Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

8.  Stockholders' Equity

Common Stock. During 2012, the Company issued 3,764,500 restricted shares of common stock to three executive employees and 393,000 restricted shares to employees. Restricted shares vest ratably over a 33-month period commencing in the fourth month after the grant date. Upon an grantee's termination of service to us prior to full vesting any unvested shares will be cancelled.

Also, the Company issued 615,447 shares of common stock as a result of the exercise of employee stock options, at an average exercise price of approximately $0.08 per share, that resulted in $49,800 proceeds to the Company.

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.

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 7) None of the warrants issued in the 2011 private placement had been exercised at either December 31, 2012 or 2011.

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 a two year period which began on October 12, 2011. We recognized $56,400 and $39,900 of stock-based compensation expense, net of estimated forfeitures, during the years ended December 31, 2012 and 2011, respectively, related to this tender offer.

Stock Repurchase Program

During the years ended December 31, 2012 and 2011, 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, 2012, 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

2012 Equity Incentive Plan. In November 2012, the Company's 2012 Equity Incentive Plan (the "12 Plan") was approved by the stockholders. Pursuant to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes referred to individually or collectively as "awards") 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 8,817,993 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms of the 12 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 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 restricted stock award would be considered outstanding for dividend, voting and other purposes.

Under the 12 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 restricted stock issued under the 12 Plan shall also not be less than 100% of the fair market value of the Company's common stock on the date the restricted stock is granted.

All options granted under the 12 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 12 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 12 Plan will terminate no later than November 7, 2022.

During the year ended December 31, 2012, options to purchase 700,000 shares of common stock, with a weighted average grant date fair value of $0.35, were granted under the 12 Plan, and 4,157,500 shares of restricted common stock, with a weighted average grant date fair value of $0.21 were granted No options had been exercised and 3,960,493 shares of common stock remained available for issuance under the 12 Plan.

No options previously issued under the 12 Plan were exercised during the years ended December 31, 2012 or 2011.

Inactive Plans

The following table summarizes options outstanding as of December 31, 2012 and 2011 that were granted from stock based compensation plans that are inactive. As of December 31, 2012 such plans can no longer grant options.

		Options Outstanding
	Year	Beginning of Year		Granted		Exercised			Cancelled			End of Year
2008 Stock Option Plan	2012		9,469,194		4,262,500		(390,447	)		(1,457,247	)		11,884,000
2005 Equity Incentive Plan	2012		1,705,000		350,000		(25,000	)		(582,500	)		1,447,500
1998 Stock Option/Stock Issuance Plan	2012		432,500		—		(200,000	)		(95,000	)		137,500
Supplemental Stock Option Agreement	2012		30,000		—		—			(25,000	)		5,000
			11,636,694		4,612,500		(615,447	)		(2,159,747	)		13,474,000
2008 Stock Option Plan	2011		1,855,333		8,128,500		(180,301	)		(334,338	)		9,469,194
2005 Equity Incentive Plan	2011		2,115,000		300,000		—			(710,000	)		1,705,000
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	)		—
			7,322,933		8,428,500		(180,301	)		(3,934,438	)		11,636,694

Summary – All Plans

A summary of the status of all of the options outstanding under all of the Company's stock option plans as of December 31, 2012 and 2011, and changes during the years then ended, is presented in the following table:

	2012					2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Beginning		11,636,694		$	0.18		7,322,933		$	0.27
Granted		5,312,500		$	0.22		8,428,500		$	0.20
Exercised		(615,447	)	$	0.08		(180,301	)	$	0.06
Forfeited or expired		(2,159,747	)	$	0.20		(3,934,438	)	$	0.39
Ending		14,174,000		$	0.20		11,636,694		$	0.18
Exercisable at year-end		14,174,000		$	0.20		11,636,694		$	0.18
Vested or expected to vest at year-end		13,901,838		$	0.20		11,455,294		$	0.18
Weighted average fair value of options granted during the period				$	0.22				$	0.11

As of December 31, 2012 and 2011, of the options exercisable, 6,803,675 and 3,586,444 were vested, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2012:

					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	—	$	0.17		3,737,000		7.37	$	0.11		3,737,000	$	0.11
$	0.18	—	$	0.20		4,419,500		6.27	$	0.20		4,419,500	$	0.20
$	0.21	—	$	0.23		4,167,500		7.30	$	0.23		4,167,500	$	0.23
$	0.25	—	$	0.38		1,850,000		9.01	$	0.31		1,850,000	$	0.31
						14,174,000		7.22	$	0.20		14,174,000	$	0.20

As of December 31, 2012, there were outstanding options to purchase 14,174,000 shares of common stock with a weighted average exercise price of $0.20 per share, a weighted average remaining contractual term of 7.22 years and an aggregate intrinsic value of $2,422,200. Of the options outstanding as of December 31, 2012, 6,803,675 were vested, 7,098,163 were estimated to vest in future periods and 272,162 were estimated to be forfeited or to expire in future periods.

As of December 31, 2012, there was approximately $592,900 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested options. That cost is expected to be recognized over a weighted-average period of approximately fourteen months.

During 2012, the Company awarded 4,157,500 shares of restricted common stock, which vest ratably, over a 33-month period; however, no shares vest until after three months from the date of the restricted stock award. The Company includes the common stock underlying the restricted stock award in shares outstanding once the common stock underlying the restricted stock award has vested and the restriction has been removed ("releases" or "released").

A summary of the status of all of the Company's unreleased restricted stock awards as of December 31, 2012 and changes during the year then ended, is summarized in the following table. The Company did not issue any restricted stock awards during 2011, nor were any previously unreleased restricted stock awards outstanding at any time during 2011.

	2012
	Shares			Weighted Average Fair Value
Beginning unreleased		—		$	—
Awarded		4,157,500		$	0.18
Released		(114,377	)	$	0.18
Forfeited		—		$	—
Ending unreleased		4,043,123		$	0.18

Of the restricted stock awards unreleased at December 31, 2012, 3,816,606 were estimated to be released in future periods and 226,517 were estimated to be forfeited in future periods. The aggregate fair market value of the unreleased restricted stock awards at December 31, 2012, based on the closing price of our stock as of such date of $0.37 was $1,495,955.

As of December 31, 2012, there was approximately $625,400 of total unrecognized compensation cost, net of estimated forfeitures, related to unreleased restricted stock awards. That cost is expected to be recognized over a weighted-average period of approximately two years and eight months.