7.	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 Company's Board of Directors. Accordingly,

580,785

shares were added to the reserve as of

January 1, 2018,

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

September

30,

2018,

there were

27,268

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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Research and development	$	16,202	$	14,333	$	48,848	$	81,737
General and administrative		311,194		278,168		922,984		892,213
Total stock-based compensation expense	$	327,396	$	292,501	$	971,832	$	973,950

The following table summarizes the activity related to all stock option grants to employees and non-employees for the

nine

months ended

September

30,

2018:

	Number of Options			Weighted average exercise price per share		Weighted average remaining contractual life (in years)
Balance at January 1, 2018		2,555,989		$	7.32
Granted		660,000			1.02
Expired		(2,192	)		17.10
Outstanding at September 30, 2018		3,213,797		$	6.02		7.01
Exercisable at September 30, 2018		2,361,007		$	7.09		6.35

Non-employee Stock Options

Non-employee stock options are remeasured to fair value each period using a Black-Scholes option-pricing model until the options vest. The Company did

not

grant any stock options to non-employees during the

nine

months ended

September

30,

2018.

The total fair value of non-employee stock options vested during the

three

months ended

September

30,

2018

and

2017

was approximately

$1,000

and

$7,000,

respectively. The total fair value of non-employee stock options vested during the

nine

months ended

September

30,

2018

and

2017

was approximately

$3,000

and

$83,000,

respectively. At

September

30,

2018,

there were

5,166

unvested options subject to remeasurement and approximately

$2,000

of unrecognized compensation expense that will be recognized over a weighted-average period of

1.26

years.

Employee Stock Options

During the

nine

months ended

September

30,

2018,

the Company granted

660,000

stock options to employees. The weighted average grant date fair value of stock option awards granted to employees was

$0.86

during the

nine

months ended

September

30,

2018.

During the

three

months ended

September

30,

2018

and

2017

the Company recognized stock-based compensation expense of

$0.3

million and

$0.3

million, respectively. During the

nine

months ended

September

30,

2018

and

2017,

the Company recognized stock-based compensation expense of

$1.0

million and

$0.9

million, respectively.

options were exercised during any of the periods presented. At

September

30,

2018,

there was

$2.1

million of unrecognized compensation expense that will be recognized over a weighted-average period of

5.2

years.

Options granted were valued using the Black-Scholes option-pricing model and the weighted average assumptions used to value the options granted during the

nine

months ended

September

30,

2018

and

2017

were as follows:

	2018			2017
Expected term (in years)		5.57			6.03
Risk-free interest rate		2.4	%		2.0	%
Expected volatility		114.7	%		114.9	%
Dividend yield		—	%		—	%

Restricted Stock Awards

As of

September

30,

2018,

there were

unvested shares of restricted stock. During the

nine

months ended

September

30,

2018

and

2017,

there were

3,066

and

4,599

shares that vested, respectively and the Company recognized stock-based compensation expense of approximately

$6,000

and

$9,000,

respectively.