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STOCK BASED COMPENSATION
 9 Months Ended
Sep. 30, 2014
Stock-Based Compensation Arrangements  
STOCK BASED COMPENSATION
6. STOCK BASED COMPENSATION

 

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 one to four years.

 

The Company recognizes all share-based awards under the straight-line attribution method. 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. The Company evaluates its forfeiture assumptions quarterly and the expected forfeiture rate is adjusted when necessary. Ultimately, the actual expense recognized over the vesting period is based on only those shares that vest.

 

Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three and nine months ended September 30, 2013 and 2014 as shown in the following table (in $000s):

 

    Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    2013     2014     2013     2014  
General and administrative   $ 82     $ 160     $ 199     $ 415  
Research and development     15       59       44       174  
Stock-based compensation costs before income taxes   $ 97     $ 219     $ 243     $ 589  

 

2006 Plan

 

On March 16, 2006, the 2006 Plan was adopted, under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The Company has reserved 1,428,571 shares of the Company’s common stock under the 2006 Plan. Stock option awards granted under the 2006 Plan have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant.

 

There were 32,697 and 63,000 options granted during the nine months ended September 30, 2013 and 2014, respectively.

 

There were no stock options exercised during the three and nine months ended September 30, 2013 and 2014. The Company does not expect to be able to benefit for the deduction for stock option exercises that may occur during the year ended December 31, 2014 because the company has tax loss carryforwards from prior periods that would be expected to offset any potential taxable income for the year ended December 31, 2014.

 

Outstanding Options

 

A summary of the share option activity and related information is as follows:

    Number of
Options
Outstanding		     Weighted
Average
Exercise
Price Per Share		     Weighted
Average
Remaining
Contractual
Term (Years)		     Aggregate
Intrinsic
Value ($000)		  
Options outstanding at December 31, 2013     949,685     $ 15.02       7.38     $ 152  
Granted     63,000     $ 3.11                  
Exercised     —     $ —                  
Cancelled/forfeited     (2,387 )   $ 31.08                  
Options outstanding at September 30, 2014     1,010,298     $ 14.24       6.83     $ 7  
Unvested at September 30, 2014     449,915     $ 4.15       9.16     $ 1  
Vested and exercisable at September 30, 2014     560,383     $ 22.33       4.96     $ 6  

 

The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718.

 

The expected term assumption is estimated using past history of early exercise behavior and expectations about future behaviors.

 

Estimates of pre-vesting option forfeitures are based on the Company’s experience. Currently the Company uses a forfeiture rate of 0 - 30% 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 Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

 

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.

 

Restricted Stock Units

 

Summarized information for restricted stock unit activity for the nine months ended September 30, 2014 is as follows:

 

    Restricted Stock
Units (1)		     Weighted Average
Grant
Date Value Per Share		  
Non-vested at December 31, 2013     119,248     $ 5.62  
Granted     —     $ —  
Forfeited     (233 )   $ 5.39  
Non-vested at September 30, 2014     119,015     $ 5.62  

 

 
(1) Includes 85,097 restricted stock units issued that will vest upon the fulfillment of certain clinical and financial conditions.

 

The Company issued 85,097 restricted stock units to employees during the three months ended March 31, 2013 that will vest upon the fulfillment of certain clinical and financial conditions and will terminate if they have not vested by December 31, 2014. The Company determined that the satisfaction of the vesting criteria was not probable as of September 30, 2014 and, as a result, did not record any expense related to these awards for the three and nine months ended September 30, 2014. The Company did not issue any restricted stock units during the nine months ended September 30, 2014.