13. Stock Options and Warrants

Stock Options

The Company has a 2000 Long-Term Incentive Plan under which 1.4 million shares of common stock were originally reserved for issuance. As of December 31, 2014, there were approximately 0.8 million shares subject to outstanding stock options. This plan expired on August 6, 2010, and thus no further shares are available for future grant under this plan.

The Company also has a 2008 Stock Incentive Plan under which 10.0 million shares of common stock were originally reserved for issuance. The number of shares reserved for issuance under the 2008 Plan was then fixed at 5.0 million shares, after giving effect to the 1-for-7 reverse stock split implemented on May 15, 2012, and then fixed at 10.0 million shares by an amendment to this plan approved by the stockholders at the 2013 Annual Meeting of Stockholders. As of December 31, 2014, there were 9.3 million shares subject to outstanding stock options and 0.7 million shares available for future grant under this plan.

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

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2014			2013			2012
Risk-free interest rate		1.74% - 2.12	%		0.91% - 2.79	%		0.83% - 1.78	%
Expected volatility		82% - 90	%		85% - 89	%		0% - 82	%
Expected lives (years)		6 - 10			6 - 10			6 - 10
Expected dividend yield		0.00	%		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 years ended December 31, 2014, 2013 and 2012, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise behavior at this time and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company’s options of ten years with the average vesting term of three years for an average of six years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends 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 year ended December 31, 2014, the Company has estimated an annualized forfeiture rate of 10% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors; for each of the years ended December 31, 2013 and 2012, the Company has estimated an annualized forfeiture rate of 12% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors. 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.

At December 31, 2014, there remained approximately $6.2 million of unrecognized compensation expense related to unvested stock options granted to current employees and directors, to be recognized as expense over a weighted-average period of 1.26 years. Presented below is the Company’s stock option activity for employees and directors:

	Stock Options									Weighted Average Exercise Price
	2014			2013			2012			2014		2013		2012
Outstanding — beginning of year		6,228,593			3,240,850			1,763,923		$	3.11	$	4.08	$	6.01
Granted		3,180,000			3,323,176			1,541,002			2.47		2.43		1.86
Exercised		(1,667	)		(476	)		(1,071	)		1.83		1.93		2.80
Forfeited		(24,333	)		(127,812	)		(63,004	)		2.81		3.09		3.89
Expired		(34,001	)		(207,145	)		—			8.18		9.59		—
Outstanding — end of year		9,348,592			6,228,593			3,240,850			2.83		3.11		4.08
Exercisable at end of year		4,901,511			3,125,720			1,918,461		$	3.22	$	3.86	$	3.69
Weighted average fair value of stock options granted during the year:	$	1.80		$	1.82		$	1.44

For stock options 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 prior to performance, 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 Company recorded approximately $1,276,000, $40,000 and $0 of non-cash charges related to the issuance of stock options to certain consultants in exchange for services during 2014, 2013 and 2012, respectively.

At December 31, 2014, there was no unrecognized compensation expense related to unvested non-employee stock options. Presented below is the Company’s non-employee stock option activity:

	Stock Options								Weighted Average Exercise Price
	2014			2013		2012			2014		2013		2012
Outstanding — beginning of year		167,143			142,143		143,572		$	5.69	$	6.20	$	6.17
Granted		550,000			25,000		—			2.76		2.79		—
Exercised		—			—		(1,429	)		—		—		2.94
Forfeited		(25,000	)		—		—			2.79		—		—
Outstanding — end of year		692,143			167,143		142,143			3.47		5.69		6.20
Exercisable at end of year		692,143			167,143		133,215		$	3.47	$	5.69	$	6.10
Weighted average fair value of stock options granted during the year:	$	2.32		$	1.98	$	—

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2014			2013			2012
Risk-free interest rate		2.23	%		2.05	%		—
Expected volatility		85.0	%		84.8	%		—
Expected lives (years)		10			10			—
Expected dividend yield		0	%		0	%		—

The following table summarizes significant ranges of outstanding stock options under the two plans at December 31, 2014:

Range of Exercise Prices		Number of Options		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Contractual Life		Weighted Average Exercise Price
$	1.83 — 2.50		7,932,558		8.99	$	2.19		3,801,902		8.99	$	2.17
$	2.51 — 3.50		774,482		8.89		2.78		691,387		8.89		2.75
$	3.51 — 8.00		989,201		6.04		6.27		755,871		6.04		6.57
$	8.01 — 32.55		344,494		2.38		8.93		344,494		2.38		8.93

			10,040,735		8.46	$	2.87		5,593,654		8.46	$	3.25

The aggregate intrinsic value of outstanding options and options vested as of December 31, 2014 and the options exercised during 2014 were $4.4 million, $2.2 million and $0, respectively, which represent options whose exercise price was less than the closing fair market value of the Company’s common stock on December 31, 2014 of $2.74.

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

	Years Ended December 31,
	2014		2013		2012
Research and development - employee	$	932,482	$	241,459	$	345,797
General and administrative - employee		2,383,624		2,659,105		1,607,153
Total employee stock-based compensation	$	3,316,106	$	2,900,564	$	1,952,950

Research and development – non-employee	$	86,539	$	—	$	—
General and administrative – non-employee		1,736,703		898,153		438,068
Total non-employee stock-based compensation	$	1,823,242	$	898,153	$	438,068

Restricted Stock

On January 1, 2014, 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, which shares have now fully vested. The Company also granted to Dr. Levitt 100,000 shares of CytRx Corporation restricted stock pursuant to the 2008 Plan on December 31, 2012, which shares have now fully vested. 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 the restricted shares granted on January 1, 2014 was $626,900, and the fair value of the restricted shares granted on December 31, 2012 was $186,900. The Company recorded an employee stock-based compensation expense for restricted stock of $626,900, $186,389 and $511 for the years ended December 31, 2014, 2013 and 2012, respectively.

Warrants

In March 2014, we issued a warrant to purchase 25,000 shares of our common stock at an exercise price of $5.60 in connection with the establishment of our Freiburg, Germany research and development laboratory.

In August 2013, we issued a warrant to purchase 500,000 shares of our common stock at an exercise price of $2.50 per share in connection with a financial advisory arrangement. In November 2013, we issued two warrants, each to purchase 125,000 shares of our common stock, at exercise prices of $3.00 and $3.75 per share, respectively, in connection with financial advisory arrangements.

Warrants issued in connection with the Company’s August 2011 financings are classified as liabilities as opposed to equity due to their settlement terms. At December 31, 2014, 6,371,854 shares were underlying such warrants, as compared to 6,984,716 for 2013 and 2012, which included warrants issued in connection with the Company’s July 2009 financing, now expired. See Note 9 – Warrant Liabilities.

All other warrants issued by the Company other than warrants issued in connection with its August 2011 financing are classified as equity; the fair value of the warrants was recorded as additional paid-in capital and no further adjustments are made.

A summary of the Company’s warrant activity and related information for the years ended December 31 are shown below.

	Warrants									Weighted Average Exercise Price
	2014			2013			2012			2014		2013		2012
Outstanding — beginning of year		8,324,609			7,518,113			7,397,415		$	4.86	$	5.09	$	5.32
Granted		25,000			816,667			285,716			5.60		2.80		2.06
Exercised		(340,527	)		(8,572	)		(5,714	)		2.56		4.48		1.89
Forfeited		—			—			(28,571	)		—		—		1.89
Expired		(659,322	)		(1,599	)		(130,733	)		12.66		14.99		11.90
Outstanding — end of year		7,349,760			8,324,609			7,518,113			4.27		4.86		5.09
Exercisable at end of year		7,149,760			7,924,609			7,452,396		$	4.32	$	4.98	$	5.11
Weighted average fair value of warrants granted during the year	$	3.46		$	1.31		$	1.22

During 2014, 62,172 warrants were surrendered in connection with the cashless exercise. There were no cashless exercises of warrants in 2013 and 2012.

The following table summarizes additional information concerning warrants outstanding and exercisable at December 31, 2014:

		Warrants Outstanding
Range of Exercise Prices		Number of Shares		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Warrants Number of Shares Exercisable		Exercisable Weighted Average Exercise Price
$	2.10 — 2.60		645,716		3.05	$	2.42		445,716	$	2.38
$	2.61 — 3.60		125,000		0.86		3.00		125,000		3.00
$	3.61 — 4.60		6,496,899		1.57		4.47		6,496,899		4.47
$	4.61 — 5.60		82,145		3.20		5.41		82,145		5.41
			7,349,760		1.71	$	4.27		7,149,760	$	4.32