9.	Share-Based Compensation

Total share-based compensation related to stock options, common stock awards and JSOP awards was $43,325 and $107,817 for the three months ended June 30, 2014 and 2013, respectively, and $432,250 and $212,902 for the six months ended June 30, 2014 and 2013, respectively.

Share-based compensation expense is classified in the condensed consolidated statements of comprehensive loss as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013				2014				2013
Research and development expenses		$	15,473			$	15,218			$	30,993			$	36,676
Administrative expenses			27,752				92,599				401,257				176,226
		$	43,325			$	107,817			$	432,250			$	212,902

 

Stock Option Modification

Prior to the Acquisition, the Company had two incentive stock plans, the Lipoxen plc Unapproved Share Option Plan (the “2000 Stock Plan”) and the Xenetic Biosciences plc 2007 Share Option Scheme (the “2007 Stock Plan”). Subsequent to the Acquisition, the 2000 and 2007 Stock Plans were converted to reflect the new shares issued by the Company under the Scheme of Arrangement related to the Acquisition. As part of the conversion, option holders under the 2000 and 2007 Stock Plan have the right to subscribe for a number of shares of common stock in the Company (the “Replacement Option Shares”) in exchange for the cancellation and surrender by the option holder of the original options granted by the 2000 and 2007 Stock Plans. The number of Replacement Option Shares is determined in the same manner in which the shareholders of Xenetic UK were given the right to acquire shares of common stock in the Company according to the Acquisition. The aggregate exercise price payable in US dollars for Replacement Option Shares is the same as the aggregate exercise price in pounds sterling of the original options, using a foreign currency exchange rate for pounds sterling into US dollars quoted by Barclays Bank plc at 12 noon Greenwich Mean Time (“GMT”) on January 23, 2014, the date of the Acquisition. The conversion of the options is treated as an option modification. The Company accounted for the option modification under ASC Topic 718, Compensation – Stock Compensation, and determined the option modification does not result in incremental stock compensation cost that is material to the Company’s results of operations during the three months and six months ended June 30, 2014.   

Stock Options

During the three months and six months ended June 30, 2014 and 2013, no employees were granted stock options to purchase shares of common stock. During the six months ended June 30, 2014, a named executive of the Company exercised 1,984,080 stock options. Cash received from stock option exercise was $101,933. There were no other employee stock option exercises during the six months ended June 30, 2014 or 2013. The Company recognized compensation expense related to employee stock options of $11,826 and $12,115 during the three months ended June 30, 2014 and 2013, respectively, and $24,899 and $23,916 during the six months ended June 30, 2014 and 2013, respectively.

Non-Employee Stock Options

No non-employee stock options were granted during the three months or six months ended June 30, 2014 and 2013 and no non-employee stock options were exercised during the three months or six months ended June 30, 2014 and 2013. The Company recognized compensation expense related to non-employee stock options of $5,999 and $4,005 during the three months ended June 30, 2014 and 2013, respectively, and $11,446 and $14,554 during the six months ended June 30, 2014 and 2013, respectively.

Common Stock Awards

The Company granted 30,514 and 66,318 common stock awards during the three months ended June 30, 2014 and 2013, respectively, and granted 67,419 and 106,334 common stock awards during the six months ended June 30, 2014 and 2013, respectively. As all services were rendered in each respective year, compensation expense related to common stock awards of $25,500 and $22,017 was recognized during the three months ended June 30, 2014 and 2013, respectively, and $51,000 and $35,837 was recognized during the six months ended June 30, 2014 and 2013, respectively. All common stock awards were authorized but not issued as of June 30, 2014.

Joint Share Ownership Plan

In 2010 and 2012, the Company issued 1,701,913 and 8,986,281 JSOP awards, respectively, to two senior executives under the JSOP. During 2011, the 2010 JSOP awards fully vested under the terms of the JSOP due to a significant change in beneficial ownership of the Company and the related compensation charges were fully recorded during periods prior to 2013 related to this accelerated vesting. During the first quarter of 2014, the 2012 JSOP awards fully vested under the terms of the JSOP due the achievement of specific share price hurdles and the related compensation charges were fully recorded during the first quarter of 2014 related to this accelerated vesting. As of June 30, 2014, all JSOP awards were fully vested.

The total fair value of the 2012 JSOP awards was $853,889 at the date of issuance. The Company recognized $344,905 and $138,594 of compensation costs during the six months ended June 30, 2014 and 2013, respectively, and $69,680 of compensation costs during the three months ended June 30, 2013 related to the 2012 JSOP awards. No compensation cost related to the 2012 JSOP awards was recognized during the three months ended June 30, 2014.