Equity Instruments

12 Months Ended

Dec. 31, 2012

Equity Instruments [Abstract]

Equity Instruments

Note 8 — 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 on the common stock, must be paid on the Series C stock on an as-converted basis before any dividends are paid on our common stock. The Series C is also cumulative with respect to dividends on common stock and junior series of preferred 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 December 31, 2012 and 2011).

We also have a class of convertible preferred stock, Series D, for which 7,000 shares are authorized and 250 shares were issued during the year ended December 31, 2012. The shares, which were granted in January 2012, do not vest until the tenth anniversary of the grant date. 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. Prior to vesting and thereafter, each Series D convertible preferred share is entitled to all voting, dividend, liquidation and other rights accorded a share of Series D convertible preferred stock. As to dividends, the Series D stock is noncumulative. If a dividend is declared on the common stock, each share of Series D stock is entitled to receive a dividend equal to 50% of the dividend declared for the common stock as if the Series D stock had been converted. Despite their nonvested status, voting rights of each share nevertheless consist of the right to cast the number of votes equal to those of 500,000 shares of common stock. Unless otherwise required by applicable law, holders of shares of Series D 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. At December 31, 2012, approximately $3.4 million of compensation expense remained to be recognized over the next 9 years related to the Series D shares.

STOCK INCENTIVE COMPENSATION PLANS

WARRANTS:

To Purchase Common Stock

During 2012, we issued warrants to purchase an aggregate of 125,000 shares of our common stock to note holders. Shares acquirable pursuant to the warrants vest at the warrant grant date and/or at specified dates throughout the 24 or 36 month term of the warrants.

A summary of warrant activity for 2012 and 2011 follows:

Warrants	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2011		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
Granted		125,000		$	0.25
Forfeited, expired or cancelled		(5,225,000	)	$	0.49
Outstanding at December 31, 2012		35,957,583		$	0.33	4.26 years	$	—
Exercisable at December 31, 2012		35,890,583		$	0.33	4.27 years	$	—

The following table summarizes information about warrants granted, reclassified and vested during 2012 and 2011:

	2012		2011
Warrants granted		125,000		14,997,833
Weighted-average grant-date fair value ($)		0.10		0.17
Warrants reclassified		—		500,000
Weighted-average fair value ($)		n/a		0.13
Fair value of vested warrants ($)		15,318		2,387,736

We recognized approximately $2,000 and $1.7 million of compensation costs during 2012 and 2011, respectively. Total unrecognized compensation costs related to warrants as of December 31, 2012 and 2011 was approximately $1,000 and $283,000, which is expected to be recognized over a weighted-average period of 12 and 31 months. As a result of employee and director resignations prior to the vesting dates of their warrants, we derecognized compensation costs of approximately $25,000 and accordingly reversed its corresponding tax benefits and valuation allowance of approximately $6,000 during 2012.

Due to the significant uncertainty of future realization (Note 9), we did not recognize the effect of approximately $624,000 of potential tax benefits attributable to equity-based expense recorded for warrants issued to key employees for 2011.

A summary of warrants outstanding and exercisable as of December 31, 2012 follows:

Warrants Outstanding	Exercise Price Range	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life	Warrants Exercisable	Weighted- Average Exercise Price of Exercisable Warrants
23,809,250	$0.25	$0.25	5.12	23,809,250	$0.25
3,773,333	$0.44	$0.44	2.88	3,773,333	$0.44
8,375,000	$0.50 - $ 1.00	$0.51	2.46	8,308,000	$0.50
35,957,583	$0.25 - $ 1.00	$0.33	4.26	35,890,583	$0.33

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 our Compensation and Stock Option Committee. The exercise price for ISOs must equal or exceed the fair market value of the underlying 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 under the Plans is 52,000,000. As of December 31, 2012, there were a total of 44,448,000 shares available for grant and 6,518,000 options outstanding, 6,201,334 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 for common shares. Annually, directors are granted 15,000 options for common shares on the date of our annual meeting. As of December 31, 2012, there were 801,668 shares available for option grants and 100,000 options for common shares outstanding under the non-qualified directors’ plan, 60,000 of which were exercisable.

A summary of activity for 2012 and 2011 follows:

Options	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2011		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
Granted		300,000			0.25
Forfeited, expired or cancelled		(2,477,400	)		0.34
Outstanding at December 31, 2012		6,618,000		$	0.32	8.29 years	$	—
Exercisable at December 31, 2012		6,261,334		$	0.33	8.25 years	$	—

The following table summarizes information about options granted and vested during the years ended December 31.

	2012		2011
Options granted		300,000		6,925,000
Weighted-average grant-date fair value ($)		0.08		0.18
Fair value of vested options ($)		143,252		1,304,754

During 2012 and 2011, we granted options for common shares to employees, non-employee directors and one consultant. Total recognized compensation costs during 2012 and 2011 were approximately $235,000 and $1.2 million. As of December 31, 2012 and 2011, there was approximately $50,000 and $315,000 of unrecognized compensation cost related to options expected to be recognized over a weighted-average period of 11 and 19 months. Due to significant uncertainty of future realization (Note 9), we did not recognize the effect of approximately $41,000 and $404,000 of potential tax benefits attributable to stock-based compensation expense recorded during 2012 and 2011.

A summary of our common stock option activity and related information for 2012 and 2011 follows:

	Shares			Weighted Average Exercise Price
Outstanding as of January 1, 2011		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
Granted		300,000			0.25
Exercised		—			—
Forfeited, expired or cancelled		(2,477,400	)		0.34
Outstanding as of December 31, 2012		6,618,000		$	0.32

A summary of common stock options outstanding and exercisable as of December 31, 2012 follows:

Options Outstanding	Exercise Price Range	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life	Options Exercisable	Weighted- Average Exercise Price of Exercisable Options
5,200,000	$0.25	$0.25	8.95	4,883,334	$0.25
1,418,000	$0.28 - $ 2.16	$0.60	5.88	1,378,000	$0.60
6,618,000	$0.25 - $ 2.16	$0.32	8.29	6,261,334	$0.33