Stock-Based Compensation

6 Months Ended

Jun. 30, 2023

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 7. 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, had 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.

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 a 2% annual increase (similar to the 2017 Plan) pursuant to an “evergreen” provision in 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to eligible individuals and certain other provisions which had been included in the 2017 Plan in order to satisfy (now repealed) provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended.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 the Company’s 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 the Board. The 2022 Plan increased by 234,286 shares on January 1, 2023.

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.

Restricted Stock

As of June 30, 2023 and December 31, 2022, there were zero and 237 unvested restricted stock awards issued totaling $0 and $2,342, respectively, based on a fair value of the Company’s common stock on the respective date of grant. During the three months ended June 30, 2023 and June 30, 2022, there were no restricted stock awards granted, and zero and 160 shares of restricted stock awards were forfeited during the three months ended June 30, 2023 and 2022, respectively. In addition, during the six months ended June 30, 2023 and 2022, there were no restricted stock awards granted, and zero and 320 shares of restricted stock awards were forfeited during the six months ended June 30, 2023 and 2022, respectively. The Company recognized $0 and $6,132 of stock-based compensation for vested restricted shares during the three months ended June 30, 2023 and 2022, respectively. The Company recognized $2,342 and $28,144 of stock-based compensation for vested restricted shares during the six months ended June 30, 2023 and 2022, respectively.

Stock Options to Non-Employee Directors

The 2022 Plan provides that:

● on January 1 of each year, each non-employee director will be granted options under the 2022 Plan to purchase 15,000 shares of the Company’s common stock.

● each new non-employee director will be granted options under the 2022 Plan to purchase up to 25,000 shares of the Company’s common stock, subject to approval 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 options to purchase 5,000 shares of common stock under the 2022 Plan, and the Chair of each of the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Science and Technology Committee shall each be granted options to purchase 10,000 shares of common stock under the 2022 Plan.

All such options granted pursuant to the foregoing non-employee director compensation policy will become exercisable on the one-year anniversary of the date of grant.

The Company recognized stock-based compensation related to stock options under the 2017 Plan and 2022 Plan of $218,257 and $238,569 for the three months ended June 30, 2023 and 2022, respectively. The Company recognized stock-based compensation related to stock options under the 2017 Plan and 2022 Plan of $356,498 and $427,897 for the six months ended June 30, 2023 and 2022, respectively. Total stock-based compensation, inclusive of restricted shares and stock options, consists of the following:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
General and administrative expense	$	169,794	$	208,206	$	265,736	$	383,454
Research and development expense		48,463		36,495		93,104		72,587
	$	218,257	$	244,701	$	358,840	$	456,041

The fair value of option awards is estimated using the Black-Scholes option-pricing model. The 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 six months ended June 30, 2023 and 2022 were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	For the Six Months Ended June 30,
	2023			2022
Expected term (years)		5.46			5.75
Risk-free interest rate		3.67	%		1.89	%
Expected volatility		113.12	%		76.94	%
Expected dividend yield		—	%		—	%

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.

2017 Plan

As of June 30, 2023, there was $276,100 of total time-based unrecognized compensation costs related to unvested stock options within the 2017 Plan. These costs are expected to be recognized over a weighted average period of 1.25 years.

2022 Plan 

The following is a summary of stock option activity under the 2022 Plan for the six months ended June 30, 2023:

2022 Plan:	Number of Shares (in thousands)		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Options outstanding at January 1, 2023		—	$	—		—	$	—
Forfeited		—		—		—		—
Cancelled		—		—		—		—
Exercised		—		—		—		—
Granted		1,008,500		0.78		—		—
Options outstanding at June 30, 2023		1,008,500	$	0.78		8.12	$	300,527
Options exercisable at June 30, 2023		—	$	—		—	$	—

On January 1, 2023, options were granted to the Non-Employee Directors pursuant to the 2022 Plan to purchase an aggregate of 155,000 shares of common stock. The options have an exercise price of $0.622 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 January 25, 2023, our Compensation Committee approved an equity compensation award for the Company’s officers and employees. The Committee approved this award of options to purchase an aggregate of 528,500 shares of common stock pursuant to the 2022 Plan. The options, other than Mr. Mack’s, have an exercise price of $0.788 per share, the fair market value of the common stock on the date of grant. Mr. Mack’s options have an exercise price of $0.867 per share, which represents 110% of the fair market value on the date of grant and a five-year expiration date. The remaining 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 March 24, 2023, options were granted to a newly appointed Non-Employee Director pursuant to the 2022 Plan to purchase an aggregate of 25,000 shares of common stock. The options have an exercise price of $0.836 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 24, 2023, options were granted to two employees pursuant to the 2022 Plan to purchase an aggregate of 200,000 shares of common stock. The options have an exercise price of $0.73 per share, the fair market value of the common stock on the date of grant. The options granted to one employee vest immediately upon grant and have a ten-year expiration date. The options granted to the other employee vest upon the one-year anniversary of the grant date and have a ten-year expiration date.

On June 20, 2023, options were granted to the newly appointed Chief Financial Officer pursuant to the 2022 Plan to purchase an aggregate of 100,000 shares of common stock. The options have an exercise price of $0.99 per share, the fair market value of the common stock on the date of grant. The options granted to the Chief Financial Officer will vest as follows: (i) 25% shall vest upon the one-year anniversary from his hire date and (ii) the remaining 75% shall vest in thirty-six equal monthly installments. The options have a ten-year expiration date.

In accordance with Mr. Chipman’s Separation Agreement with the Company, he received accelerated vesting of 238,126 of his outstanding stock options (“Accelerated Options”) as of his separation date of June 30, 2023. Additionally, these Accelerated Options may be exercised until severance is fully paid, which is expected to be October 15, 2023. The accelerated vesting and increase in the time to exercise option awards after termination was treated as a stock option modification under ASC 718 Compensation - Stock Compensation. The total incremental expense resulting from the modification was de minimis for the three and six months ended June 30, 2023.

The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2023 under the 2022 Plan was $0.70.

As of June 30, 2023, there was $407,180 of total time-based unrecognized compensation costs related to unvested stock options under the 2022 Plan. These costs are expected to be recognized over a weighted average period of 1.74 years.