Stock-Based Compensation

3 Months Ended

Mar. 31, 2017

Share-based Arrangements with Employees and Nonemployees [Abstract]

Stock-Based Compensation

8. Stock-Based Compensation

2015 Equity Plan

The Diffusion Pharmaceuticals Inc. 2015 Equity Plan, as amended (the "2015 Equity Plan"), provides for increases to the number of shares reserved for issuance thereunder each January 1 equal to 4.0% of the total shares of the Company’s common stock outstanding as of the immediately preceding December 31, unless a lesser amount is stipulated by the Compensation Committee of the board of directors. Accordingly, 413,825 shares were added to the reserve as of January 1, 2017, which shares may be issued in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate, in each case, in accordance with the terms of the 2015 Equity Plan. As of March 31, 2017, there were 356,148 shares of common stock available for future issuance under the 2015 Equity Plan.

The Company recorded stock-based compensation expense in the following expense categories of its unaudited interim condensed consolidated statements of operations for the periods indicated:

	Three Months Ended March 31,
	2017		2016
Research and development	$	43,322	$	242,277
General and administrative	323,061		151,194
Total stock-based compensation expense	$	366,383	$	393,471

The following table summarizes the activity related to all stock option grants to employees and non-employees for the three months endedMarch 31, 2017:

	Number of Options		Weighted average exercise price per share		Weighted average remaining contractual life (in years)
Balance at January 1, 2017	2,207,409		$	8.09
Granted	98,184		2.33
Expired	(1,461	)	15.00
Outstanding at March 31, 2017	2,304,132		$	7.84	7.6
Exercisable at March 31, 2017	1,548,216		$	9.04	6.9

Non-employee Stock Options

Non-employee options are remeasured to fair value each period through operations using a Black-Scholes option-pricing model until the options vest. During the three months ended March 31, 2017, the Company granted 9,394 stock options to non-employees. Key assumptions used to estimate the fair value of the non-employee stock options granted during the three months ended March 31, 2017 included a risk-free interest rate of 2.4%, an expected volatility of 136.4%, no expected dividend yield and an expected term equal to the remaining contractual option term. The total fair value of non-employee stock options vested during the three months ended March 31, 2017 and 2016 was approximately $53,000 and $0.3 million, respectively. At March 31, 2017, there were 27,561 unvested options subject to remeasurement and approximately $65,000 of unrecognized compensation expense that will be recognized over a weighted-average period of 2.0 years.

Employee Stock Options

The weighted average grant date fair value of stock option awards granted to employees was $2.08 during the three months ended March 31, 2017. The total fair value of options vested during the three months ended March 31, 2017 and 2016 was $0.2 million and $0.1 million, respectively. No options were exercised during any of the periods presented. At March 31, 2017, there was $2.9 million of unrecognized compensation expense that will be recognized over a weighted-average period of 5.8 years.

Options granted were valued using the Black-Scholes model and assumptions used to value the options granted during the first three months of 2017 were as follows:

Expected term (in years)	5.77
Risk-free interest rate	2.1	%
Expected volatility	125.2	%
Dividend yield	—	%

Restricted Stock Awards

As of March 31, 2017, there were 7,665 unvested shares of restricted stock. During the three months endedMarch 31, 2017, there were 1,533 shares that vested and the Company recognized stock-based compensation expense of approximately $3,000. At March 31, 2017, there was approximately $15,000 of unrecognized compensation expense that will be recognized over a weighted-average period of 1.2 years.