11. Stock-Based Compensation

As of September 30, 2018, the Company had 2,599,038 options to purchase common stock and 35,475 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. At the Company’s Annual Meeting held on June 9, 2016, the Company’s shareholders voted to approve an amendment and restatement of the 2013 Plan, including to provide for awards of restricted stock and restricted stock units.  The Company initially reserved 1,700,000 shares of common stock for issuance pursuant to the 2013 Plan, and on April 11, 2017, the Company’s shareholders approved an increase of 1,700,000 shares of common stock reserved for issuance pursuant to the 2013 Plan. As of September 30, 2018, there were 2,287,038 options and 35,475 RSUs outstanding under the 2013 Plan, and 1,064,912 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 September 30, 2018, there were 300,000 options outstanding under the 2003 Plan. 

In March 2016, the Company granted to a third party an option to purchase up to 12,000 shares of the Company’s common stock.  These were the only Company stock options outstanding as of September 30, 2018 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 and nine months ended September 30, 2018 and 2017 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 860,307 stock options granted at exercise prices ranging from $1.46 to $2.29 with an aggregate fair value of $1,089,851 during the nine months ended September 30, 2018.  There were 483,260 stock options granted at exercise prices ranging from $1.84 to $6.18 with an aggregate fair value of $738,937 during the nine months ended September 30, 2017. 

For the majority of the grants to employees, the vesting period is 25% on the first anniversary of the grant date and, thereafter, one thirty-sixth of the remaining option vests in equal installments on the first business day of each month until fully vested.  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 nine months ended September 30, 2018 is as follows:









There were no stock options exercised during the three and nine months ended September 30, 2018 or for the three months ended September 30, 2017.  The total intrinsic value of options exercised was $97,872 for the nine months ended September 30, 2017.  The weighted average fair value of the options granted was $1.27 and $1.53 for the nine months ended September 30, 2018 and 2017, respectively. 

A summary of the Company’s unvested options as of September 30, 2018 and changes during the nine months ended September 30, 2018 is presented below:



As of September 30, 2018, there was $1,494,158 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average vesting period of 2.5 years.

Summary of Restricted Stock Unit Transactions

The Company began granting RSUs to employees in 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 nine months ended September 30, 2018 is as follows:



As of September 30, 2018, there was $51,512 of total unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average vesting period of 2.4 years.