Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Stockholders' Equity

3. Stockholders’ Equity

The Company records compensation expense associated with share based awards granted to employees at the fair value of the award on the date of grant. The expense is recognized over the period during which an employee is required to provide services in exchange for the award.

The Company’s 2008 Equity Compensation Plan (the “Plan”) allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards. All of the Company’s officers, directors, employees, consultants and advisors are eligible to receive grants under the Plan. Under the Plan, the maximum number of shares authorized for issuance is 21,000,000 and the maximum number of shares of stock that may be granted to any one participant during a calendar year is 1,000,000 shares. Options to purchase shares of common stock are granted at exercise prices not less than 100% of fair market value on the dates of grant. The term of each option is 10 years and the options typically vest in quarterly installments over a three-year period. As of September 30, 2014, the Plan had 4,386,709 shares available for grant. Stock option exercises are satisfied through the issuance of new shares.

Stock Options

A summary of stock option activity under the Plan as of September 30, 2014, and the changes during the nine months then ended is as follows:

	Number of Shares			Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($)
Outstanding at December 31, 2013		7,697,892			1.89
Granted		1,957,701			3.08
Exercised		(1,991,728	)		1.19				3,499,052
Cancelled/Forfeited		(556,675	)		3.36
Outstanding at September 30, 2014		7,107,190			2.30		6.3		2,050,397
Exercisable at September 30, 2014		4,893,821			1.85		5.0		2,050,397

Total recognized compensation expense for stock options was approximately $1,451,000 and $982,000 for the first nine months of 2014 and 2013, respectively and was approximately $643,000 and $401,000 for the three month periods ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was approximately $3,500,000 of total unrecognized compensation cost related to nonvested outstanding stock options that is expected to be recognized over a weighted average period of approximately 2.0 years.

The per share weighted average fair values of options granted during the first nine months of 2014 and 2013 were estimated as $3.08 and $2.27 on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Company’s stock price. The weighted average expected life is based on both historical and anticipated employee behavior.

	September 30,
	2014			2013
Risk-free interest rate		1.7	%		0.7	%
Annualized volatility		62.0	%		62.5	%
Weighted average expected life, in years		6.0			6.0
Expected dividend yield		0.0	%		0.0	%

In the first nine months of 2014, 1,991,728 stock options with a weighted average exercise price of $1.19 were exercised which generated proceeds of $2,363,425 to the Company. In the first nine months of 2013, 707,285 stock options with a weighted average exercise price of $0.72 were exercised which generated proceeds of $508,638 to the Company.

Stock Awards

At times, the Company makes discretionary grants of its common stock to members of management and other employees in lieu of cash bonus awards or in recognition of special achievements. In the first quarter of 2014, there were 150,000 shares of common stock granted to members of executive management as bonus compensation for achievements in 2013. There were no discretionary grants of common stock in 2013 or in the second or third quarters of 2014.

Expense is recognized on a straight line basis over the vesting period and is based on the fair value of the stock on the grant date. The fair value of each stock award is determined based on the number of shares granted and the market price of the Company’s common stock on the date of grant.

In addition to the shares granted to members of management and employees, at times directors receive a portion of their annual compensation in shares of Company common stock. Expense is recognized on a straight line basis over the one year period that the compensation is earned. Expense recognized in connection with shares granted to directors was $356,000 and $470,000 in the nine month period ended September 30, 2014 and 2013, respectively and was $13,000 and $204,000 in the three month periods ended September 30, 2014 and 2013, respectively.

Long Term Incentive Program (LTIP)

The Company’s Board of Directors has approved a long term incentive program (“LTIP”) for the benefit of the Company’s senior executives. Pursuant to the LTIP, the Company’s senior executives have been awarded stock options and performance stock units with targeted values based on values granted by the Company’s peer group. In 2014, the program was modified such that the value of the annual award for each senior executive was delivered 50% in the form of performance stock units, 25% in the form of shares of restricted stock and 25% in the form of stock options. In the prior year, 33% of the value for each senior executive was delivered in the form of stock options, 33% of the value was delivered in the form of performance stock units and 33% was delivered in the form of restricted stock. The stock options have a ten-year term, have an exercise price equal to the closing price of the Company’s common stock on the date of grant, vest in quarterly installments over three years, were otherwise granted on the same standard terms and conditions as other stock options granted pursuant to the Plan and are included in the stock options table above. The restricted stock vests in three equal annual installments. Expense recognized in the first nine months of 2014 in connection with the restricted stock was approximately $150,000. The performance stock unit awards made to the senior executives will be vested and convert into actual shares of the Company’s common stock based on the Company’s attainment of certain performance goals over a performance period of three years. In connection with performance stock unit awards for defined performance goals considered probable of achievement, a net expense reduction of $55,000 was recognized in the first nine months of 2014. The net expense reduction was primarily the result of the reversal of expense associated with awards previously granted to senior executives who left the Company in 2014 where the awards will not vest. The performance stock unit awards and restricted stock granted under the long term incentive program are summarized in the following table:

	Performance Stock Units					Restricted Stock
	Number of Shares			Weighted Average Fair Value ($)		Number of Shares			Weighted Average Fair Value ($)
Outstanding at December 31, 2013		406,663			3.19		155,724			3.96
Granted		651,980			3.02		325,991			3.02
Vested		(75,000	)		1.66		(51,907	)		3.96
Forfeited/Expired		(400,360	)		3.21		(150,726	)		3.45
Outstanding at September 30, 2014		583,283			3.19		279,082			3.14

A portion of the shares that were granted as discretionary shares or under the LTIP that vested in the first nine months of 2014 and 2013 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were 38,768 and 30,153 in 2014 and 2013, respectively, and were based on the value of the shares on their vesting date as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to the taxing authorities were $154,397 and $104,329 in 2014 and 2013, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

Warrants

In the first nine months of 2014, the Company received proceeds of $545,115 from the exercise of 545,100 warrants. In the first nine months of 2013, the Company received proceeds of $261,799 from the exercise of 234,541 warrants. There were 545,100 warrants outstanding at December 31, 2013 and none outstanding at September 30, 2014.