Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 4 — STOCK-BASED COMPENSATION

On November 13, 2007, the Board of Directors and a majority of the Company’s stockholders approved the SafeStitch Medical, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”), which was further amended on June 6, 2011 by the Company’s stockholders. Under the 2007 Plan, which is administered by the Compensation Committee of the Board of Directors, the Company is allowed to grant awards of stock options, stock appreciation rights, restricted stock and/or deferred stock to employees, officers, directors, consultants and vendors up to an aggregate of 3,000,000 shares of the Company’s Common Stock, which are fully reserved for future issuance. The exercise price of stock options or stock appreciation rights may not be less than the fair market value of the Company’s shares at the date of grant and, within any 12 month period, no person may receive stock options or stock appreciation rights for more than one million shares. Additionally, no stock options or stock appreciation rights granted under the 2007 Plan may have a term exceeding ten years.

The Company granted 562,500 and 700,000 stock options under the 2007 Plan during the nine months ended September 30, 2011 and 2010, respectively. The options granted during 2011 were issued at an exercise price of $1.12 per share and had an estimated aggregate grant date fair value of $502,000. The options granted during 2010 were issued at an exercise price of $1.10 to $1.20 per share and had an estimated aggregate grant date fair value of $593,000. The weighted average grant date fair value of the options granted during the nine months ended September 30, 2011 and 2010 was $0.89 per share and $0.87 per share, respectively.

Total stock-based compensation recorded for the three and nine months ended September 30, 2011 was $98,000 and $240,000, respectively. The stock-based compensation recorded for the nine months ended September 30, 2011 included a credit of $113,000 for forfeiture true-up. Total stock-based compensation recorded for the three and nine months ended September 30, 2010 was $120,000 and $360,000, respectively. All stock-based compensation is included in selling, general and administrative costs and expenses. The fair values of options granted are estimated on the date of their grant using the Black-Scholes option pricing model based on the assumptions included in the table below. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. Expected volatility is based on the historical volatility of the Common Stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield of U.S. Treasury bonds on the grant date with a maturity equal to the expected term of the stock option. The expected life of stock option awards granted to employees and non-employee directors is based upon the “simplified” method for “plain vanilla” options described in SEC Staff Accounting Bulletin No. 107, as amended by SEC Staff Accounting Bulletin No. 110. The expected life of all other stock option awards is the contractual term of the option. Forfeiture rates are based on management’s estimates. The fair value of each option granted during the nine months ended September 30, 2011 and 2010 was estimated using the following assumptions.

	Nine months ended	Nine months ended
	September 30, 2011	September 30, 2010
Expected volatility	76.91% – 102.63%	87.09% – 108.28%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	2.25% – 3.25%	1.21% – 3.11%
Expected life	5.5 – 10.0 years	4.0 – 7.0 years
Forfeiture rate	0% – 5%	0% – 5%

The following summarizes the Company’s stock option activity for the nine months ended September 30, 2011:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
Outstanding at December 31, 2010		1,334,667		$	1.41		5.74
Granted		562,500		$	1.12		9.45
Exercised		—			—
Canceled or expired		(267,500	)	$	1.19
Outstanding at September 30, 2011		1,629,667		$	1.34		6.51		—
Exercisable at September 30, 2011		852,417		$	1.50		5.22		—
Vested and expected to vest at September 30, 2011		1,586,248		$	1.35		6.49		—

Out of the total 562,500 options granted during the first nine months of the Company’s 2011 fiscal year 68,000 options were vested as of September 30, 2011. At September 30, 2011, there was approximately $337,000 of total unrecognized compensation cost related to non-vested employee and director share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.69 years.

No options were exercised during the three and nine months ended September 30, 2011 and 2010.

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets.