Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
6 Months Ended
Jun. 30, 2012
Stock-Based Compensation  
Stock-Based Compensation

4.                                      Stock-Based Compensation

 

Stock Option Plans and Restricted Share Issuance

 

In May 2005, the Company’s shareholders approved the 2005 Stock Incentive Plan (the “2005 Plan”).  Incentive stock options are issuable only to employees of the Company, while non-qualified stock options may be issued to non-employee directors, consultants and others, as well as to employees.  Under the 2005 Plan, the per share exercise price of incentive stock options may not be less than the fair market value of the common stock on the date the option is granted.  The 2005 Plan provides that the Company may not grant non-qualified stock options at an exercise price less than 85% of the fair market value of the Company’s common stock.

 

The Company grants stock options to its non-employee directors.  New non-employee directors receive an initial grant of an option to purchase 45,000 shares of the Company’s common stock that generally vest in quarterly installments over three years.  Once the initial grant has fully vested, non-employee directors (other than the Chairman of the Board) receive an annual grant of an option to purchase 22,500 shares of the Company’s common stock that generally will vest in four equal quarterly installments. The Chairman of the Board receives an annual grant of an option to purchase 45,000 shares of the Company’s common stock that generally vests in four equal quarterly installments. All such options have an exercise price equal to the fair market value of the Company’s common stock on the date of grant.

 

As a result of employee terminations in the first quarter of 2011, options held by terminated employees to purchase a total of 173,000 shares of common stock with an exercise price of $0.24 per share were cancelled, but were replaced by the Company with new options, all of which were immediately vested, to purchase 173,000 shares of common stock at an exercise price of $0.24 per share.  The Company recorded an additional $2,000 in stock compensation expense related to these grants during the three months ended March 31, 2011.

 

During the three months ended June 30, 2012, the Company granted options to employees to purchase 355,000 shares of the Company’s common stock, which vest ratably over a three year period and granted options to purchase 112,500 shares of the Company’s common stock to non-employee directors that vest quarterly over one year.

 

During the year ended December 31, 2011, the Company granted options to purchase 565,000 shares of the Company’s common stock to employees with performance-based vesting.  Management determined that as of June 30, 2012, it was probable that the performance conditions associated with the performance-based vesting were to be met in July 2012 with the closing of the second tranche convertible notes. Therefore, the related expense was recorded in the six months ending June 30, 2012.

 

On March 30, 2012 and June 30, 2012, the Company issued an aggregate of 625,000 and 208,334 shares, respectively, of restricted common stock to Garden State Securities, Inc. and JFS Investments, Inc. in exchange for certain investor relations and related consulting services to the Company.  These shares vested immediately but are restricted from being sold for a period of six months from the date of issuance.  The issuance of these shares resulted in $40,000 and $246,000 of compensation expense in the three and six months ended June 30, 2012.

 

As of June 30, 2012, there were 674,156 shares of common stock available to be granted under the 2005 Plan.

 

The following is a summary of option activity under all plans (in thousands, except per option data):

 

 

 

Number
of Options

 

Weighted
Average
Exercise
Price

 

Average
Remaining
Contractual
Life (Years)

 

Aggregate
Intrinsic
Value

 

Outstanding, December 31, 2011

 

5,602

 

$

0.21

 

 

 

 

 

Granted

 

468

 

0.17

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Expired

 

(3

)

0.55

 

 

 

 

 

Forfeited

 

(475

)

0.24

 

 

 

 

 

Outstanding, June 30, 2012

 

5,592

 

0.21

 

3.62

 

96,975

 

Exercisable, June 30, 2012

 

4,404

 

0.21

 

2.60

 

64,833

 

 

Stock-Based Compensation Expense

 

The Company recorded compensation expense related to stock options of $32,000 and $53,000 in the three and six months ended June 30, 2012, respectively, as compared to $63,000 and $93,000 in the three and six months ended June 30, 2011, respectively.  The Company also recorded compensation expense of $40,000 and $246,000 related to the issuance of restricted common shares during the three and six months ended June 30, 2012, respectively.  As of June 30, 2012, the Company had $88,000 of total unrecognized compensation cost related to its unvested options, which is expected to be recognized over a weighted average period of 1.83 years.

 

The weighted average fair value of options issued, as estimated using the Black-Scholes model, was $0.16 and $0.08 during the three months ended June 30, 2012 and 2011, respectively.  The assumptions used were as follows:

 

 

 

Grants Issued in:

 

 

 

2012

 

2011

 

Expected life (years)

 

5.00-6.00

 

1.00–6.00

 

Risk free rate

 

0.19-0.69%

 

2.20–2.65%

 

Volatility

 

204.1-216.2%

 

116.7–121.6%

 

Expected dividend yield

 

None

 

None

 

Value of options granted

 

$0.12-0.17

 

$0.12–0.13

 

 

The expected life was calculated using the simplified method. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term.  Expected volatility is based exclusively on historical volatility data of the Company’s common stock.  The Company estimates an expected forfeiture rate by analyzing historical forfeiture activity and considering how future forfeitures are expected to differ from historical forfeitures.  The Company expects that all outstanding options at June 30, 2012 will fully vest over their requisite service period.  Actual results, and future changes in estimates, may differ substantially from the Company’s current estimates.

 

Stock Purchase Plan

 

The Company has a 2000 Employee Stock Purchase Plan (the “Purchase Plan”) for all eligible employees whereby shares of the Company’s common stock may be purchased at six-month intervals at 95% of the average of the closing bid and ask prices of the Company’s common stock on the last business day of the relevant plan period.  Employees may purchase shares having a value not exceeding 10% of their gross compensation during an offering period, subject to certain additional limitations.  There was no activity during the three and six months ended June 30, 2012 or 2011.  At June 30, 2012, 294,461 shares were reserved for future issuance under the Purchase Plan.