SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

7. SHARE-BASED COMPENSATION

The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants. In May 2013, the Company’s shareholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares reserved for issuance from 1,730,000 to 4,230,000 shares of common stock to be available for grants and awards. In April 2012, 150,000 options were granted to the Company’s Chief Executive Officer outside of the Company’s 2011 Long-Term Incentive Plan, as an inducement award material to his employment, in accordance NASDAQ Listing Rule 5635(c)(4). As of December 31, 2013, there are 3,586,394 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $1.59 to $34.10. In 2012, the Company awarded options to two officers, a portion of which is subject to certain performance conditions and market conditions. Options granted under the plans generally vest over periods varying from immediately to one to three years, are not transferable and generally expire ten years from the date of grant. As of December 31, 2013, 1,110,876 shares remained available for grant under the Company’s 2011 Long-Term Incentive Plan.

The Company’s net loss for the years ended December 31, 2013 and 2012 includes $2,044,382 and $978,243, respectively, of non-cash compensation expense related to the Company’s share-based compensation awards. The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:

	2013		2012
Research and development	$	763,470	$	273,204
General and administrative		1,280,912		705,039
Share-based compensation expense	$	2,044,382	$	978,243
Net share-based compensation expense, per common share:
Basic and diluted	$	0.078	$	0.051

Stock Options

The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of service based and performance based stock options granted to employees. For market condition based options, the Company uses a binomial model to estimate fair value. These option valuation models require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk free rate of interest, expected dividend yield, expected volatility, and the expected life of the award.

Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility based on the daily price observations of its common stock during the period immediately preceding the share-based award grant that is equal in length to the award’s expected term. EntreMed believes that historical volatility represents the best estimate of future long term volatility.

Risk-Free Interest Rate—This is the average interest rate consistent with the yield available on a U.S. Treasury note (with a term equal to the expected term of the underlying grants) at the date the option was granted.

Expected Term of Options—This is the period of time that the options granted are expected to remain outstanding. EntreMed uses a simplified method for estimating the expected term of service based awards granted. For performance based and market based awards, the expected term of service is based on the derived service period.

Expected Dividend Yield—EntreMed has never declared or paid dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. As such, the dividend yield percentage is assumed to be zero.

Forfeiture Rate—This is the estimated percentage of options granted that are expected to be forfeited or cancelled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on historical forfeiture experience for similar levels of employees to whom options were granted.

Following are the weighted-average assumptions used in valuing the stock options granted to employees during the years ended December 31, 2013 and 2012:

	Years ended December 31,
	2013		2012
Expected volatility	105.30	%	101.67	%
Risk free interest rate	1.03	%	0.94	%
Expected term of option	5.77 years		5.74 years
Forfeiture rate	*5.00	%	*5.00	%
Expected dividend yield	-		-

*-Throughout 2013 and 2012, forfeitures were estimated at 5%; the actual forfeiture rate was 0% and 6.4% for 2013 and 2012, respectively. The Company adjusted stock compensation expense for 2013 and 2012 based on the actual forfeiture rate.

The weighted average fair value of stock options granted was $1.42 and $1.59 in 2013 and 2012, respectively.

Share-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, net of estimated forfeitures. The authoritative guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

A summary of the Company's stock option plans and of changes in options outstanding under the plans during the years ended December 31, 2013 and 2012 is as follows:

	Number of Options	Weighted Average   Exercise Price		Weighted Average   Remaining   Contractual Term   In years	Aggregate Intrinsic   Value
Outstanding at December 31, 2011	621,889	$	16.23
Exercised	(1,136)	$	1.76
Granted	1,249,000	$	2.04
Expired	(197,833)	$	21.13
Forfeited	(35,376)	$	4.69
Outstanding at December 31, 2012	1,636,544	$	5.07
Exercised	(3,817)	$	1.88
Granted	2,034,500	$	1.78
Expired	(80,833)	$	27.37
Forfeited	-	$	-
Outstanding at December 31, 2013	3,586,394	$	2.69	8.64	$	-
Vested and expected to vest      at December 31, 2013	3,512,769	$	2.71	8.48	$	-
Exercisable at December 31, 2013	2,113,901	$	3.26	8.24	$	-

The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common stock at December 31, 2013 and (ii) the weighted average exercise price of the underlying awards, multiplied by the number of options that had an exercise price less than the closing price on the last trading day of 2013. The total intrinsic value of options exercised during the years ended December 31, 2013 and 2012 totaled approximately $2,500 and $400, respectively.

Cash received from option exercises under all share-based payment arrangements for the years ended December 31, 2013 and 2012 was $7,190 and $1,999, respectively. Due to the availability of net operating loss carryforwards and research tax credits, tax deductions for option exercises were not recognized in the years ended December 31, 2013 and 2012.

The following summarizes information about stock options granted to employees and directors outstanding at December 31, 2013:

	Options Outstanding				Options Exercisable
		Weighted
		Average	Weighted			Weighted
	Number	Remaining	Average		Number	Average
Range of	Outstanding at	Contractual	Exercise		Exercisable at	Exercise
Exercise Prices	December 31, 2013	Life in Years	Price		December 31, 2013	Price
$0.00 - $3.00	3,305,701	9.0	$	1.88	1,844,333	$	1.92
$3.01 - $10.00	178,040	6.6	$	6.55	166,915	$	6.58
$10.01 - $20.00	61,070	3.0	$	17.28	61,070	$	17.28
$20.01 - $30.00	20,814	0.5	$	23.72	20,814	$	23.72
$30.01 - $40.00	20,769	1.6	$	34.09	20,769	$	34.09
	3,586,394	8.6	$	2.69	2,113,901	$	3.26

As of December 31, 2013, there was approximately $1,911,000 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 1.5 years.

Warrants

Warrants granted generally expire after 3-5 years from the date of grant. Stock warrant activity to non-employees is as follows:

		Weighted Average
	Number of Shares	Exercise Price
Outstanding at December 31, 2011	333,387	$	4.13
Granted	1,739,132	$	1.40
Exercised	-	$	-
Expired	(22,725)	$	22.00
Outstanding at December 31, 2012	2,049,794	$	1.62
Granted	2,309,162	$	2.91
Exercised	(37,391)	$	1.40
Expired	-	$	-
Outstanding at December 31, 2013	4,321,565	$	2.31
Exercisable at December 31, 2013	4,321,565	$	2.31