Stock-Based Compensation

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

10. Stock-Based Compensation

Stock Options

The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award.  Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant.  These options generally vest over a four- to ten-year period.

The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield.  The risk free interest rate is based on U.S. Treasury zero-coupon yield curve over the expected term of the option.  The expected term assumption is determined using the weighted average midpoint between vest and expiration for all individuals within the grant.  The expected volatility assumption is based on the standard deviation of the Company’s underlying stock price’s daily logarithmic returns.  The Company’s model includes a zero dividend yield assumption, as the Company has not historically paid nor does it anticipate paying dividends on its common stock.  The Company’s model does not include a discount for post-vesting restrictions, as the Company has not issued awards with such restrictions.  The periodic expense is then determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded.  The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest.

The Company recognized $1,072 in stock-based compensation expense during the three-month period ended March 31, 2013, relating to the vesting of stock options, and had $11,256 of unrecognized compensation, as of that date, which will be recognized over the 3.1 years.  For the three-month periods ended March 31, 2012, the Company recognized $2,672 in stock-based compensation expense.

A summary of option activity under the Company’s employee stock option plan for the three months ended March 31, 2013, is presented below:

Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,163	$	22.34		4.4
Granted		-	$	-
Exercised		-	$	-
Expired or forfeited		-	$	-
Outstanding at March 31, 2013		7,163	$	22.34		4.2	$	-
Options exercisable at March 31, 2012		6,789	$	21.36		4.2	$	-

Restricted Stock Awards

A restricted stock award entitles the recipient to receive shares of unrestricted common stock upon vesting of the award and expiration of the restrictions.  The fair value of each restricted stock award is determined upon granting of the shares and the related compensation expense is recognized ratably over the vesting period and charged to the operations as non-cash compensation expense.  Shares contained in the unvested portion of restricted stock awards are forfeited upon termination of employment, unless otherwise agreed.  The fair value of restricted stock issued under the Plan is determined based on the closing price of the Company’s common stock on the grant date.

A summary of the restricted stock award activity for the three months ended March 31, 2013 is as follows:

	Number of Units		Weighted Average Grant  Date Fair Value
Nonvested at January 1, 2013		122,500		$	6.83
Granted		-
Vested		-
Forfeited		-
Nonvested at March 31, 2013		122,500		$	6.83

The Company incurred $3,072 and $0 in compensation expense during the three months ended March 31, 2013 and 2012, respectively, related to the restricted stock awards previously granted.  At March 31, 2013, unrecognized compensation expense associated with the restricted stock awards was $12,287, which will be amortized over approximately 1.0 year.

At the end of December 2012, the Company entered into a Consulting Agreement with an entity wholly-owned by Mr. Kesner, then a member of the board of directors of the Company, pursuant to which the entity was issued 120,000 shares of common stock in exchange for it services.  The shares will vest if prior to December 31, 2017, the Company; (i) closes an acquisition either approved by the stockholders or in excess of $25 million; (ii) closes a private or public financing of at least $7.5 million; (iii) sells all or substantially all of its assets; or (iv) otherwise suffers a change in control.  In such an event, the affiliate shall also be entitled to a one-time payment of $250,000.  Expense is recognized upon satisfaction of the above contingencies.  No expense was recognized during the three months ended March 31, 2013.