12. Stock-Based Compensation

At the Company’s Annual Meeting of the Stockholders held on June 10, 2013, the Company’s stockholders voted to approve the Rexahn Pharmaceuticals, Inc. 2013 Stock Option Plan (the “2013 Plan”).  Under the 2013 Plan, the Company grants stock options to key employees, directors and consultants of the Company.  A total of 17,000,000 shares of common stock have been reserved for issuance pursuant to the 2013 Plan.  As of December 31, 2013, there were 450,000 options outstanding, and 16,550,000 shares were available for issuance from the 2013 Plan.

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 December 31, 2013, there were 8,906,795 outstanding options under the 2003 Plan.

For the majority of the grants to employees, the vesting period is 30% on the first anniversary of the grant date, an additional 30% on the second anniversary of the grant date and the remaining 40% on the third anniversary.  Options expire between five and ten years from the date of grant. For 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.

Accounting for Employee Awards

The Company’s results of operations for the years ended December 31, 2013 and 2012 include share-based employee compensation expense totaling $553,163 and $202,037, respectively. Such amounts have been included in the statement of operations in general and administrative and research and development expenses.  No income tax benefit has been recognized in the statement of operations for share-based compensation arrangements as the Company has provided for a 100% valuation allowance on its deferred tax assets.

Employee stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite vesting service period for the entire portion of the award.

Accounting for Non-Employee Awards

Stock compensation expenses related to non-employee options were $12,265 and $28,950 for the years ended December 31, 2013 and 2012, respectively.  Such amounts have been included in the statement of operations in general and administrative and research and development expenses.

 

 

Summary of Stock Compensation Expense Recognized

Total stock-based compensation recognized by the Company in the years ended December 31, 2013 and 2012, and the period from inception (March 19, 2001) to December 31, 2013 is as follows:

 

 

Summary of Stock Option Transactions

There were 1,200,000 stock options granted at an exercise price of $0.37 with a fair value of $320,465, 550,000 stock options granted at an exercise price of $0.31 with a fair value of $122,497,  250,000 stock options granted at an exercise price of $0.39 and a fair value of $69,529,  300,000 stock options granted at an exercise price of $0.50 and a fair value of $107,086, and 125,000 stock options granted at an exercise price of $0.61 and a fair value of $54,819, and 25,000 stock options granted at an exercise price of $0.41 and a fair value of $7,356 during the year ended December 31, 2013.  The 1,200,000 options granted at an exercise price of $0.37 were awarded pursuant to an employment agreement with our new Chief Executive Officer, who joined the Company in February 2013.  Per that employment agreement, these options vested immediately, and therefore, the entire fair value of those options were expensed upon grant. There were 75,000 stock options granted at an exercise price of $0.48 and a fair value of $26,835 and 170,000 stock options granted at an exercise price of $0.38 and a fair value of $47,589 during the year ended December 31, 2012.

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 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:

 

The following table summarizes the employee and non-employee share-based transactions:

 

 

The following table summarizes information about stock options outstanding as of December 31, 2013 and December 31, 2012.

 

 

The total intrinsic value of the options exercised was $91,300 for the year ended December 31, 2013.  There were no options exercised during the year ended December 31, 2012.  The weighted average fair value of the options vested was $0.36 and $0.92 for the years ended December 31, 2013 and 2012, respectively.

A summary of the Company’s unvested options as of December 31, 2013 and changes during the year ended December 31, 2013 is presented below:

 

As of December 31, 2013 and December 31, 2012, there was $281,957 and $172,532 of total unrecognized compensation cost, respectively, related to all unvested stock options, which is expected to be recognized over a weighted average vesting period of 1.7 years and 1.0 years, respectively.