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Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

10. Stock-Based Compensation

2016 Omnibus Incentive Plan

Prior to the Merger, NeuroRx maintained its 2016 Omnibus Incentive Plan (the “2016 Plan”), under which NeuroRx granted incentive stock options, restricted stock awards, other stock-based awards, or other cash-based awards to employees, directors, and non-employee consultants. The maximum aggregate shares of common stock that were subject to awards and issuable under the 2016 Plan was 3,472,000.

In connection with the Merger, each option of NeuroRx that was outstanding and unexercised immediately prior to the Effective Time (whether vested or unvested) was assumed by BRPA and converted into an option to acquire an adjusted number of shares of Common Stock at an adjusted exercise price per share (the “Substitute Options”), based on the Option Exchange Ratio (of 4.96), and will continue to be governed by substantially the same terms and conditions, including vesting, as were applicable to the former option. Each Substitute Option will be exercisable for a number of whole shares of Common Stock equal to the product of the number of shares of NeuroRx common stock underlying such NeuroRx option multiplied by the Option Exchange Ratio, and the per share exercise price of such Substitute Option will be equal to the quotient determined by dividing the exercise price per share of NeuroRx common stock by the Option Exchange Ratio. As discussed in Note 4, this ratio incorporates the achievement of the Earnout Shares Milestone and Earnout Cash Milestone. The incremental shares above the Exchange Ratio (of 3.16) upon exercise were held back pending the outcome of the contingencies and were not released as such contingencies were not achieved. The percentage of total shares of Common Stock subject to each Substitute Option that is vested immediately following the Effective Time will equal the percentage of total shares of NeuroRx common stock subject to each NeuroRx option that is vested immediately prior to the Effective Time.

As neither the Earnout Shares Milestone nor the Earnout Cash Milestone were achieved prior to December 31, 2022, each Substitute Option was adjusted based on the Exchange Ratio and the portion of the Substitute Options related to Earnout Shares were cancelled. For the Substitute Options that were exercised prior to December 31, 2022, NRx Pharmaceuticals retained and retired the outstanding shares forfeited by the option holders in connection with the adjustment.

As stated in the Merger Agreement, for the Substitute Options which were exercised prior to December 31, 2022, NRx Pharmaceuticals retained the shares forfeited by the option holders in connection with the adjustment.

Upon the closing of the Merger, the outstanding and unexercised NeuroRx stock options became options to purchase an aggregate 2,895,423 shares of the Company’s Common Stock at an average exercise price of $5.10 per share. The Company accounted for the Substitute Options as a modification of the existing options. Incremental compensation costs, measured as the excess, if any, of the fair value of the modified options over the fair value of the original options immediately before its terms are modified, is measured based on the fair value of the underlying shares and other pertinent factors at the modification date. The fair value of the original NeuroRx options and Substitute Options was determined using the Black-Scholes option-pricing model with the following assumptions for each:


	Original Options		Substitute Options
Strike price		$1.00-$72.30		$0.20-$14.58
Volatility rate		80.0%		80.0%
Risk-free rate		0.07%-0.79%		0.07%-0.79%
Expected term		0.18-5.99		0.18-5.99
Dividend yield		—		—

The Substitute Options contain both service-based and performance-based vesting conditions (i.e., the achievement of the Earnout Cash Milestone and/or Earnout Shares Milestone). The Company determined it was not probable that the Earnout Cash Milestone or Earnout Shares Milestone would be met on the Effective Date and was not achieved at December 31, 2022. Accordingly, the Company only recognized incremental compensation cost related to the portion of the Substitute Options subject to service-based vesting conditions only.

For vested Substitute Options, the Company recognized incremental compensation on the modification date totaling $1.0 million of which $1.0 million and less than $0.1 million was recognized in general and administrative and research and development, respectively, in the Consolidated Statements of Operations for the year ended December 31, 2021. For unvested Substitute Options, the Company will recognize incremental compensation over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.

2021 Omnibus Incentive Plan

At the Effective Time, the Company adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”). As of December 31, 2022, 6,049,178 shares of Common Stock are authorized for issuance pursuant to awards under the 2021 Plan. As of January 1, 2022, 676,129 shares were added to the 2021 Plan under an evergreen feature that automatically increases the reserve with additional shares of Common Stock for future issuance under the Incentive Plan each calendar year, beginning January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (A) 1% of the shares of Common Stock outstanding on the final day of the immediately preceding calendar year or (B) a smaller number of shares determined by the Board. The Substitute Options do not reduce the number of shares authorized for grant under the 2021 Plan. As of December 31, 2022, 5,749,394 shares have been awarded and 299,784 shares remain available for issuance under the 2021 Plan. The 2021 Plan permits the granting of incentive stock options, restricted stock awards, other stock-based award or other cash-based awards to employees, directors, and non-employee consultants.

Option Awards

The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company is a public company and has limited company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the limited company-specific historical volatility and implied volatility as well as historical volatility of a publicly traded set of peer companies. The expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. Additionally, certain options granted contain terms that require all unvested options to immediately vest a) upon the approval of a New Drug Application (NDA) by the FDA for NRX-101, or b) immediately preceding a change in control of the Company, whichever occurs first.

The grant date fair value of employee and non-employee stock option awards is determined using the Black Scholes option-pricing model. The following assumptions were used during the following periods:


	December 31,
	2022		2021
Exercise price		$0.51-$3.10		$6.44-$23.41
Risk-free rate of interest		1.80%-4.36%		0.69%-1.45%
Expected term (years)		5.3-6.5		5.25-6.5
Expected stock price volatility		94.9%-147.8%		80.0%-85.9%
Dividend yield		—		—

The following table summarizes the Company’s employee and non-employee stock option activity under the Plan for the following periods:


					Weighted	Aggregate
		Weighted			average	intrinsic
	Number of	average			remaining	value
	shares	exercise price			term (years)	(in thousands)
Outstanding as of December 31, 2020 (as previously reported)	486,755	$	10.79	$	8.8	$	19,572

Retroactive application of reverse recapitalization (Note 4)	1,927,548		(8.62)	—		—
Outstanding as of December 31, 2020, effect of Merger (Note 4)	2,414,303	$	2.17	8.2	$	53,660
Options granted	892,224		13.95	9.9		3,825
Forfeited	(390,187)		(3.73)	—		(7,562)
Exercised	(516,025)		(2.23)	—		(3,645)
Outstanding as of December 31, 2021	2,400,315	$	6.28	7.8	$	4,224
Options granted	1,844,640		1.45	9.4		—
Forfeited	(742,736)		(5.66)	(0.6)		—
Expired	(903,765)		(5.79)	—		—
Exercised	(49,605)		(0.20)	(3.2)		—
Outstanding as of December 31, 2022	2,548,849	$	(0.20)	(3.2)	$	2,549
Options vested and exercisable as of December 31, 2022	863,746	$	4.75	6.3	$	148

The weighted average grant date fair value per share for employee stock and non-employee option grants during the years ended December 31, 2022 and 2021, were $1.12 and $16.57 respectively. At December 31, 2022, the total unrecognized compensation related to unvested employee and non-employee stock option awards granted, was $2.2 million, of which the Company expects to recognize over a weighted-average period of approximately 1.6 years.

The following table summarizes the Company’s recognition of stock-based compensation for the following periods (in thousands):


	Years Ended December 31,
	2022		2021
Stock-based compensation expense
General and administrative	$	3,002	$	6,500
Research and development		626		1,285
Total stock-based compensation expense	$	3,628	$	7,785

Restricted Stock Awards

The following table presents the Company’s Restricted Stock Activity:


	Awards	Weighted Average Grant Date Fair Value
Balance as of December 31, 2021	-	-
Granted	1,000,000	$ 0.57
Unvested Balance as of December 31, 2022	1,000,000	$ 0.57

On July 12, 2022, the Board granted an award of 1,000,000 restricted shares of the Company (“Restricted Stock”) as an inducement to the newly appointed CEO, pursuant to a separate Restricted Stock Award Agreement (the “RSA”). The Restricted Stock will vest in approximately equal installments over three (3) years from the grant date, subject to continued service through the applicable vesting date.

As of December 31, 2022, total unrecognized compensation expense related to unvested RSAs granted was approximately $0.5 million, which is expected to be recognized over a weighted-average period of approximately 2.5 years.

Stock-based compensation expense related to RSAs was less than $0.1 million during the year ended December 31, 2022.