11. Stock-Based Compensation

As of December 31, 2017, the Company had 1,814,231 options to purchase common stock and 47,300 restricted stock units (“RSUs”) 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 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 stockholders 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 stockholders approved an increase of 1,700,000 shares of common stock reserved for issuance pursuant to the 2013 Plan.  As of December 31, 2017, there were 1,477,231 options and 47,300 RSUs outstanding under the 2013 Plan, and 1,874,719 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 December 31, 2017, there were 325,000 outstanding options 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.  Of the Company’s outstanding options as of December 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 years ended December 31, 2017, 2016 and 2015 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 net deferred tax assets.

Summary of Stock Option Transactions

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 year ended December 31, 2017.    There were 592,637 stock options granted at exercise prices ranging from $1.80 to $3.70 with an aggregate fair value of $1,156,273 during the year ended December 31, 2016.  There were 420,130 stock options granted at exercise prices ranging from $5.40 to $8.90 with an aggregate fair value of $1,994,893 during the year ended December 31, 2015. 

For the majority of the grants to employees, 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.  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.

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. 

Significant assumptions are determined as follows:

Expected Term. The expected term is estimated using the simplified method whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

Volatility. Volatility is based on the historical trading volatility of the Company’s stock on the date of grant for a period consistent with the expected term.

Risk-Free Interest Rate. The risk-free interest rate is based on the zero-coupon U.S. Treasury instruments on the date of grant with a maturity date consistent with the expected term of the Company’s stock option grants.

Expected Dividend. To date, the Company has not declared or paid any cash dividends and do not have any plans to do so in the future. Therefore, the Company used an expected dividend yield of zero.



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





The following table summarizes share-based transactions:







The total intrinsic value of options exercised was $97,872 and $99,895 for the years ended December 31, 2017 and 2015, respectively.  There were no stock options exercised during the year ended December 31, 2016.  The weighted average fair value of options granted was $1.53,  $2.00, and $4.70 for the years ended December 31, 2017, 2016 and 2015, respectively. 

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



As of December 31, 2017, there was $1,233,528 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average vesting period of 2.3 years. 

Summary of Restricted Stock Unit Transactions

The Company began granting RSUs to employees in 2017.  There were 62,300 RSUs granted with an aggregate fair value of $114,632 during the year ended December 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 year ended December 31, 2017 is as follows:



As of December 31, 2017, there was $67,496 of total unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average vesting period of 3.2 years.