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.

Effective January 1, 2016, the Company recognizes all share-based awards under the straight-line attribution method, assuming that all granted awards will vest. Forfeiture will be recognized in the periods when they occur. Refer to Note 2, Summary of Significant Accounting Policies, for further information. In prior periods, ASC 718 required 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 evaluated its forfeiture assumptions quarterly and the expected forfeiture rate 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, 2015 and 2016 as shown in the following table (in $000s):

	Three Months Ended September 30,				Nine months Ended September 30,
	2015		2016		2015		2016
General and administrative	$	97	$	113	$	312	$	376
Research and development		44		79		152		238
Stock-based compensation costs before income taxes	$	141	$	192	$	464	$	614

The Company does not expect to be able to benefit from a tax deduction for stock option exercises that may occur during the year ended December 31, 2016 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, 2016.

2015 Plan

On May 22, 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The company has reserved 291,667 shares of the Company’s common stock under the 2015 Plan. The 2015 Plan replaces the 2006 Equity Incentive Plan (the “2006 Plan”), under which there were no remaining reserved shares as of June 30, 2016. Stock option awards granted under the Company’s equity incentive plans have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant.

There were 197,841 options granted during the nine months ended September 30, 2016. Of these options, 189,091 are performance based, which will vest upon the fulfilment of certain clinical conditions and will terminate if they have not vested by December 31, 2020. The Company determined that the satisfaction of the vesting criteria was not probable as of September 30, 2016 and, as a result, did not record any expense related to these awards for the nine months ended September 30, 2016.

2006 Plan

On March 16, 2006, Cyclacel adopted the 2006 Plan, under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The Company had reserved 119,047 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 27,221 options granted under the 2006 Plan during the nine months ended September 30, 2015.

There were no stock options exercised during each of the nine months ended September 30, 2015 and 2016, respectively.

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, 2015		206,298		$	72.60		8.09	$	—
Granted		197,841		$	4.68
Cancelled/forfeited		(10,416	)	$	335.19
Options outstanding at September 30, 2016		393,723		$	31.52		6.02	$	262
Unvested at September 30, 2016		(280,287	)	$	5.96		5.83	$	262
Vested and exercisable at September 30, 2016		113,436		$	94.67		6.51	$	—

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.

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.

In periods prior to January 1, 2016, estimates of pre-vesting option forfeitures were based on the Company’s experience. The Company used a forfeiture rate of 0 - 30% depending on when and to whom the options are granted. The Company adjusted 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 were recognized through a cumulative adjustment in the period of change. The Company considered many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Restricted Stock Units

Summarized information for restricted stock unit activity for the nine months ended September 30, 2015 is as follows:

	Restricted Stock Units			Weighted Average Grant Date Value Per Share
Non-vested at December 31, 2014		7,418		$	66.72
Granted		—		$	—
Vested		(7,418	)	$	66.72
Non-vested at September 30, 2015		—		$	—

During the nine months ended September 30, 2015, 7,418 restricted stock units vested. The Company did not issue any restricted stock units during the nine months ended September 30, 2015 and 2016, respectively.