,033 shares of Common Stock under the Plan. These options have the same terms and conditions as the options granted to the non-employee directors noted above. Options due to directors for the year beginning January 1, 2021 pursuant to the Plan were granted on April 7, 2021.

Stock-based compensation expense for the three months ended September 30, 2021 and 2020 was $141,773 and $435,415, respectively. The Company recorded $121,585 and $435,415 of this stock-based compensation within general and administrative expense and $20,189 and $0 within research and development expense on the accompanying statement of operations for the three months ended September 30, 2021 and 2020, respectively.

Stock-based compensation expense for the nine months ended September 30, 2021 and 2020 was $833,034 and $1,138,096, respectively. The Company recorded $794,462 and $1,138,096 of this stock-based compensation within general and administrative expense and $38,622 and $0 within research and development expense on the accompanying statement of operations for the nine months ended September 30, 2021 and 2020, respectively.

The fair value of option awards is estimated using the Black-Scholes option-pricing model. Exercise price of each award is generally not less than the per share fair value in effect as of that award date. The determination of fair value using the Black-Scholes model is affected by the Company’s share fair value as well as assumptions regarding a number of complex and subjective variables, including expected price volatility, risk-free interest rate and projected employee share option exercise behaviors. Options granted or modified under the Plan during the nine months ended September 30, 2021 and 2020 were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	For the Nine Months Ended September 30,
	2021			2020
Expected term (years)		5.75			5.24
Risk-free interest rate		1.04	%		0.48	%
Expected volatility		79.07	%		68.50	%
Expected dividend yield		0.00	%		0.00	%

The Company estimates its expected volatility by using a combination of historical share price volatilities of similar companies within our industry. The risk-free interest rate assumption is based on observed interest rates for the appropriate term of the Company’s options on a grant date. The expected option term assumption is estimated using the simplified method and is based on the mid-point between vest date and the remaining contractual term of the option, since the Company does not have sufficient exercise history to estimate expected term of its historical option awards.

The following is a summary of stock option activity under the stock option plan for the nine months ended September 30, 2021 and for the year ended December 31, 2020:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Options outstanding at January 1, 2020		236,458		$	9.89		8.96	$	-
Forfeited		(20,225	)		9.89
Granted		269,868			9.89
Options outstanding at December 31, 2020		486,101			9.89		8.68		-
Forfeited		-			-
Exercised		(87,751	)		9.89
Granted		270,717			4.62		-		-
Options outstanding at September 30, 2021		669,067		$	7.75		8.59	$	-
Options exercisable at September 30, 2021		415,394		$	9.51		8.04	$	-

The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2021 and year ended December 31, 2020 was $3.06 and $5.66, respectively.

As of September 30, 2021, there was $600,810 of total time-based unrecognized compensation costs related to unvested stock options stock. These costs are expected to be recognized over a weighted average period of 2.01 years.