Equity Instruments

12 Months Ended

Dec. 31, 2011

Equity Instruments [Abstract]

Equity Instruments

NOTE 8 — EQUITY INSTRUMENTS

Our Series C convertible preferred stock is the only class of preferred outstanding at December 31, 2011 and 2010. It is currently convertible into common stock at the rate of approximately 316.28 common shares for each share of Series C preferred, adjustable for any future dilutive issuances of common stock. Series C preferred shares vote with the common shares on an as-converted basis. The shares are nonparticipating except that dividends, when declared by our Board of Directors must be paid before any dividends are paid on our common stock. Other significant rights and preferences of the Series C preferred include:

• the right to vote as a separate class and to appoint five directors of the Company,

• liquidation preferences, whereby the Series C holders have a claim against our assets senior to the claim of the holders of our common stock in the event of our liquidation, dissolution or winding-up (the liquidation preference is $250 per share, or a total of approximately $2.6 million and $3.6 million at December 31, 2011 and 2010, respectively).

We also have a class of convertible preferred stock, Series D, that is authorized but for which no vested shares were outstanding at December 31, 2011. Effective January 4, 2012, 250 shares of Series D stock were issued that do not vest until the tenth anniversary of the grant date and are therefore will not be considered outstanding until that time. Such shares were issued in exchange for the cancelation of 120 previously granted warrants to purchase Series D shares. Once vested, a Series D preferred share will be convertible at any time into 100,000 shares of common stock, subject to adjustment in the event of any common stock dividend, split, combination thereof or other similar recapitalization, without additional consideration. Once vested, each Series D convertible preferred share will be entitled to the number of votes equal to those of 500,000 shares of common stock, irrespective of whether the share is vested. Unless otherwise required by applicable law, holders of vested shares of Series D will have the right to vote together with holders of common stock as a single class on all matters submitted to a vote of our stockholders. Holders of Series D convertible preferred shares, once vested, will also enjoy certain specified liquidation and dividend preferences.

STOCK INCENTIVE COMPENSATION PLANS

WARRANTS:

Warrants to Purchase Common Stock

During 2011, we issued warrants to purchase an aggregate of 14,997,833 shares of our common stock to key employees, consultant, note holders and investors. Shares acquirable pursuant to the warrants vest at the warrant grant date and/or at specified dates throughout the 36 month or 120 month term of the warrants. In addition, we reclassified 500,000 unvested warrants previously issued to a consultant who became a director of the Company during 2011. These warrants continued to vest after the status change.

A summary of warrant activity for 2011 and 2010 follows:

Warrants	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2010		4,906,000		$	0.44	3.17 years
Granted		23,234,750		$	0.38
Forfeited, expired or cancelled		(931,000	)	$	0.77
Outstanding at December 31, 2010		27,209,750		$	0.37	4.25 years
Granted		14,997,833		$	0.35
Reclassified		500,000		$	0.55
Forfeited, expired or cancelled		(1,650,000	)	$	0.81
Outstanding at December 31, 2011		41,057,583		$	0.35	4.86 years	$	—
Exercisable at December 31, 2011		39,257,583		$	0.33	4.92 years	$	—

The following table summarizes information about warrants granted, exercised and vested during 2011 and 2010:

	2011		2010
Warrants granted		14,997,833		23,234,750
Weighted-average grant-date fair value ($)		0.17		0.14
Warrants reclassified		500,000		0
Weighted-average fair value ($)		0.13		—
Fair value of vested warrants ($)		2,387,736		3,090,671

We recognized approximately $1.7 million and $1.6 million of compensation costs related to warrants to purchase common stock during 2011 and 2010, respectively. Total unrecognized compensation costs related to warrants as of December 31, 2011 and 2010 was approximately $283,000 and $381,000 which is expected to be recognized over a weighted-average period of 31 and 38 months.

We might have recognized approximately $624,000 and $244,000 of tax benefits attributable to equity-based expense recorded for warrants issued to key employees for the years ended December 31, 2011 and 2010; however, this potential benefit was fully offset by our valuation allowance due to the aforementioned significant uncertainty of future realization.

A summary of warrants outstanding and exercisable as of December 31, 2011 follows:

Warrants Outstanding		Exercise Price Range	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Warrants Exercisable		Weighted- Average Exercise Price of Exercisable Warrants
	26,134,250	$0.25 - $0.38	$	0.25		5.62		26,134,250	$	0.25
	12,373,333	$0.44 - $0.50	$	0.48		3.62		12,023,333	$	0.48
	2,550,000	$0.52 - $1.00	$	0.75		3.05		1,100,000	$	0.56
	41,057,583	$0.25 - $1.00	$	0.35		4.86		39,257,583	$	0.33

Warrants to Purchase Series D Convertible Preferred Stock

As of December 31, 2011 and 2010, there were outstanding warrants to purchase up to 390 shares of our Series D convertible preferred stock of which 190 expire March 31, 2012 and 200 expire May 13, 2012. Each warrant may be exercised at any time prior to expiration at $25,000 per share. If the "market" value, as defined, of a share of Series D exceeds the exercise price, then the warrant holder may opt for a cashless exercise and receive the number of shares of Series D representing the net value of the warrant. The market value of a share of Series D is deemed by its terms to be equal to the product of (a) the per share traded market price of our common stock (a level 2 input) multiplied by (b) the number of shares of our common stock into which it is convertible.

In the event of a change of control (as defined in the warrants) of CompCare, the warrant holder will have the right to require us to redeem the warrant for an amount equal to the estimated fair value of the warrant determined using a Black-Scholes pricing model.

OPTIONS:

We currently have three active incentive qualified option plans, the 1995 Incentive Plan, the 2002 Incentive Plan and the 2009 Equity Compensation Plan (collectively, the "Plans"), that provide for the granting of stock options, stock appreciation rights, limited stock appreciation rights, restricted preferred stock, and common stock grants to grantees. Grants issued under the Plans may qualify as incentive stock options ("ISOs") under Section 422A of the Internal Revenue Code of 1986, as amended. Options for ISOs may be granted for terms of up to ten years. The vesting of options issued under the 1995 and 2002 plans generally occurs after six months for one-half of the options and after 12 months for the remaining options. For the 2009 Equity Compensation Plan, the vesting period is determined by the Compensation and Stock Option Committee. The exercise price for ISOs must equal or exceed the fair market value of the shares on the date of grant. The Plans also provide for the full vesting of all outstanding options under certain change of control events. As of December 31, 2011, there were a total of 4,575,268 options available for grant and 7,170,400 options outstanding, 6,465,800 of which were exercisable.

Effective January 13, 2012, we increased the aggregate number of shares of our common stock that may be issued under our 2009 Equity Compensation Plan from 10,000,00 to 50,000,000. The maximum number of common shares authorized for issuance pursuant to options under the Plans now totals 52,000,000.

In addition, under our Non-employee Directors' Stock Option Plan, we are authorized to issue non-qualified stock options to our non-employee directors for up to 1,000,000 common shares. Each non-qualified stock option is exercisable at a price equal to the average of the closing bid and asked prices of the common stock in the over-the-counter market for the most recent preceding day there was a sale of the stock prior to the grant date. Grants of options vest in accordance with vesting schedules established by our Board of Directors' Compensation and Stock Option Committee. Upon joining our Board of Directors, directors receive an initial grant of 25,000 options. Annually, directors are granted 15,000 options on the date of our annual meeting. As of December 31, 2011, there were 776,668 shares available for option grants and 125,000 options outstanding under the non-qualified directors' plan, 40,000 of which were exercisable.

Lastly, in December 2011, we issued to a consultant options to purchase up to 1,500,000 shares of our common stock. These options were issued outside the option plans described above.

A summary of activity for 2011 and 2010 follows:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2010		2,498,000		$	0.52		8.84 years
Granted		350,000			0.28
Forfeited, expired or cancelled		(236,900	)		0.39
Outstanding at December 31, 2010		2,611,100		$	0.50		8.09 years
Granted		6,925,000			0.27
Forfeited, expired or cancelled		(740,700	)		0.36
Outstanding at December 31, 2011		8,795,400		$	0.33		7.74 years	$	—
Exercisable at December 31, 2011		8,005,800		$	0.33		7.62 years	$	—

The following table summarizes information about options granted, exercised, and vested as of December 31.

	2011		2010
Options granted		6,925,000		350,000
Weighted-average grant-date fair value ($)		0.18		0.20
Options exercised		0		0
Total intrinsic value of exercised options ($)		—		—
Fair value of vested options ($)		1,304,754		197,574

During 2011 and 2010 we granted options to employees, non-employee directors and one consultant. Total recognized compensation costs during 2011 and 2010 were approximately $1.2 million and $165,000. As of December 31, 2011 and 2010, there was approximately $315,000 and 467,000 of unrecognized compensation cost related to options expected to be recognized over a weighted-average period of 19 and 24 months. We might have recognized approximately $404,000 and $9,000 of tax benefits attributable to stock-based compensation expense recorded during 2011 and 2010. However, this potential benefit was fully offset by our valuation allowance due to the aforementioned significant uncertainty of future realization.

A summary of our stock option activity and related information for 2011 and 2010 follows:

	Shares			Weighted Average Exercise Price
Outstanding as of January 1, 2010		2,498,000		$	0.52
Granted		350,000			0.28
Exercised		—			—
Forfeited, expired or cancelled		(236,900	)		0.39
Outstanding as of December 31, 2010		2,611,100		$	0.50
Granted		6,925,000			0.27
Exercised		—			—
Forfeited, expired or cancelled		(740,700	)		0.36
Outstanding as of December 31, 2011		8,795,400		$	0.33

A summary of options outstanding and exercisable as of December 31, 2011 follows:

Options Outstanding		Exercise Price Range	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Options Exercisable		Weighted- Average Exercise Price of Exercisable Options
	5,925,000	$0.23 - $0.25	$	0.25		9.13		5,600,000	$	0.25
	2,637,400	$0.28 - $0.56	$	0.41		5.03		2,172,800	$	0.41
	233,000	$0.65 - $2.16	$	1.58		3.09		233,000	$	1.58
	8,795,400	$0.23 - $2.16	$	0.33		7.74		8,005,800	$	0.33