Note 10 - Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

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

Note 10.  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 provides for the grant of incentive stock options to employees and non-statutory stock options to employees, non-employee directors and consultants. The 2011 Plan is administered by the board of directors, which has the authority to select the individuals to whom awards are to be granted, the number of awards granted, and the vesting schedule. A total of 12,000,000 shares of common stock are reserved for issuance under the 2011 Plan. Options granted under the 2011 Plan to employees generally vest over a three-year period with 1/3 of the shares vesting after one year from the date of grant and 1/36 of the shares vesting monthly thereafter. Option awards to non-employee directors may vest fully upon grant or quarterly over one year. All option awards 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. The 2000 Plan will remain in effect as to outstanding options granted prior to November 6, 2010.

Stock Option Activities

During the three months ended March 31, 2012 and 2011, the Company granted options under the 2011 Plan to purchase an aggregate of 1,200,000 and 135,000 shares of common stock, respectively, with a weighted-average fair value of $0.23 and $0.25 per share, respectively. Fair values for options granted were calculated using the Black-Scholes option pricing model with the following assumptions:

	Three months ended March 31,
	2012		2011
Risk-free interest rate		0.87% - 1.14%		2.17%
Expected dividend yield		0		0
Expected term in years	5.0-6.0 years		5.5 years
Expected volatility		147% - 157%		118%

The risk-free rate is based on the implied yield available on U.S. Treasury zero–coupon issues with a remaining term equal to the expected term of options issued. The Company does not anticipate declaring dividends in the foreseeable future. For the three months ended March 31, 2012 and 2011, 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 March 31, 2012 and 2011 related to stock options was $118,605 and $51,128, respectively. Stock-based compensation for the three months ended March 31, 2011 included an expense of approximately $36,000 related to the modifications of the terms of certain options held by the Company’s former Vice President and Chief Scientific Officer, who left in February 2011. As of March 31, 2012, total unrecognized stock-based compensation related to non-vested stock options was $246,848, which is expected to be recognized over a weighted-average period of approximately 2.4 years.

A summary of the Company’s stock compensation expense for the three months ended March 31, 2012 and 2011 is as follows:

	Three months ended March 31,
	2012		2011
Research and development	$	4,124	$	38,102
Marketing and business development		51,626		4,389
General and administrative		62,855		8,637
Total stock-based compensation	$	118,605	$	51,128

A summary of the Company’s stock option activity under both option plans for the three months ended March 31, 2012 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, 2011		3,264,207		$	0.65
Granted		1,200,000		$	0.25
Exercised		—			—
Forfeited		—			—
Expired		(395,000	)	$	0.87
Outstanding, March 31, 2012		4,069,207		$	0.51		6.16	$	10,200
Exercisable, March 31, 2012		2,924,706		$	0.60		4.83	$	2,000

The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.25 on March 31, 2012, which would have been the closing price of shares of common stock received by the optionees had all of the options with exercise prices less than $0.25 been exercised on that date.

As of March 31, 2012, there were 12,000,000 shares of common stock reserved for issuance pursuant to the 2011 Plan, of which 10,393,000 shares remained available for future grants. Additional information regarding options outstanding as of March 31, 2012, 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
$	0.15 – $0.37		2,223,957		8.49	$	0.28		1,079,456	$	0.29
$	0.40 – $0.57		795,000		4.55	$	0.49		795,000	$	0.49
$	0.70 – $1.00		869,000		2.43	$	0.90		869,000	$	0.90
$	1.20 – $1.80		181,250		2.54	$	1.56		181,250	$	1.56
$	0.15 – $1.80		4,069,207		6.16	$	0.51		2,924,706	$	0.60