Stockholders Equity

12 Months Ended

Dec. 31, 2011

Stockholders Equity [Abstract]

Stockholders Equity

7.  Stockholders' Equity

Common Stock.  During 2011, the Company issued 225,000 restricted shares of common stock to two non-executive employees in conjunction with awards granted to these employees prior to 2010. All of the shares so issued were fully vested upon issuance. Also, the Company issued 180,301 shares of common stock as a result of the exercise of employee stock options, at an average exercise price of approximately $0.059 per share, that resulted in $10,600 proceeds to the Company.

During 2010 the Company issued 14,000 shares of common stock to employees in connection with its Employee Stock Purchase Plan, resulting in cash proceeds of $400. The Company's ESPP expired in January 2010. Shares purchased under the ESPP during 2010 were the culmination of grants issued during 2009. For grants made during 2009, the weighted average fair value of ESPP shares was $0.07.

During 2010, 400,000 shares of unvested performance-based restricted common stock that had been previously awarded were forfeited as the underlying performance criteria had not been met. Upon forfeiture, such awarded shares were retired and made available for reissue by the Company.

During 2010, the Company issued 83,333 shares of common stock to employees in connection with the exercise of employee stock options, resulting in cash proceeds of $5,000.

2011 Private Placement

During 2011, the Company issued to accredited investors 35,500,000 shares of its common stock and five-year warrants to purchase an additional 17,750,000 shares of common stock at an exercise price of $0.26 per share in a private placement (the “2011 private placement”) that resulted in gross proceeds of $7,100,000, which was recorded in the financial statements as follows:

Gross cash proceeds	$	7,100,000
Less:
Gross proceeds allocated to warrants liability - investors		(2,999,700	)
Gross proceeds allocated to additional paid-in capital and common stock		4,100,300
Cash issuance costs
Placement Agent fee and expenses		(766,500	)
Legal and accounting fees		(208,000	)
Non-cash issuance costs
Warrants liability – Placement Agent fees		(901,000	)
Recorded in additional paid-in capital and common stock	$	2,224,800

MDB Capital Group, LLC acted as the placement agent in connection with the 2011 private placement, for which it received (i) warrants to acquire 3,550,000 shares of common stock at an exercise price of $0.20 per share, (ii) warrants to acquire 1,775,000 shares of common stock at an exercise price of $0.26 per share, (iii) a $710,000 placement agent fee, and (iv) reimbursement of expenses of approximately $56,500. Such warrants issued to MDB had an estimated fair value of $901,000 upon issuance.

In conjunction with the warrants issued in the 2011 private placement, the Company recorded a Warrants Liability of $3,900,700 as of September 1, 2011 on its Balance Sheet. (Note 6)

All of the warrants issued in respect to the 2011 private placement will expire on September 1, 2016. The exercise price of the warrants could, in certain circumstances, be reset to below-market value. Additionally, all of the warrants contain a cashless exercise provision (net settlement provision) that, under certain circumstances, allows the warrant holders the right to exercise their warrants without making a payment to the Company. In such circumstances, the warrant holders would receive fewer shares of common stock than they otherwise would have been entitled to had they paid the exercise price in cash (a net settlement).

Tender Offer

On September 14, 2011 the Company offered its employees and directors an opportunity to voluntarily exchange certain options to purchase shares of the Company's common stock having an exercise price greater than $0.20 per share that were granted prior to August 31, 2011, upon the terms and subject to the conditions described in the Offer to Exchange and the related Election Form filed with the Securities and Exchange Commission as Exhibits (a)(1) and (a)(3) to a Schedule TO.

Upon expiration of the offer, which occurred on October 12, 2011, participants tendered, and the Company accepted for exchange, 3,447,500 eligible options, representing approximately 84.0% of the total number of eligible options. Pursuant to the terms and conditions of the Offer to Exchange, the Company cancelled all tendered options and, in exchange for such tendered options, immediately thereafter granted an aggregate 3,447,500 new options. The exercise price of the new options was $0.202 per share, which was the closing price of the Company's common stock on October 12, 2011, as reported by the Over-the-Counter Bulletin Board. The weighted average fair value of the options granted to employees (non-officers) was approximately $0.17 per share and was determined using a binomial pricing model with the following assumptions: estimated volatility - 182%, annualized forfeiture rate - 2.44%, expected option term - 10 years, estimated exercise factor – 5, risk free interest rate – 2.98% and no dividends. The weighted average fair value of the options granted to officers and directors was approximately $0.19 per share and was calculated using a binomial pricing model with the same assumptions as was used for the options granted to employees except that the estimate exercise factor was 15. All of the options vest ratably over the next two years; accordingly, the Company expects to recognize approximately $130,100 of additional stock-based compensation expense, net of estimated forfeitures, over the next two years, of which approximately $39,900 was recognized during the three-month period ended December 31, 2011.

Stock Repurchase Program

During the years ended December 31, 2011 and 2010, the Company did not repurchase any of its common stock under the terms of its Board-approved $1,000,000 stock repurchase program (“stock repurchase program”). As of December 31, 2011, approximately $782,600 remained available for future purchases under this program. The Company is not obligated to repurchase any specific number of shares and the stock repurchase program may be suspended or terminated at the Company's discretion.

Stock-Based Compensation Plans

Active Plans

2005 Equity Incentive Plan.  In December 2005, the Company's 2005 Equity Incentive Plan (the “05 Plan”) was adopted by the Board and approved by the stockholders.  Pursuant to the terms of the 05 Plan, options or performance vested stock may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company.  The Company is authorized to issue options to purchase up to 3,500,000 shares of common stock or performance vested stock in accordance with the terms of the 05 Plan.

In the case of a performance vested stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board.  For awards based on time, should the grantee's service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a performance vested stock award would be considered outstanding for dividend, voting and other purposes.

Under the 05 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company's common stock on the date the option is granted.  The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company's common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company's capital stock then the exercise price will be no less than 110% of the fair market value of the Company's common stock on the date the option is granted.  The purchase price of the performance-vested stock issued under the 05 Plan shall also not be less than 100% of the fair market value of the Company's common stock on the date the performance-vested stock is granted.

All options granted under the 05 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options.  The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant.  The exercise price is immediately due upon exercise of the option.  The maximum term of options issued under the 05 Plan is ten years. Shares issued upon exercise of options are subject to the Company's repurchase, which right lapses as the shares vest. The 05 Plan will terminate no later than February 3, 2015.

As of December 31, 2011, options to purchase 1,705,000 shares of common stock were outstanding, 1,075,000 shares of restricted common stock had been awarded, 400,000 shares of restricted common stock awards had been forfeited, 675,000 shares of restricted stock were issued and outstanding, 5,000 options had been exercised and 1,115,000 shares of common stock remained available for issuance under the 05 Plan.

During the year ended December 31, 2011, options to purchase 300,000 shares of common stock, with a weighted average grant date fair value of $0.17, were granted under the 05 Plan. No options were granted under the 05 Plan during the year ended December 31, 2010.

No options previously issued under the 05 Plan were exercised during the years ended December 31, 2011 or 2010.

2008 Equity Incentive Plan.  In November 2008, the Board approved an additional stock option/stock issuance plan (the “08 Plan”).  Pursuant to the terms of the 08 Plan, options or restricted stock may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company.  The Company is authorized to issue options to purchase up to 14,438,333 shares of common stock or restricted stock in accordance with the terms of the 08 Plan.

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or performance conditions specified by the Board or an authorized committee of the Board.  For awards based on time, should the grantee's service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a performance vested stock award would be considered outstanding for dividend, voting and other purposes.

Under the 08 Plan, the exercise price of options granted is to be no less than 100% of the fair market value of the Company's common stock on the date the option is granted.  The purchase price of performance-vested stock issued under the 08 Plan shall also not be less than 100% of the fair market value of the Company's common stock on the date the performance-vested stock is granted.  As of December 31, 2011, options to purchase 9,469,194 shares of common stock were outstanding, 263,634 options had been exercised and 4,705,505 shares of common stock remained available for issuance under the 08 Plan.

Options granted under the 08 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options.  The options (and the shares of common stock issuable upon exercise of such options) typically vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant.  The exercise price is immediately due upon exercise of the option.  The maximum term of options issued under the 08 Plan is ten years. Shares issued upon exercise of options are subject to the Company's repurchase, which right lapses as the shares vest. The 08 Plan will terminate no later than November 19, 2018.

During the year ended December 31, 2011, options to purchase 8,128,500 shares of common stock, with a weighted average grant date fair value of $0.11 per share, were granted under the 08 Plan, of which options to purchase 3,447,500 shares of common stock, with a weighted average grant date fair value of $0.18 were granted under the terms of the Tender Offer. During the year ended December 31, 2010, options to purchase 1,049,166 shares of common stock, with a weighted average grant date fair value of $0.06 per share, were granted.

During the year ended December 31, 2011 and 2010, 180,301 and 83,333 options previously granted under the 08 Plan were exercised, resulting in cash proceeds of $10,600 and $5,000, respectively.

Inactive Plans

The following table summarizes options outstanding as of December 31, 2011 and 2010 that were granted from stock based compensation plans that are inactive. Such plans can longer grant options, and none of the plans listed in the table granted options during 2011 or 2010. Additionally, none of the options previously issued from the plans listed in the table were exercised during 2011 or 2010.

		Options Outstanding
	Year	Beginning of Year		Granted		Exercised		Cancelled			End of Year
1998 Stock Option/Stock Issuance Plan	2011		2,691,600		-		-		(2,259,100	)		432,500
Supplemental Stock Option Agreement	2011		381,000		-		-		(351,000	)		30,000
GG Stock Option Plan	2011		250,000		-		-		(250,000	)		-
1996 Stock Option Plan	2011		30,000		-		-		(30,000	)		-
Total - Inactive Plans			3,352,600		-		-		(2,890,100	)		462,500
1998 Stock Option/Stock Issuance Plan	2010		3,027,325		-		-		(335,725	)		2,691,600
Supplemental Stock Option Agreement	2010		381,000		-		-		-			381,000
GG Stock Option Plan	2010		250,000		-		-		-			250,000
1996 Stock Option Plan	2010		54,625		-		-		(24,625	)		30,000
Total - Inactive Plans			3,712,950		-		-		(360,350	)		3,352,600

Summary – All Plans

A summary of the status of all of the Company's stock option plans as of December 31, 2011 and 2010, and changes during the years then ended, is presented in the following table:

	2011					2010
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Beginning		7,322,933		$	0.27		7,047,450		$	0.32
Granted		8,428,500		$	0.20		1,049,166		$	0.06
Exercised		(180,301	)	$	0.06		(83,333	)	$	0.06
Forfeited or expired		(3,934,438	)	$	0.39		(690,350	)	$	0.47
Ending		11,636,694		$	0.18		7,322,933		$	0.27
Exercisable at year-end		11,636,694		$	0.18		7,322,933		$	0.27
Vested or expected to vest at year-end		11,455,294		$	0.18		7,303,463		$	0.27
Weighted average fair value of options granted during the period				$	0.11				$	0.06

As of December 31, 2011 and 2010, of the options exercisable, 3,586,444 and 6,182,099 were vested, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2011:

					Options Outstanding				Options Exercisable
Range of Exercise Price					Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$	0.05	-	$	0.16	2,321,694	7.02	$	0.06	2,321,694	$	0.06
$	0.17	-	$	0.20	2,182,500	7.45	$	0.18	2,182,500	$	0.18
$	0.21	-	$	0.23	5,792,500	9.16	$	0.21	5,792,500	$	0.21
$	0.24	-	$	0.56	1,340,000	8.98	$	0.29	1,340,000	$	0.29
					11,636,694	8.39	$	0.18	11,636,694	$	0.18

As of December 31, 2011, there were outstanding options to purchase 11,636,694 shares of common stock with a weighted average exercise price of $0.18 per share, a weighted average remaining contractual term of 8.39 years and an aggregate intrinsic value of $287,300.  Of the options outstanding as of December 31, 2011, 3,586,444 were vested, 7,868,850 were estimated to vest in future periods and 181,400 were estimated to be forfeited or to expire in future periods.

As of December 31, 2011, there was approximately $662,000 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested awards. That cost is expected to be recognized over a weighted-average period of approximately fourteen months.