Stock-Based Compensation Arrangements

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation Arrangements [Abstract]

Stock-Based Compensation Arrangements

Note 12—Stock-Based Compensation Arrangements

In June 2004, the Company’s shareholders approved the adoption of the 2004 Employee Stock Compensation Plan (the 2004 Plan). The 2004 Plan provides for the award of nonqualified and incentive stock options, restricted stock, and stock awards to employees, directors, officers, and consultants of the Company. A total of 4,000,000 shares of the Company’s common stock had been reserved for award under the 2004 Plan At the Company’s 2011 annual meeting stockholders approved an amendment to the 2004 Employee, Director and Consultant Stock Plan increasing the aggregate number of shares of common stock which may be offered under the plan by an additional 2,000,000 shares. At December 31, 2012, 2,032,780 shares were available for future issuance under the 2004 plan. At the Company’s 2012 annual meeting the stockholders approved a new Employee Stock Purchase Plan, pursuant to which 750,000 shares of common stock are authorized to be issued. During the year ended December 31, 2012, the Company granted 581,000 stock options under the 2004 Plan.

Stock option grants

It is the Company’s policy to grant stock options with an exercise price equal to the fair market value of the Company’s common stock at the grant date. Historically, the majority of the Company’s stock options have been granted in connection with the employee’s start date with the Company. In addition, the Company may grant stock options in recognition of promotion and/or performance.

Nonqualified and incentive stock options with a life of 10 years are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Options generally vest ratably over a period of three to five years based upon continuous service.

For purposes of determining the stock-based compensation expense for stock option awards in 2012 and 2011, the Black-Scholes option-pricing model was used with the following weighted-average assumptions:

	2012			2011
Risk-free interest rate		0.66	%		2.04	%
Expected life		5.73 years			5.73 years
Expected volatility		140.32	%		123.40	%
Dividend yield		0	%		0	%

Using these assumptions, the weighted average grant date fair value of options granted in 2012 and 2011 was $0.33 and $0.30, respectively.

Restricted Stock Awards

Holders of restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. Recipients of restricted stock awards are generally not required to pay any consideration to the Company for these restricted stock awards. The Company measures the fair value of the shares based on the last reported price at which the Company’s common stock traded on the date of the grant and compensation cost is recognized over the remaining service period. During each of the years ended December 31, 2012 and 2011 the Company granted no restricted stock awards.

Employee Stock Purchase Plan

Purchases made under the Company’s Employee Stock Purchase Plan are deemed to be compensatory because employees may purchase stock at a price equal to 85% of the fair market value of the Company’s common stock on either the first day or the last day of a calendar quarter, whichever is lower. During the three months ended June 30, 2012, the remaining shares were cancelled with the termination of the plan. At the Company’s 2012 annual meeting the stockholders approved a new Employee Stock Purchase Plan, pursuant to which 750,000 shares of common stock are authorized to be issued. During the years ended December 31, 2012 and 2011, employees purchased 52,158 and 114,907 shares of common stock at a weighted-average purchase price of $0.17 and $0.29, while the weighted-average fair value was $0.20 and $0.34 per share, resulting in compensation expense of $1,332 and $5,647, respectively.

The following table details stock option and restricted stock activity for the years ended December 31, 2012 and 2011.

	2012					2011
	Shares			Weighted Avg. Exercise Price		Shares			Weighted Avg. Exercise Price
Outstanding, beginning of period		2,228,067		$	1.14		1,611,267		$	1.54
Granted		581,000			0.36		810,000			0.34
Exercised		(2,500	)		0.00		(2,500	)		0.00
Forfeited/Expired		(504,567	)		0.60		(190,700	)		1.21
Outstanding, end of period		2,302,000		$	1.06		2,228,067		$	1.14
Exercisable, end of period		1,376,950		$	1.49		1,099,817		$	1.72

The following table details further information regarding stock options and restricted stock outstanding and exercisable at December 31, 2012:

	Stock Options/Restricted Stock Outstanding						Stock Options/Restricted Stock Exercisable
Range of Exercise Price:	Shares		Weighted Avg. remaining contractual life (years)		Weighted Avg. Exercise Price		Shares		Weighted Avg. Exercise Price
$0.01–$1.00		1,497,000		8.52	$	0.44		593,050	$	0.49
$1.01–$2.00		547,500		4.86		1.17		526,400		1.16
$2.01–$3.00		––		––		––		––		––
$3.01–$4.00		45,000		2.04		3.67		45,000		3.67
$4.01–$5.00		212,500		1.03		4.61		212,500		4.61
		2,302,000		6.83	$	1.06		1,376,950	$	1.49
Aggregate intrinsic value	$	5,075					$	0

The aggregate intrinsic value in the preceding table is based on the last reported price at which the Company’s common stock traded on December 31, 2012, of $0.31.

The following table summarizes the status of the Company’s non-vested options for the years ended December 31, 2012 and 2011:

	2012					2011
	Shares			Weighted Avg Exercise Price		Shares			Weighted Avg Exercise Price
Non-vested options, beginning of year		1,128,250		$	0.57		671,500		$	0.89
Granted		581,000			0.36		810,000			0.34
Vested		(367,600	)		0.65		(330,050	)		0.69
Forfeited		(416,600	)		0.52		(23,200	)		1.21
Non-vested options, end of year		925,050		$	0.42		1,128,250		$	0.57

Total cost for stock-based compensation arrangements is as follows:

	Year Ended December 31,
	2012		2011
Stock option grants beginning of period	$	182,064	$	139,272
Stock-based arrangements during the period:
Stock option grants		6,188		79,897
Restricted stock issued:
Employee stock purchase plan		1,332		5,647
Director agreements		2,244		2,275
	$	191,828	$	227,091

As of December 31, 2012 and 2011, there was approximately $266,718 and $251,187, respectively, of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company’s stock plans. That cost is expected to be recognized over a weighted average period of approximately 1.5 years.

In connection with the resignation of the Company’s former Chief Executive Officer, the Company as part of the Separation Agreement agreed to extend the expiration date of vested options until September 14, 2013. This change resulted in a modification of stock option terms per ASC 718 resulting in an additional stock compensation cost of $102,307, reflected in the December 31, 2012 financial statements. See Note 10.