11. Stock-Based Compensation

As of September 30, 2014, the Company had 11,270,806 options outstanding.

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 September 30, 2014, there were 2,848,499 options outstanding under the 2013 Plan, and 14,151,501 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 September 30, 2014, there were 8,422,307 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 three months ended September 30, 2014 and 2013 include stock-based employee compensation expense totaling $162,659 and $65,502 respectively.  The Company’s results of operations for the nine months ended September 30, 2014 and 2013 include stock-based compensation expense totaling $402,974 and $485,984.   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 stock-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-based compensation expenses related to non-employee options were $532 and $2,213 for the three months ended September 30, 2014 and 2013, respectively.  Stock compensation expenses related to non-employee options were $21,085 and $8,053 for the nine months ended September 30, 2014 and 2013, 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 three and nine months ended September 30, 2014 and 2013 is as follows:

 

 

Summary of Stock Option Transactions

There were 2,398,499 stock options granted at exercise prices ranging from $0.83 to $1.35 with an aggregate fair value of $1,671,644 during the nine months ended September 30, 2014.  There were 2,425,000 stock options granted at exercise prices ranging from $0.31 to $0.61 with an aggregate fair value of $674,396 during the nine months ended September 30, 2013.

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:

 

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

 

 

The following table summarizes information about stock options outstanding as of September 30, 2014 and December 31, 2013:

 

 

The total intrinsic value of the options exercised was $115,528 for the nine months September 30, 2014.  There were no options exercised during the three months ended September 30, 2014.  The total intrinsic value of options exercised during the three and nine months ended September 30, 2013 was $91,300.  The weighted average fair value of the options vested was $0.41 and $0.36 for the nine months ended September 30, 2014 and 2013, respectively.

A summary of the Company’s unvested options as of September 30, 2014 and changes during the nine months ended September 30, 2014 is presented below:

 

As of September 30, 2014 and December 31, 2013, there was $1,547,681 and $281,957 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 2.5 years and 1.7 years, respectively.