11. Stock-Based Compensation

As of March 31, 2017, the Company had 19,228,755 options to purchase common stock and 543,000 restricted stock units (“RSUs”) outstanding.

At the Company’s Annual Meeting of Shareholders held on June 10, 2013, the Company’s shareholders voted to approve the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan (the “2013 Plan”).  Under the 2013 Plan, the Company grants equity awards to key employees, directors and consultants of the Company.  A total of 17,000,000 shares of common stock were reserved for issuance pursuant to the 2013 Plan upon the 2013 Plan’s adoption.  As of March 31, 2017, there were 14,858,755 options and 543,000 RSUs outstanding under the 2013 Plan, and 1,590,745 shares were available for issuance. 

On August 5, 2003, the Company established a stock option plan (the “2003 Plan”).  Under the 2003 Plan, the Company granted stock options to key employees, directors and consultants of the Company.  With the adoption of the 2013 Plan, no new stock options may be issued under the 2003 Plan, but previously issued options under the 2003 Plan remain outstanding until their expiration.  As of March 31, 2017, there were 4,250,000 outstanding options under the 2003 Plan. 

In March 2016, the Company granted to a third party an option to purchase up to 120,000 shares of the Company’s common stock.  Of the Company’s outstanding options as of March 31, 2017, these were the only options that were not issued pursuant to the 2013 Plan or the 2003 Plan.

Accounting for Awards

Stock-based compensation expense is the estimated fair value of options and RSUs granted amortized on a straight-line basis over the requisite vesting service period for the entire portion of the award. Total stock-based compensation recognized by the Company for the three months ended March 31, 2017 and 2016 is as follows:



No income tax benefit has been recognized in the statement of operations for stock-based compensation arrangements as the Company has provided for a 100% valuation allowance on its deferred tax assets.

Summary of Stock Option Transactions

There were 3,382,600 stock options granted at exercise prices ranging from $0.18 to $0.26 with an aggregate fair value of $395,156 during the three months ended March 31, 2017.  There were 3,337,090 stock options granted at exercise prices ranging from $0.35 to $0.37 with an aggregate fair value of $732,042 during the three months ended March 31, 2016. 

The majority of the option grants to employees vest over a four-year period from the grant date. The vesting period is either (i) 30%,  30% and 40% on the first,  second and third anniversaries of the grant date, respectively, or (ii) 25% each on the first four anniversaries of the grant date.  With the exception of the options granted in March 2016, which have a three-year term, options generally expire ten years from the date of grant. For the majority of grants to non-employee consultants of the Company, the vesting period is between one and three years, subject to the fulfillment of certain conditions in the individual stock agreements, or 100% upon the occurrence of certain events specified in the individual stock agreements.

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model.  The Company took into consideration guidance under ASC 718, “Compensation-Stock Compensation” and Staff Accounting Bulletin No. 107 (“SAB 107”) when reviewing and updating assumptions.  The expected volatility is based upon historical volatility of the Company’s stock.  The expected term is based upon the simplified method as allowed under SAB 107.



The assumptions made in calculating the fair values of options are as follows:



A summary of stock option activity for the three months ended March 31, 2017 is as follows:







There were no stock options exercised during the three months ended March 31, 2017 and 2016.  The weighted average fair value of the options granted was $0.12 and $0.22 for the three months ended March 31, 2017 and 2016, respectively.

A summary of the Company’s unvested options as of March 31, 2017 and changes during the three months ended March 31, 2017 is presented below:



As of March 31, 2017 there was $1,806,438 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average vesting period of 2.6 years.

Summary of Restricted Stock Unit Transactions

The Company began granting RSUs to employees in 2017.  There were 623,000 RSUs granted with an aggregate fair value of $114,632 during the three months ended March 31, 2017.  The fair value of an RSU award is the closing price of the Company’s common stock on the date of grant.

A summary of RSU activity for the three months ended March 31, 2017 is as follows:



As of March 31, 2017, there was $95,834 of total unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average vesting period of 3.9 years.