Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 8. Stock-Based Compensation

On May 20, 2017, the Company established the Virpax Pharmaceuticals, Inc. Amended and Restated 2017 Equity Incentive Plan (the “2017 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.

Restricted Stock

As of December 31, 2022 and 2021, there were 237 and 6,196 of unvested restricted stock awards issued totaling $2,342 and $39,862, respectively, based on a fair value of the Company’s common stock on the respective date of grant.

During the year ended December 31, 2022 and 2021, there were 0 and 15,000 restricted stock awards granted during the periods, respectively. There were 601 and 937 of restricted stock awards forfeited during the years ended December 31, 2022 and 2021, respectively. The Company recognized $37,520 and $79,438 of stock based compensation for vested restricted shares during the years ended December 31, 2022 and 2021, respectively.

Stock Options

On June 14, 2022, the Company established the Virpax Pharmaceuticals, Inc. 2022 Equity Incentive Plan (the “2022 Plan”) and no new grants of awards will be made under the 2017 Plan and all new grants of awards will be made under the 2022 Plan. The 2022 Plan and 2017 Plan are 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 2022 Plan enables the Company to continue to provide equity and equity-based awards to eligible employees, officers, non-employee directors and other individual service providers by reserving 1,500,000 shares of the Company’s common stock for issuance under the 2022 Plan, subject to annual increase (like the 2017 Plan) under the 2% “evergreen” provision of the 2022 Plan (discussed further below). The Company believes that offering ownership interests in the Company is a key factor in retaining and recruiting employees, officers, non-employee directors and other individual service providers, and aligning and increasing their interests in the Company’s success.

The 2022 Plan (which is summarized below) is substantially similar to the 2017 Plan, except for (i) the increase in shares of common stock reserved for issuance as discussed above, and (ii) the elimination of annual limitations on grants of awards to eligible individuals and certain other provisions which had been included in the 2017 Plan in order to satisfy (now repealed) provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended.

The 2022 Plan reserves an aggregate of (i) 1,500,000 shares of our common stock for the issuance of awards under the 2022 Plan (all of which may be granted as an Incentive Stock Option, or ISOs) plus (ii) an additional number of shares of common stock subject to outstanding awards under the 2017 Plan that become forfeited or canceled without payment or which are surrendered in payment of the exercise price and/or withholding taxes (collectively, the “Share Limit”). Pursuant to the 2022 Plan’s “evergreen” provision, the Share Limit shall be cumulatively increased on January 1, 2023, and on each January 1 thereafter, by 2% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such lesser number of shares as determined by our Board.

In applying the aggregate share limitation under the 2022 Plan, shares of common stock (i) subject to awards that are forfeited, cancelled, returned to the Company for failure to satisfy vesting requirements or otherwise forfeited, or terminated without payment being made thereunder and (ii) that are surrendered in payment or partial payment of the exercise price of an option or stock appreciation right or taxes required to be withheld with respect to the exercise of Stock Options or stock appreciation rights or in payment with respect to any other form of award are not counted and, therefore, may be made subject to new awards under the 2022 Plan.

The 2022 Plan provides that:

● on January 1 of each year, each non-employee director will be granted Stock Options under the 2022 Plan to purchase 15,000 shares of our common stock.

● each new non-employee director will be granted Stock Options under the 2022 Plan to purchase up to 25,000 shares of our common stock, as determined by the Compensation Committee, at the time the individual first becomes a director.

● on January 1, of each year, each then serving non-Chair member of the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Science and Technology Committee shall automatically be granted Stock Options to purchase 5,000 shares of common stock under the 2022 Plan, and the Chair of the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Science and Technology Committee shall each be granted Stock Options to purchase 10,000 shares of common stock under the 2022 Plan.

All such options will become exercisable on the one-year anniversary of the date of grant.

There was no stock option activity and no stock options outstanding under the 2022 Plan for the year ended December 31, 2022.

The Company recognized stock based compensation related to stock options under the 2017 Plan of $707,514 and $894,796 for the years ended December 31, 2022 and 2021, respectively. Total stock based compensation, inclusive of restricted shares and stock options, consists of the following:

	For the Year Ended December 31,
	2022		2021
General and administrative expense		598,655		915,423
Research and development expense		146,379		58,811
		745,034		974,234

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 years ended December 31, 2022 and 2021 were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	For the Year Ended December 31,
	2022			2021
Expected term (years)		5.65			5.74
Risk-free interest rate		1.96	%		1.04	%
Expected volatility		77.12	%		78.98	%
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 2017 Plan for the years ended December 31, 2022 and 2021:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Options outstanding at January 1, 2021		486,101		$	9.89		8.68	$	-
Forfeited		(5,000	)		4.62
Exercised		(87,751	)		9.89
Granted		275,717			4.62		-		-
Options outstanding at December 31, 2021		669,067			7.75		8.34		-
Forfeited		(15,591	)		3.14
Cancelled		-			-
Granted		518,805			2.24		-		-
Options outstanding at December 31, 2022		1,172,281		$	5.38		8.11	$	-
Options exercisable at December 31, 2022		620,734		$	7.71		7.37	$	-

On January 31, 2022, our Board approved an equity compensation award for the Company’s officers and employees. The Board approved this award of options to purchase an aggregate of 321,204 shares of Common Stock pursuant to the 2017 Plan. The options, other than Mr. Mack’s, have an exercise price of $2.13 per share, the fair market value of the Common Stock on the date of grant. Mr. Mack’s options have an exercise price of $2.34 per share, which represents 110% of the fair market value on the date of grant. The options granted to the officers and employees vest in three equal installments beginning on the one-year anniversary of the grant date and have a ten-year expiration date.

On January 1, 2022, options were granted to the Non-Employee Directors pursuant to the 2017 Plan to purchase an aggregate of 77,601 shares of Common Stock. The options have an exercise price of $3.43 per share, the fair market value of the Common Stock on the date of grant. The options granted to the directors will vest upon the one-year anniversary of the grant date and have a ten-year expiration date.

On April 25, 2022, options were granted to a consultant pursuant to the 2017 Plan to purchase an aggregate of 60,000 shares of Common Stock. The options have an exercise price of $1.76 per share, the fair market value of the Common Stock on the date of grant. The options granted to the consultant will vest upon the one-year anniversary of the grant date and have a ten-year expiration date. Options were also granted to the Company’s EVP Commercial Operations and director pursuant to the 2017 Plan to purchase an aggregate of 60,000 shares of Common Stock. The options have an exercise price of $1.76 per share, the fair market value of the Common Stock on the date of grant. The options granted to this individual vest immediately upon grant and have a ten-year expiration date. 

The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2022 was $1.98.

As of December 31, 2022, there was $519,190 of total time-based unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted average period of 1.64 years.