Phio Pharmaceuticals Corp. Stock Compensation Disclosure

10. Stock-based Compensation

Stock Plans

On January 23, 2012, the Company’s Board of Directors and sole stockholder adopted the RXi Pharmaceuticals Corporation 2012 Long-Term Incentive Plan (the “2012 Incentive Plan”). Under the 2012 Incentive Plan, the Company may grant incentive stock options, nonqualified stock options, cash awards, stock appreciation rights, restricted and unrestricted stock and stock unit awards and other stock-based awards. The Company’s Board of Directors currently acts as the administrator of the Company’s 2012 Incentive Plan. The administrator has the power to select participants from among the key employees, directors and consultants of and advisors to the Company, establish the terms, conditions and vesting schedule, if applicable, of each award and to accelerate vesting or exercisability of any award.

As of December 31, 2017, an aggregate of 125,000 shares of common stock were reserved for issuance under the Company’s 2012 Incentive Plan, including 50,156 shares subject to outstanding common stock options granted under the 2012 Incentive Plan and 74,824 shares available for future grants. Stock options granted by the Company to employees may have different vesting parameters, but generally vest within 4 years after the option grant date and expire within ten years of issuance.

Stock-based Compensation

The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants. For valuing options granted during the years ended December 31, 2017 and 2016, the following assumptions were used:

 

		December 31,
		2017				2016
Risk-free interest rate			1.73 – 2.49	%			1.18 – 2.02	%
Expected volatility			82.99 – 123.01	%			79.42 – 116.88	%
Weighted average expected volatility			84.65	%			89.12	%
Expected lives (in years)			5.20 – 10.00				5.20 – 10.00
Expected dividend yield			0.00	%			0.00	%

The weighted-average fair value of options granted during the years ended December 31, 2017 and 2016 was $4.90 and $21.50 per share, respectively.

The risk-free interest rate used for each grant was based upon the yield on zero-coupon U.S. Treasury securities with a term similar to the expected life of the related option. The Company’s expected stock price volatility assumption is based upon the volatility of a composition of comparable companies. The expected life assumption for employee grants was based upon the simplified method provided for under ASC 718, and the expected life assumption for non-employees was based upon the contractual term of the option. The dividend yield assumption is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

 

The following table summarizes the activity of the Company’s stock option plan for the year ended December 31, 2017:

 

		Total Number of Shares				Weighted- Average Exercise Price Per Share				Weighted- Average Remaining Contractual Term				Aggregate Intrinsic Value
Balance at December 31, 2016			37,444			$	272.90
Granted			33,038				6.90
Exercised			—				—
Cancelled			(20,326	)			39.50
Balance at December 31, 2017			50,156			$	192.30				6.62 years			$	—
Exercisable at December 31, 2017			33,913			$	275.30				5.53 years			$	—

The Company recorded stock-based compensation expense in the consolidated statement of operations for the years ended December 31, 2017 and 2016 as follows, in thousands:

 

		December 31,
		2017				2016
Research and development		$	89			$	243
General and administrative			225				513
Total stock-based compensation		$	314			$	756

Stock-based compensation expense for the year ended December 31, 2017 includes $22,000, recorded in research and development expense, related to stock option modifications in connection with the retirement of the Company’s former Chief Development Officer.

There is no income tax benefit as the Company is currently operating at a loss and an actual income tax benefit may not be realized.

As of December 31, 2017, the compensation expense for all unvested stock options in the amount of approximately $157,000 will be recognized in the Company’s results of operations over a weighted average period of 1.70 years.