Note 9 - Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

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

Note 9.  Stock-Based Compensation

2011 Stock Option Plan

On February 10, 2011, the Company’s board of directors adopted, and on May 25, 2011, the Company’s stockholders approved the Helix BioMedix, Inc. 2011 Stock Option Plan (the 2011 Plan). The 2011 Plan is to be administered by non-employee directors who are authorized to grant stock options to the Company’s employees, consultants and directors. These options may be either, with respect to employees only, incentive stock options as defined and governed by Section 422 of the Internal Revenue Code, or nonqualified stock options. A total of 12,000,000 shares of common stock are reserved for issuance under the 2011 Plan. Options granted under the 2011 Plan generally vest and become exercisable over periods ranging from one to three years, have a maximum term of ten years and exercise prices equal to the closing market price of the Company’s common stock on the grant date.

2000 Stock Option Plan

In 2000, the Company’s stockholders approved the Helix BioMedix 2000 Stock Option Plan (the 2000 Plan). The 2000 Plan provided for the granting of incentive stock options and nonqualified stock options to employees, directors and consultants. Options granted under the 2000 Plan generally became exercisable over periods ranging from one to three years, had a maximum term of ten years and exercise prices equal to the closing market price of the Company’s common stock on the grant date. Effective November 6, 2010, additional option awards under the 2000 Plan were discontinued and new option awards were granted under the 2011 Plan. Remaining authorized shares under the 2000 Plan that were not subject to outstanding awards as of November 6, 2010 were then cancelled. The 2000 Plan will remain in effect as to any outstanding options granted prior to November 6, 2010.

Stock Option Activities

During the three and six months ended June 30, 2011, the Company granted options under the 2011 Plan to purchase an aggregate of 35,000 and 170,000 shares of common stock, respectively, with a grant date fair value of $0.22 and $0.25 per share, respectively. During the three and six months ended June 30, 2010, the Company granted options to purchase 90,000 and 535,000 shares of common stock, respectively, under the 2000 Plan with a weighted-average grant date fair value of $0.26 and $0.26 per share, respectively. Fair value for options granted were calculated using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
Risk-free interest rate		2.14%		2.27% – 2.63	%		2.14% – 2.17	%		2.27% – 2.77	%
Expected dividend yield		0		0			0			0
Expected terms in years		6.0		5.0 – 6.0			5.5 – 6.0			5.0 – 6.0
Expected volatility		112%		98% – 102	%		112% – 118	%		98% – 106	%

The risk-free rate is based on the implied yield available on U.S. Treasury zero–coupon issues with an equivalent remaining term. The Company does not anticipate declaring dividends in the foreseeable future. For the three and six months ended June 30, 2011 and 2010, the Company calculated expected volatility based on the annualized daily historical volatility of the Company’s stock price commensurate with the expected term of the option and other factors, including peer company data. The Company estimates the expected term as the average of the vesting period and the contractual term. The Company will continue to use this method of estimation until it has sufficient historical data to provide reasonable estimates of expected lives of stock options. The Company’s stock price volatility and option term involves management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes pricing model and, ultimately, the expense that will be recognized over the life of the option. The Company recognizes compensation expense for only the portion of options that is expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination behavior. Forfeiture rates are revised in subsequent periods if actual forfeitures differ from those estimates.

The amount of stock-based compensation expense recognized in the three months ended June 30, 2011 and 2010 related to stock options was $67,821 and $36,661, respectively, and for the six months ended June 30, 2011 and 2010 was $118,949 and $63,863, respectively. In May 2011, in connection with the departure of three members of the board of directors, the Company modified the terms of their options to accelerate the vesting and extend the exercise periods of their outstanding options from 90 days to periods of three or five years. As a result, the Company recorded a total of $52,478 of stock-based compensation in general and administrative expense related to these option modifications for the three months ended June 30, 2011. As of June 30, 2011, total unrecognized stock-based compensation related to non-vested stock options was approximately $62,708, which is expected to be recognized over a weighted-average period of approximately 1.2 years.

A summary of the Company’s stock compensation expense for the three and six months ended June 30, 2011 and 2010 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Research and development	$	382	$	2,659	$	38,484	$	4,470
Marketing and business development		4,380		9,020		8,769		16,618
General and administrative		63,059		24,982		71,696		42,775
Total stock-based compensation	$	67,821	$	36,661	$	118,949	$	63,863

A summary of the Company’s stock option activity for the six months ended June 30, 2011 is presented in the following table:

	Shares Subject to Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2010		3,868,950		$	0.91
Granted		170,000		$	0.29
Exercised		—			—
Forfeited		(38,543	)	$	0.37
Expired		(478,200	)	$	1.59
Outstanding, June 30, 2011		3,522,207		$	0.79		3.81	$	86,134
Exercisable, June 30, 2011		3,266,593		$	0.83		3.59	$	58,647

The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.42 on June 30, 2011. The intrinsic value is calculated as the difference between the closing stock price and the exercise price of the stock options as of June 30, 2011, had all of the options with exercise prices less than $0.42 been exercised on that date.

As of June 30, 2011, there were 12,000,000 shares of common stock reserved for issuance pursuant to the 2011 Plan, of which 11,830,000 shares remained available for future grants. Additional information regarding options outstanding as of June 30, 2011, is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$0.19 – $0.40		1,036,957		6.29	$	0.34		782,454	$	0.35
$0.49 – $0.77		840,000		4.97	$	0.58		838,889	$	0.58
$0.80 – $1.00		1,019,000		2.01	$	0.96		1,019,000	$	0.96
$1.20 – $1.80		626,250		1.06	$	1.54		626,250	$	1.54
$0.19 – $1.80		3,522,207		3.81	$	0.79		3,266,593	$	0.83