7. Stock Based Compensation

The Company has a 2000 Long-Term Incentive Plan. As of September 30, 2013, there were approximately 1.0 million shares subject to outstanding stock options under this plan, which expired on August 6, 2010. Thus, no further shares are available for future grant under this plan.

The Company also has a 2008 Stock Incentive Plan. As of September 30, 2013, there were 2.4 million shares subject to outstanding stock options and 7.6 million shares available for future grant under this plan.

The Company follows ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees.

For stock options and stock warrants paid in consideration of services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of ASC 505-50.

Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period, the value of these options, as calculated using the Black-Scholes option-pricing model, is determined, and compensation expense recognized or recovered during the period is adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested.

The following table sets forth the total stock-based compensation expense resulting from stock options and warrants included in the Company’s unaudited interim statements of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Research and development — employee	$	52,492	$	95,715	$	156,247	$	289,081
General and administrative — employee		202,827		177,391		590,056		614,470
Total employee stock-based compensation	$	255,319	$	273,106	$	746,303	$	903,551

Research and development — non-employee	$	—	$	—	$	—	$	—
General and administrative — non-employee		271,594		177,617		450,880		406,109
Total non-employee stock-based compensation	$	271,594	$	177,617	$	450,880	$	406,109

During the nine-month period ended September 30, 2013, the Company issued stock options to purchase 152,176 shares of its common stock and issued warrants to purchase 500,000 shares of its stock with an exercise of $2.50. The fair value of the stock options and warrants granted in the current nine-month period was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	Nine Months Ended September 30, 2013			Nine Months Ended September 30, 2012
Risk-free interest rate		1.36	%		0.61	%
Expected volatility		84.5% - 85.8	%		77.4% - 97.7	%
Expected lives (years)		5 - 6			4 - 10
Expected dividend yield		0.00	%		0.00	%

The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For option grants issued during the nine-month period ended September 30, 2013, the Company used a calculated volatility for each grant. The Company uses historical information to compute expected lives. In the nine-month period ended September 30, 2013, the contractual term of the options granted was ten years and the Company used six years as the expected life. The dividend yield assumption of zero is based upon the fact the Company has never paid and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on historical experience, for the nine-month period ended September 30, 2013, the Company has estimated an annualized forfeiture rate of 12% for options granted to its employees, 3% for options granted to senior management and 0% for options granted to directors and non-employees. For the comparative nine-month period ended September 30, 2012, the Company had estimated an annualized forfeiture rate of 14% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors and non-employees. Compensation costs will be adjusted for future changes in estimated forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. No amounts relating to employee stock-based compensation have been capitalized.

As of September 30, 2013, there remained approximately $1.2 million of unrecognized compensation expense related to unvested stock options granted to current and former employees, directors and consultants, to be recognized as expense over a weighted-average period of 1.02 years. Presented below is the Company’s stock option activity:

	Nine Months Ended September 30, 2013
	Number of Options (Employees)			Number of Options (Non-Employees)		Total Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2013		3,240,850			142,143		3,382,993		$	4.17
Granted		127,176			25,000		152,176		$	2.69
Exercised		(476	)		—		(476	)	$	1.96
Forfeited or expired		(127,812	)		—		(127,812	)	$	3.09
Outstanding at September 30, 2013		3,239,738			167,143		3,406,881		$	4.15
Options exercisable at September 30, 2013		2,274,029			158,214		2,432,243		$	4.97

A summary of the unvested stock options as of September 30, 2013, and changes during the nine-month period then ended, are presented below:

	Number of Options (Employees)			Number of Options (Non-Employees)			Total Number of Options			Weighted-Average Grant Date Fair Value per Share
Non-vested at January 1, 2013		1,322,389			8,929			1,331,318		$	1.69
Granted		127,176			25,000			152,176		$	1.92
Forfeited or expired		(127,812	)		—			(127,812	)	$	2.31
Vested		(356,044	)		(25,000	)		(381,044	)	$	3.58
Non-vested at September 30, 2013		965,709			8,929			974,638		$	1.66

The following table summarizes significant ranges of outstanding stock options under the Company’s plans at September 30, 2013:

Range of Exercise Prices	Number of Options		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price		Number of Options Exercisable		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price
$1.83 - $3.00		2,123,538		8.74	$	1.99		1,212,265		8.74	$	2.04
$3.01 – $7.00		213,512		5.42	$	4.91		176,036		5.42	$	5.26
$7.01 – $8.50		937,545		4.40	$	7.66		911,656		4.40	$	7.67
$8.51 – $32.55		132,286		1.15	$	12.75		132,286		1.15	$	12.75
		3,406,881		7.04	$	4.15		2,432,243		7.04	$	4.97

The aggregate intrinsic value of outstanding options as of September 30, 2013 was $4.2 million, which represents options whose exercise price was less than the closing fair market value of the Company’s common stock on September 30, 2013 of $3.23.

There are 8,083,181 and 7,518,113 warrants outstanding at September 30, 2013 and December 31, 2012, respectively.

Restricted Stock

On December 31, 2012, the Company granted to Dr. Daniel Levitt, Executive Vice President and Chief Medical Officer, 100,000 shares of CytRx Corporation restricted stock pursuant to the 2008 Plan, of which 50,000 shares vested on June 30, 2013, and the remaining 50,000 shares will vest in six subsequent equal monthly installments, provided that Dr. Levitt remains employed by the Company as of the end of each such month. The fair value of the restricted stock is based on the market price of the Company’s shares on the grant date less the par value received as consideration. The fair value of these restricted shares on the grant date was $186,900. The stock-based compensation expense relating to restricted stock for the three months and nine months ended September 30, 2013, respectively, was $47,006 and $139,484. There was no such expense in the comparable periods of 2012.