7. Stock Based Compensation

The Company has a 2000 Long-Term Incentive Plan. As of March 31, 2014, there were approximately 0.8 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 March 31, 2014, there were 5.9 million shares subject to outstanding stock options and 4.1 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 March 31,
	2014		2013
Research and development — employee	$	175,153	$	50,172
General and administrative — employee		311,960		184,640
Total employee stock-based compensation	$	487,113	$	234,812

Research and development — non-employee	$	86,539	$	—
General and administrative — non-employee		191,992		27,212
Total non-employee stock-based compensation	$	278,531	$	27,212

During the three-month period ended March 31, 2014, the Company issued stock options to purchase 270,000 shares of its common stock and issued warrants to purchase 25,000 shares of its stock with an exercise of $5.60. The fair value of the stock options and warrants granted in the current three-month period was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Risk-free interest rate		1.98	%		1.16	%
Expected volatility		87.8% - 89.6	%		85.4% - 85.8	%
Expected lives (years)		6 - 10			6
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 three-month period ended March 31, 2014, the Company used a calculated volatility for each grant. The Company uses historical information to compute expected lives. In the three-month period ended March 31, 2014, the contractual term of the options granted was ten years and the Company used six years as the expected life. The contractual term for the warrants issued was ten years. 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 three-month period ended March 31, 2014, 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 and non-employees. For the comparative three-month period ended March 31, 2013, the Company has estimated an annualized forfeiture rate of 13% for options granted to its employees and 3% for options granted to senior executives. 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 March 31, 2014, there remained approximately $4.6 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 1.24 years. Presented below is the Company’s stock option activity:

	Three Months Ended March 31, 2014
	Number of Options (Employees)		Number of Options (Non-Employees)		Total Number of Options		Weighted-Average Exercise Price
Outstanding at January 1, 2014		6,228,593		167,143		6,395,736	$	3.11
Granted		270,000				270,000	$	5.38
Outstanding at March 31, 2014		6,498,593		167,143		6,665,736	$	3.20
Options exercisable at March 31, 2014		3,406,261		167,143		3,573,404	$	3.74

A summary of the unvested stock options as of March 31, 2014, and changes during the three-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, 2014		3,102,873			—		3,102,873		$	1.66
Granted		270,000			—		270,000		$	3.97
Vested		(280,541	)		—		(280,541	)	$	1.68
Non-vested at March 31, 2014		3,092,332			—		3,092,332		$	1.86

The following table summarizes significant ranges of outstanding stock options under the Company’s plans at March 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 Remaining Contractual Life (years)		Weighted-Average Exercise Price
$	1.83 - $2.50		5,130,056		9.21	$	2.21		2,374,550		9.21	$	2.15
$	2.51 – $3.50		194,482		6.69	$	2.79		153,291		6.69	$	2.69
$	3.51 – $8.00		962,701		6.69	$	6.31		667,066		6.69	$	6.75
$	8.01 – $32.55		378,497		2.88	$	8.86		378,497		2.88	$	8.86
			6,665,736		8.41	$	3.20		3,573,404		8.41	$	3.74

The aggregate intrinsic value of outstanding options as of March 31, 2014 was $11.88 million, which represents options whose exercise price was less than the closing fair market value of the Company’s common stock on March 31, 2014 of $3.49.

There were 7,894,791 and 8,324,609 warrants outstanding at March 31, 2014 and December 31, 2013, respectively.

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, of which 50,000 shares will vest on June 30, 2014, and the remaining 50,000 shares will vest over the subsequent six months, provided that Dr. Levitt remains employed by the Company on each such date. 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 $627,000, and the fair value of the restricted shares granted on December 31, 2012 was $186,900. The stock-based compensation expense relating to restricted stock included in the company’s unaudited statements of operations for the three-months ended March 31, 2014 and 2013, respectively was $154,578 and $45,984.