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Stock Based Compensation
9 Months Ended
Sep. 30, 2011
Stock Based Compensation [Abstract] 
STOCK BASED COMPENSATION
6. STOCK BASED COMPENSATION
Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three and nine month periods ended September 30, 2010 and 2011 as shown in the following table:
                                 
    For the three months     For the nine months  
    ended September 30,     ended September 30,  
    2010     2011     2010     2011  
    ($000s)  
Research and development
    116       39       281       130  
General and administrative
    488       182       1,109       547  
 
                       
Stock-based compensation costs before income taxes
    604       221       1,390       677  
 
                       
Under the 2006 Plan, 5,200,000 shares of the Company’s common stock have been reserved. The awards granted under the 2006 Plan have a maximum maturity of 10 years and generally vest over a four-year period from the date of grant.
A summary of activity for the options under the Company’s 2006 Plan for the nine months ended September 30, 2011 is as follows:
                                 
                    Weighted Average        
            Weighted     Remaining     Aggregate  
            Average     Contractual     Intrinsic  
    Options     Exercise Price     Term (years)     Value  
                            (in $000s)  
Options outstanding at December 31, 2010
    3,489,932     $ 3.96       7.22       938  
Granted
    199,500     $ 1.52                  
Exercised
    (6,638 )   $ 0.41                  
Expired
    —                          
Cancelled / forfeited
    (144,492 )   $ 6.23                  
 
                             
Options outstanding at September 30, 2011
    3,538,302     $ 3.74       6.69       8  
 
                             
Unvested at September 30, 2011
    788,405     $ 1.79       8.74       1  
 
                             
Vested and exercisable at September 30, 2011
    2,749,897     $ 4.30       6.10       6  
 
                             
ASC 718 requires compensation expense associated with share-based awards to be recognized over the requisite service period, which for the Company is the period between the grant date and the date the award vests or becomes exercisable. Most of the awards granted by the Company (and still outstanding), vest ratably over four years, with 1/4 of the award vesting one year from the date of grant and 1/48 of the award vesting each month thereafter. However, certain awards made to executive officers vest over three to five years, depending on the terms of their employment with the Company. In addition, some recent awards made to other employees vest ratably over four years, with 1/48 of the award vesting each month.
ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. This analysis is performed quarterly and the forfeiture rate adjusted as necessary. Ultimately, the actual expense recognized over the vesting period is based on only those shares that vest.
The Company used the Black-Scholes option-pricing model with the following assumptions for stock option grants to employees and directors for the nine months ended September 30, 2010 and 2011:
         
    For the nine months
    ended September 30,
    2010   2011
Expected term
  5 – 6Yrs   5 – 6Yrs
Risk free interest rate
  2.37 – 2.96%   1.47 – 2.29%
Expected volatility
  90 – 100%   93 – 99%
Expected dividend yield over expected term
  —       —    
Resulting weighted average grant fair value
  $1.80       $1.15    
There were 199,500 options granted during the nine months ended September 30, 2011. For grants made during the nine months ended September 30, 2010 and September 30, 2011, the expected term assumption was estimated using past history of early exercise behavior and estimated expectations of future exercise behavior. Starting with the December 2010 annual grants to the Company’s employees, the Company relied exclusively on its historical volatility as an input to the option pricing model as the Company’s management believes that this rate will be representative of future volatility over the expected term of the options. Prior to December 2010, because the Company had been publicly traded for a limited period, the expected volatility assumption was based on the historical volatility of peer companies over the expected term of the option awards.
Estimates of pre-vesting option forfeitures are based on the Company’s experience. For outstanding options, the Company uses a forfeiture rate of 0 — 50% depending on when and to whom the options are granted. The Company adjusts its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment in the period of change and may impact the amount of compensation expense to be recognized in future periods.
The weighted average risk-free interest rate represents interest rate for treasury constant maturities published by the Federal Reserve Board. If the term of available treasury constant maturity instruments is not equal to the expected term of an employee option, Cyclacel uses the weighted average of the two Federal Reserve securities closest to the expected term of the employee option.
During the nine months ended September 30, 2011, 6,638 stock options were exercised resulting in approximately $3,000 of cash proceeds to the Company. During the nine months ended September 30, 2010, there were 149,313 stock options exercised for proceeds of approximately $0.1 million. As the Company presently has tax loss carry forwards from prior periods and expects to incur tax losses in 2011, the Company is not able to benefit from the deduction for exercised stock options in the current reporting period.
Restricted Stock
In November 2008, the Company issued restricted common stock to an employee subject to certain forfeiture provisions. Specifically, one quarter of the award vested one year from the date of grant and 1/48 of the award effectively vests each month thereafter. This restricted stock grant is accounted for at fair value at the date of grant and an expense is recognized ratably over the vesting term. Summarized information for the restricted stock grant for the nine months ended September 30, 2011 is as follows:
                 
            Weighted Average Grant  
    Restricted Stock     Date Value Per Share  
 
               
Non-vested at December 31, 2010
    23,954     $ 0.44  
 
Vested
    (9,378 )   $ 0.44  
 
Non-vested at September 30, 2011
    14,576     $ 0.44  
Restricted Stock Units
Restricted stock units were issued to senior executives of the Company in November 2008, which entitle the holders to receive a specified number of shares of the Company’s common stock over the four year vesting term. A restricted stock unit grant is accounted for at fair value at the date of grant which is equivalent to the market price of a share of the Company’s common stock, and an expense is recognized during the vesting term. There were no restricted stock unit grants prior to November 2008. Summarized information for restricted stock grants for the nine months ended September 30, 2011 is as follows:
                 
            Weighted Average Grant  
    Restricted Stock Units     Date Value Per Share  
 
               
Non-vested at December 31, 2010
    35,931     $ 0.44  
 
Vested
    (14,067 )   $ 0.44  
 
Non-vested at September 30, 2011
    21,864     $ 0.44