Equity Instruments

3 Months Ended

Mar. 31, 2012

Equity Instruments [Abstract]

Equity Instruments

NOTE 6 – EQUITY INSTRUMENTS

Our Series C preferred stock 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 dilutive issuances of common occurring in the future. Series C preferred shares vote with the common stockholders 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 to appoint five directors of the Company, and

• 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 value of the liquidation preference is $250 per share, or approximately $2.6 million at March 31, 2012).

We also have a class of convertible preferred stock, Series D, that is authorized but for which no vested shares were outstanding at March 31, 2012. On 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. Each Series D convertible preferred share is 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 also enjoy certain specified liquidation and dividend preferences prior to and subsequent to vesting.

STOCK INCENTIVE COMPENSATION PLANS

WARRANTS:

We periodically issue warrants to purchase shares of our common and preferred stock for the services of employees and non-employee directors.

To Purchase Common Stock:

During the quarter ended March 31, 2012, we issued to a note holder an immediately exercisable, three-year warrant to purchase 25,000 shares of our common stock at a price of $0.25. We recognized approximately $8,600 of compensation costs related to warrants to purchase common stock during the three months ended March 31, 2012. Total unrecognized compensation costs related to warrants as of March 31, 2012 was approximately $253,000 which is expected to be recognized over a weighted-average period of 30 months. The total fair value of warrants vested during the three months ended March 31, 2012 was $5,708.

A summary of our warrant activity for the three months ended March 31, 2012 and 2011 follows:

Warrants	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012		41,057,583		$	0.35	4.86 years
Granted		25,000		$	0.25
Forfeited or expired		(100,000	)	$	0.53
Outstanding at March 31, 2012		40,982,583		$	0.35	4.61 years
Exercisable at March 31, 2012		39,315,583		$	0.33	4.67 years		—
Outstanding at January 1, 2011		27,209,750		$	0.38	4.25 years
Granted		1,291,500		$	0.89
Reclassified		500,000		$	0.55
Forfeited, expired, or cancelled		(650,000	)	$	0.51
Outstanding at March 31, 2011		28,351,250		$	0.40	4.05 years
Exercisable at March 31, 2011		25,026,250		$	0.34	4.01 years		—

To Purchase Series D Convertible Preferred Stock:

As of March 31, 2012, there were warrants outstanding to purchase up to 100 shares of our Series D convertible preferred stock, all of which expire May 13, 2012. Each warrant may be exercised at any time prior to expiration at $25,000 per share. Each share of Series D Convertible Preferred Stock acquired through exercise of a warrant is convertible into 100,000 shares of our common stock at any time. For the presentation below, warrants to purchase shares of Series D Convertible Preferred Stock are stated in common shares, as if the warrant was exercised and the resulting Series D Convertible Preferred Stock was converted. The exercise price of the warrant has been similarly adjusted to an as-converted to common stock equivalent. A summary of our warrant activity for the three months ended March 31, 2012 and 2011 follows:

Warrants	Underlying Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012		39,000,000		$	0.25	0.31 years
Cancelled or expired		(29,000,000	)		—
Outstanding at March 31, 2012		10,000,000		$	0.25	0.12 year
Exercisable at March 31, 2012		10,000,000		$	0.25	0.12 year		—
Outstanding at January 1, 2011		39,000,000		$	0.25	1.31 years
Granted		—			—
Exercised		—			—
Forfeited or expired		—			—
Outstanding at March 31, 2011		39,000,000		$	0.25	1.06 years
Exercisable at March 31, 2011		39,000,000		$	0.25	1.06 years		—

OPTIONS:

From time-to-time, we grant stock options as compensation for services to our employees, non-employee directors and certain consultants ("grantees") allowing grantees to purchase our common stock pursuant to stockholder-approved stock option plans. 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 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. The maximum number of common shares authorized for issuance of options totals 52,000,000 under the Plans. As of March 31, 2012, there were a total of 43,838,600 options available for grant and 7,130,400 options outstanding, 6,439,400 of which were exercisable, under the Plans.

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 March 31, 2012, there were 776,668 shares available for option grants and 125,000 options outstanding under the non-qualified directors' plan, 65,000 of which were exercisable.

As of March 31, 2012, we also had 1,500,000 options outstanding and exercisable. These options were issued outside the option plans described above.

A summary of our option activity for the three months ended March 31, 2012 and 2011 follows:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012		8,795,400		$	0.33	7.74 years
Forfeited or expired		(40,000	)	$	0.38
Outstanding at March 31, 2012		8,755,400		$	0.33	7.49 years
Exercisable at March 31, 2012		8,004,400		$	0.33	7.40 years		—
Outstanding at January 1, 2011		2,611,100		$	0.50	8.09 years
Granted		25,000		$	0.23	9.82 years
Forfeited or expired		(464,750	)	$	0.30
Outstanding at March 31, 2011		2,171,350		$	0.54	7.77 years
Exercisable at March 31, 2011		1,178,500		$	0.66	7.02 years		—

Total recognized compensation costs during the three months ended March 31, 2012 were approximately $95,000. As of March 31, 2012, there was approximately $215,000 of unrecognized compensation cost related to options expected to be recognized over a weighted-average period of 16 months. We might have recognized approximately $18,000 of tax benefits attributable to stock-based compensation expense recorded during the quarter ended March 31, 2012. However, this potential benefit was fully offset by our valuation allowance due to the aforementioned significant uncertainty of future realization. The total fair value of options vested during the three months ended March 31, 2012 was $11,148.