Equity-Based Compensation

As of March 31, 2018, the aggregate number of common stock options available for grant under the 2017 Equity Incentive Plan was 1,498,264.

Equity-based compensation expense is classified in the statements of operations as follows:



	Three Months Ended March 31,
	2018		2017
Research and development expense	$	96	$	44
General and administrative expense	269		336
	$	365	$	380

Unamortized equity-based compensation expense at March 31, 2018 was $2,997, which is expected to be amortized over a weighted-average period of 2.8 years.

The Company utilizes the Black-Scholes option-pricing model to determine the fair value of common stock option grants. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model also requires the input of highly subjective assumptions. In addition to an assumption on the expected term of the option grants as discussed below, application of the Black-Scholes model requires additional inputs for which we have assumed the values described in the table below:



	Three Months Ended March 31,
	2018		2017
Expected term	5.9 to 6.0 years		5.3 to 6.5 years
Risk-free interest rate	2.72%		1.97% to 2.17%; weighted avg. 2.07%
Expected volatility	82.4%		80.8% to 83.1%; weighted avg. 81.0%
Forfeiture rate	5	%	5	%
Expected dividend yield	—	%	—	%

The expected term is based upon the “simplified method” as described in Staff Accounting Bulletin Topic 14.D.2. Currently, the Company does not have sufficient experience to provide a reasonable estimate of an expected term of its common stock options. The Company will continue to use the “simplified method” until there is sufficient experience to provide a more reasonable estimate in conformance with ASC 718-10-30-25 through 30-26. The risk-free interest rate assumptions were based on the U.S. Treasury bond rate appropriate for the expected term in effect at the time of grant. The expected volatility is based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development. The estimated forfeiture rates were based on historical experience for similar classes of employees. The dividend yield was based on expected dividends at the time of grant.

The fair value of the underlying common stock and the exercise price for the common stock options granted during the three months ended March 31, 2018 and 2017 are summarized in the table below:



Common Stock Options Granted During Period Ended:	Fair Value of Underlying Common Stock	Exercise Price of Common Stock Option
Three months ended March 31, 2018	$3.00	$3.00
Three months ended March 31, 2017	$4.21	$4.21

The Company’s common stock has not yet been publicly traded, therefore the Company estimates the fair value of its common stock underlying its common stock options. At March 31, 2018, for financial reporting purposes and principally to aid Exicure in the revaluation of certain common stock option awards to non-employees and certain warrant liabilities, Exicure estimated the per share fair value of its common stock to be $3.00, which is the per share price paid by outside investors in the Private Placement.

The weighted-average grant date fair value of common stock options granted in the three months ended March 31, 2018 and 2017 was $2.13 and $2.92 per common stock option, respectively.

A summary of common stock option activity as of the periods indicated is as follows:



	Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (thousands)
Outstanding - December 31, 2017	3,672,620		$	1.79	7.5	$	5,221
Granted	674,279		3.00
Exercised	(8,532	)	0.86
Forfeited	(2,638	)	1.03
Outstanding - March 31, 2018	4,335,729		$	1.98	7.5	$	5,221
Exercisable - March 31, 2018	2,597,078		$	1.51	7.0	$	4,245
Vested and Expected to Vest - March 31, 2018	3,916,640		$	2.11	7.5	$	5,190

The aggregate intrinsic value of common stock options exercised during the three months ended March 31, 2018 and 2017 was $18 and $202, respectively.