8. 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, assuming that all granted awards will vest. Forfeitures are recognized in the periods when they occur.

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, 2018 and 2019 as shown in the following table (in $000s):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2019		2018		2019
General and administrative	$	66		123	$	188		235
Research and development		22		61		67		126
Stock-based compensation costs before income taxes	$	88		184	$	255		361

2018 Plan

In May 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The 2018 Plan replaced the 2015 Equity Incentive Plan (the “2015 Plan”).

The 2018 Plan allows for the issuance of up to 1,500,000 shares of the Company’s common stock pursuant to various types of award grants, including stock options and restricted stock units. In addition, the 2018 Plan allows up to 709,889 additional shares to be issued if awards outstanding under the 2018 Plan are cancelled or expire on or after the date of the Company’s 2018 annual meeting of stockholders.

As of September 30, 2019, the Company has reserved 228,334 shares of the Company’s common stock under the 2018 Plan, including shares that were available under the 2015 Plan and carried forward to the 2018 Plan. 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 1,550,270 options granted during the nine months ended September 30, 2019. These options had a grant date fair value ranging between $0.52-$0.61 per option.

There were 306,304 options granted during the year ended December 31, 2018. These options had grant date fair values ranging between $1.17-$1.29 per option. Of these options, approximately 174,272 are performance based and will vest upon the fulfillment of certain clinical objectives. The satisfaction of one criterion, occurred as of December 31, 2018, with 36,537 awards vesting at that time. In addition, the Company believes that an additional 36,537 performance awards, along with 39,713 performance awards granted in 2017, became probable of vesting in the quarter ended September 30, 2019. The Company recorded a catch-up adjustment related to this change in estimate of approximately $91,000 in the quarter ended September 30, 2019. Other vesting criteria related to these awards were not probable as of September 30, 2019. As such, the Company has not recognized compensation cost for performance awards that are not probable of vesting.

There were no stock options exercised during each of the nine months ended September 30, 2018 and 2019, respectively. The Company does not expect to be able to benefit from the deduction for stock option exercises that may occur because the company has tax loss carryforwards from prior periods that would be expected to offset any potential taxable income.

Outstanding Options

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


				Weighted
		Weighted		Average
	Number of	Average		Remaining	Aggregate
	Options	Exercise		Contractual	Intrinsic
	Outstanding	Price Per Share		Term (Years)	Value ($000)
Options outstanding at December 31, 2018	831,611	$	6.68	8.13	$	—
Granted	1,550,270	$	0.71
Cancelled/forfeited	(115,864)	$	2.03
Options outstanding at September 30, 2019	2,266,017	$	2.84	8.66	$	—
Unvested at September 30, 2019	1,613,280	$	1.27	8.90	$	—
Vested and exercisable at September 30, 2019	652,737	$	6.71	8.08	$	—

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



	Year Ended	Nine Months Ended
	December 31, 2018	September 30, 2019
Expected term (years)	6	5 – 6
Risk free interest rate	2.730% – 2.855%	2.105 – 2.610%
Volatility	105% – 107%	103 – 110%
Expected dividend yield over expected term	0.00%	0.00%
Resulting weighted average grant date fair value	$1.25	$0.52 – $0.61