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7. Stock Based Compensation Plan

6 Months Ended

Jun. 30, 2012

Note 7 - Stock-Based Compensation Plans

The stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. We consider our option programs critical to our operation and productivity. Currently, we grant options and restricted stock awards ("RSAs") from two shareholder approved plans, the 2005 Long-Term Incentive Plan ("2005 LTIP") and the 2010 Equity Compensation Plan (“2010 ECP”). Option and restricted stock unit vesting periods are generally zero to three years.

On September 23, 2011, all unexpired stock options had their expiration term extended by 5 years from the date of grant. The extension of the termination period for these stock options increased the expected life of the options by approximately one year and accordingly increased the fair market value of these stock options by approximately $283,000 of which $117,000 was related to fully vested stock options and was recorded as a charge to expense in the third quarter of 2011. We are amortizing $166,000 over the remaining vesting periods.

On January 1, 2012, the number of shares of our common stock issuable under the 2010 ECP was increased by 100,357 shares due to the ever-green provision as part of the 2010 ECP. Additionally, effective February 29, 2012, our shareholders increased the number of shares of our common stock issuable under the 2010 ECP by 2.5 million shares. As of March 31, 2012, we had reserved under our 2005 LTIP 1.0 million shares of common stock for issuance and another 3,385,945 shares under our 2010 ECP.

The following table summarizes all stock based compensation grants as of June 30, 2012:

	Stock Options Outstanding		RSA's Outstanding		Options and RSA's Exercised		Available Shares		Total

2010 ECP		591,551		3,144		903,696		1,889,054		3,387,445
2005 LTIP		603,175		46,119		214,164		136,542		1,000,000
Total		1,194,726		49,263		1,117,860		2,025,596		4,387,445

The fair value of RSAs is determined using the market value of the common stock on the date of the grant. The fair value of stock options is determined using the Black-Scholes valuation model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Under Accounting Standards Codification (“ASC”) 718, “Compensation-Stock Compensation,” forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which is currently estimated at a weighted average of 25% of unvested options outstanding, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

We recorded stock-based compensation expense for all equity incentive plans of approximately $192,000 and $552,000 for the three months ended June 30, 2012 and 2011 respectively. Additionally, stock- based compensation for the six months ended June 30, 2012 and 2011, was $387,000 and $978,000, respectively.

At June 30, 2012, the aggregate intrinsic value of all outstanding options is $0 and has a weighted average remaining contractual term of 7.53 years. As of June 30, 2012, 750,256 of the outstanding options are exercisable and have an aggregate intrinsic value of $0, a weighted average exercise price of $2.93 and a weighted average remaining contractual term of approximately 7.27 years. The total compensation cost at June 30, 2012 related to non-vested awards not yet recognized was approximately $565,000 and has an average remaining expense recognition period of 1.02 years. As a result of the merger, we had 118,842 options outstanding as of June 30, 2012 that were not part of either plan.

The following table summarizes unaudited information about stock option activity during the six months ended June 30, 2012 and 2011, respectively.

	2012					2011
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price

Outstanding, beginning of period		1,358,717		$	2.83		1,223,159		$	3.74
Granted		-		$	-		300,000		$	2.93
Forfeited or expired		(163,991	)	$	3.16		(70,011	)	$	5.71
Exercised		-		$	-		-		$	-
Outstanding, end of period		1,194,726		$	2.81		1,453,148		$	3.28
Exercisable, end of period		750,256		$	2.93		485,346		$	4.46

No option or warrant exercises occurred under any share-based payment arrangements for the three and six months ended June 30, 2012 and 2011. As part of the merger with Vertro on March 1, 2012, 118,842 options were outstanding that are not part of the existing plans.

In accordance with ASC 718, the fair values of options granted were not changed. There were no options granted during the six months ended June 30, 2012. The fair value of options granted during the six months ended June 30, 2011 were estimated assuming the following weighted averages:

	2012		2011

Expected life in years		-		4.5
Volatility		-		141.10	%
Risk free interest rate		-		2.15	%
Dividend yield		-		-

Expected volatility is based on the historical volatility of our common stock over the period commensurate with, or longer than, the expected life of the options. The expected life of the options is based on the vesting schedule of the option in relation to the overall term of the option. The risk free interest rate is based on the market yield of the US Treasury Bill with a 5 year term. We do not anticipate paying any dividends so the dividend yield utilized in the model is zero.

Deferred Compensation

During the three and six months ended June 30, 2011, our executive officers, certain of our senior management and our board of directors, voluntarily elected to defer a portion of their compensation. The amount of the deferred compensation was approximately $132,000 and $319,000 for the three and six months ended June 30, 2011, respectively. As an incentive for officers, management and directors to participate in the elected deferrals, we granted them RSAs with a fair value equal to the amount of the deferred compensation. The RSAs will vest upon the earlier of repayment of the deferred compensation or December 31, 2011. The number of RSAs granted in conjunction with the deferred compensation was 47,662 and 113,817 for the three and six months ended June 30, 2011, respectively, and were granted at an exercise price of the greater of fair market value on the date of each grant or $2.50. There was no deferred compensation in the three and six months ended June 30, 2012. As of June 30, 2012, all RSAs granted in connection with these elected deferrals were issued (see Note 8).

Warrants Outstanding

As of June 30, 2012, we have outstanding warrants for the potential issuance of 765,000 shares of common stock. Exercise price for these warrants ranges from $1.50 to $15.00. These warrants were primarily issued in connection with acquisitions, private placements and debt issuances.