Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

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 amended on June 6, 2011 to increase the number of shares of Common Stock available for issuance thereunder from 2,000,000 to 3,000,000. Under the 2007 Plan, which is administered by the Compensation Committee, the Company may grant 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 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 813,500 and 562,500 stock options under the 2007 Plan during the three months ended March 31, 2012 and 2011, respectively. The options granted during 2012 were issued at an exercise price ranging from $0.65 to $0.85 per share and had an estimated aggregate grant date fair value of $441,000. 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 weighted average grant date fair value of the options granted during the three months ended March 31, 2012 and 2011 was $0.54 per share and $0.89 per share, respectively.

Total stock-based compensation recorded for the three months ended March 31, 2012 and 2011 was $111,000 and $44,000, respectively, and is included in general and administrative costs and expenses. The stock-based compensation recorded for the three months ended March 31, 2011 included a credit of $113,000 for a change in the forfeitures experience. 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. 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 three months ended March 31, 2012 and 2011 was estimated using the following assumptions.

	Three months ended March 31, 2012	Three months ended March 31, 2011
Expected volatility	85.41% - 111.36%	76.91% - 102.63%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	1.02% - 1.98%	2.25% - 3.25%
Expected life	5.5 - 10.0 years	5.5 - 10.0 years
Forfeiture rate	0% - 2%	0% - 5%

The following summarizes the Company’s stock option activity for the three months ended March 31, 2012:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		1,628,167		$	1.35		6.26
Granted		813,500		$	0.66		9.89
Exercised		—			—
Canceled or expired		(88,667	)	$	2.60
Outstanding at March 31, 2012		2,353,000		$	1.06		7.37	$	226,975
Exercisable at March 31, 2012		1,123,125		$	1.30		5.65	$	26,325
Vested and expected to vest at March 31, 2012		2,298,660		$	1.06		7.34	$	220,163

None of the 813,500 options granted during the first three months of the Company’s 2012 fiscal year were vested as of March 31 2012. At March 31, 2012, there was $558,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.72 years.

No options were exercised during the three months ended March 31, 2012 and 2011.

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