Note 4 - Stock-based Compensation

On June 19, 2019, our stockholders approved, and we adopted the Processa Pharmaceuticals Inc. 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan allows us, under the direction of our Board of Directors or a committee thereof, to make grants of stock options, restricted and unrestricted stock and other stock-based awards to employees, including our executive officers, consultants and directors. The 2019 Plan provides for the aggregate issuance of 3,000,000 shares of our common stock, with 1,729,664 shares available for future grants at March 31, 2022.

Stock Compensation Expense

We recorded stock-based compensation expense for the three month ended March 31, 2022 and 2021 as follows:

Schedule of Stock-based Compensation Expense 

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets relating to this expense.

Stock Options

No stock options, were granted, cancelled or forfeited during the three months ended March 31, 2022. At March 31, 2022, we had outstanding options for the purchase of 178,496 shares with a weighted average exercise price of $17.07, a weighted average remaining contractual life of 3.3 years. As of March 31, 2022, 169,032 options with a weighted average exercise price $16.96 and a weighted average remaining contractual life of 3.2 years were exercisable. As of March 31, 2022, the total unrecognized stock-based compensation expense for stock options was approximately $121,000, which is expected to be fully recognized by the end of 2022.

Restricted Stock Awards

During the three months ended March 31, 2022, we granted and issued Restricted Stock Awards (“RSAs”) for 9,766 shares of our common stock to a consultant for services to be provided in 2022. These RSAs had a fair market value of $50,000 on the date of grant and were expensed as stock- based compensation during the three months ended March 31, 2022. We also granted 72,832 RSAs to our directors for their 2022 service during the three months ended March 31, 2022, which had a fair market value of $252,000 on the date of grant and will cliff vest on December 31, 2022. Additionally, we issued 17,572 RSAs to our directors in satisfaction of the $120,000 of directors’ fees we had accrued at December 31, 2021. We did not cancel any RSAs, nor were any RSAs forfeited during the three months ended March 31, 2022.

At March 31, 2022, we had unvested RSAs for 163,941 shares with a weighted average grant date fair value of $5.84. Unvested RSAs representing 138,941 shares that are expected to vest at various dates in 2022, 12,500 shares are expected to vest in 2023, and the remainder are expected to vest in 2024. As of March 31, 2022, the total unrecognized stock-based compensation expense related to the outstanding RSAs was approximately $537,000, which is expected to be recognized over a weighted average period of 1.0 year.

Restricted Stock Units

We grant Restricted Stock Units (“RSUs”) related to the future issuance of 69,862 shares of our common stock pursuant to agreements with our Executive team and certain other employees where a portion of their base compensation is paid in RSUs during the three months ended March 31, 2022. The value of an RSU award is based on the award’s measurement date. These RSUs are vested, but must meet distribution requirements before any shares of common stock are issued.

Activity with respect to our RSUs during the three months ended March 31, 2022 was as follows:

 Schedule of Information About RSU Outstanding

As of March 31, 2022, unrecognized stock-based compensation expense of approximately $960,000 for RSUs is expected to be fully recognized over a weighted average period of 1.8 years. The unrecognized expense excludes approximately $349,000 of expense related to certain RSUs with a performance milestone that is not probable of occurring at this time.

Holders of our vested RSUs have our promise to issue shares of our common stock upon the earlier to occur of the distribution restrictions contained in their Restricted Stock Unit Award Agreement. The distribution restrictions are typically different (longer) than the vesting schedule, imposing an additional restriction on the holder. Unlike RSAs, while certain employees may hold fully vested RSUs, the individual does not hold any shares or have any rights of a shareholder until the distribution restrictions are met. Upon distribution to the employee, each RSU converts into one share of our common stock. The RSUs contain dividend equivalent rights.

On April 1, 2022 we awarded RSUs for 1,979,818 shares of our common stock, 879,819 of which are subject to shareholder approval. These RSUs vest on January 1, 2023 and are subject to distribution requirements before any shares of common stock are issued. The fair value of the RSUs that are not subject to shareholder approval totaled $3.3 million, which will be recognized during the last three quarters of 2022.

Warrants

No stock purchase warrants were granted, cancelled or forfeited during the three months ended March 31, 2022. At March 31, 2022, we had outstanding stock purchase warrants for the purchase of 303,725 shares with a weighted average exercise price of $10.66 and a weighted average remaining contractual life of 1.3 years. Stock purchase warrants for the purchase of 291,225 shares were vested at March 31, 2022 and the remaining outstanding stock purchase warrants are expected to vest in 2022.

As of March 31, 2022, the total unrecognized expense related to our stock purchase warrants was approximately $35,000, which is expected to be fully recognized in 2022.