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Stockholders' Equity
 3 Months Ended
Mar. 31, 2012
Stockholders' Equity

Note 3 — Stockholders’ Equity:

 

Common Stock Options and Warrants:

 

During the three months ended March 31, 2012, stock options to purchase an aggregate of 150,000 shares of common stock were granted to the Company’s directors under the Amended and Restated 2006 Stock Incentive Plan (“Plan”) with an exercise price of $0.29 which vest on the one-year anniversary of the grant date, January 6, 2013. Additionally, the Company granted 180,000 stock options to its former Chief Operating Officer and Chief Financial Officer, see Note 7, under the Plan with an exercise price of $0.49, of which 25% vested on March 20, 2012, the date of grant, and were fully expensed, 25% vest upon the closing of a financing by the Company with gross proceeds in excess of $1.5 million which includes either the issuance of equity, debt or any combination thereof with an expectation by the Company it is probable that such objective will be achieved and the Company will be expensing the vesting of such options through the end of 2012, 25% vest upon CE Mark approval for CRMD003 (Neutrolin®) with an expectation by the Company it is probable that such objective will be achieved and the Company will be expensing the vesting of such options through the end of 2012 and 25% vest upon the launch of Neutrolin® in Europe, provided, however, that each of the events described occur on or before December 31, 2012, of which the Company has not determined if such options will vest by year end 2012 which will occur only if and until CE Marking is achieved, as such the Company has not recognized any expense for such options. See Note 7 regarding the vesting of the above performance based options These options each have ten-year terms.

 

During the three months ended March 31, 2011, options to purchase an aggregate of 150,000 shares of common stock were granted to the Company’s directors under the Amended and Restated 2006 Stock Incentive Plan (“Plan”) with an exercise price of $2.10 per share. These options vested on the one-year anniversary of the grant date, January 14, 2011, and have a ten-year term. Additionally, during the three months ended March 31, 2011, options to purchase 356,000 shares of common stock were granted to the Company’s new Chief Medical Officer (“CMO”) under the Plan with an exercise price of $1.61 per share. These options vest in equal installments on each of the first three annual anniversaries of the grant date, March 1, 2011, and have a ten-year term.

 

During the three months ended March 31, 2012 and 2011 and the period from July 28, 2006 (inception) to March 31, 2012, the Company recorded compensation expense, in connection with common stock and stock options issued to employees, directors and consultants, of $96,662, $79,490 and $2,421,542, respectively.

 

The Company records compensation expense associated with stock options and other forms of equity compensation using the Black-Scholes option-pricing model and the following assumptions:

 

   

Three Months Ended

March 31, 2012

    

Three Months Ended

March 31, 2011

  
Expected Term     5 years       5 years  
Volatility     113% - 114%       109% - 114%  
Dividend yield     0.0%     0.0%
Risk-free interest rate     0.86% - 1.22%       1.95% - 2.11%  

 

 

 

The Company estimated the expected term of the stock options granted based on anticipated exercises in future periods assuming the success of its business model as currently forecasted for employees and directors. The expected term of the stock options granted to consultants is based upon the contractual terms established within the operative agreements with the Company. Given the Company’s short period of publicly-traded stock history, management’s estimate of expected volatility is based on the average expected volatilities of a sampling of five companies with similar attributes to the Company, including: industry, stage of life cycle, size and financial leverage. The Company will continue to analyze the expected stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available. The expected dividend yield of 0.0% reflects the Company’s current and expected future policy for dividends on the Company’s common stock. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards. The Company has experienced forfeitures of stock options issued to its former President and Chief Executive Officer, former Chief Medical Officer, former Chairman and Board member and other employees. As a result of such forfeitures during 2011, the Company has established a forfeiture rate of 40% for stock option expense for the three months period ended March 31, 2012. The Company will continue to evaluate the estimated forfeiture rate of 40% derived from previous forfeitures of employees and board of directors during 2011 and may adjust such forfeiture rate accordingly based upon any additional forfeitures that may occur in the future.

 

A summary of the Company’s option and activity under the Plan and related information is as follows:

 

    Three Months Ended
March 31, 2012		     Three Months Ended
March 31, 2011		  
    Shares     Weighted
Average
Exercise
Price		     Shares     Weighted
Average
Exercise
Price		  
Outstanding at beginning of period     1,236,342     $ 2.47       1,662,827     $ 3.15  
Forfeited     (19,220 )   $ 1.89       (362,444 )   $ 3.35  
Granted     330,000     $ 0.40       506,000     $ 1.76  
Outstanding at end of period     1,547,122     $ 2.03       1,806,383     $ 2.27  
Expected to vest based     928,273     $ 2.03                  
Options exercisable     875,958     $ 2.60       454,808     $ 3.21  
Weighted-average fair value of options granted during the period           $ 0.32             $ 1.40  

 

The weighted average remaining contractual life of stock options outstanding and expected to vest at March 31, 2012 is 8.7 years. The weighted average remaining contractual life of stock options exercisable at March 31, 2012 is 8.3 years. The aggregate intrinsic value of $43,400 is calculated as the difference between the exercise prices of the underlying options and the quoted closing price of the common stock of the Company as of March 31, 2012 for those options that have an exercise price below the quoted closing price.

 

As of March 31, 2012, the total compensation expense related to non-vested options not yet recognized totaled $691,401. The weighted-average vesting period over which the total compensation expense related to non-vested options not yet recognized at March 31, 2012 was approximately 1.3 years.