STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2013

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

NOTE 6 – STOCKHOLDERS’ EQUITY

PREFERRED STOCK

The Company is authorized to issue 2,000,000 shares of preferred stock, of which none were issued and outstanding as of September 30, 2013 and December 31, 2012.

COMMON STOCK, OPTIONS AND STOCK GRANTS

Nine Months Ended September 30, 2013

During the nine months ended September 30, 2013, 81,831 shares of restricted common stock with an aggregate grant date fair value of approximately $60,000 vested. In the same period of time, the Company issued 55,181 shares of restricted common stock with a grant date fair value of approximately $42,000, pursuant to the Company’s Directors’ Deferred Compensation Plan dated January 1, 2008 (the “Directors’ Deferred Compensation Plan”), to a former director for past services. 20,595 of the 55,181 shares of restricted common stock were issued to settle an approximate $20,000 accrued expense recorded on the Company’s balance sheet. During the nine months ended September 30, 2013, the Company granted, to employees of the Company, options to acquire 180,909 shares of common stock with exercise prices of $1.15 (for a grant of 15,000 options), $1.25 per share (for grants of a combined 75,000 options) and $1.65 per share (for a grant of 90,909 options), exercisable over a term of five years from the date of grant. The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes-Merton option model and the following assumptions: volatility of 150%, risk free rate ranging from 0.4% to 0.8%, dividend rate of zero, and expected term of 3.75 years.  The grant date fair value of the stock options issued was determined to be approximately $163,000.  During the nine months ended September 30, 2013, the Company recognized approximately $73,000 of expense related to the vesting of outstanding stock options.  As of September 30, 2013, options to acquire 56,500 shares of common stock with an average exercise price of $1.47 expired unexercised, and options to acquire 172,500 shares of common stock with an average exercise price of $1.16 were forfeited. On September 5, 2013, Matthew E. Oakes, the Company’s President and Chief Executive Officer, received 50,348 shares of the Company’s common stock in a cashless exercise of 172,500 stock options that had an exercise price of $1.15 per share.

Nine Months Ended September 30, 2012

During the nine months ended September 30, 2012, 65,999 restricted common shares with an aggregate grant date fair value of approximately $50,000 vested. During the nine months ended September 30, 2012, the Company issued 261,503 shares of restricted common stock with a grant date fair value of approximately $277,000, pursuant to the Directors’ Deferred Compensation Plan, to two former directors for past services. During the nine months ended September 30, 2012, the Company granted, to certain employees of the Company, options to acquire an aggregate of 835,000 shares of common stock for an exercise price of $1.15 per share, exercisable over a term of five years from the date of grant. The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes-Merton option model and the following assumptions: volatility ranging from 168% to 175%, risk-free rate ranging from 0.36% to 0.41%, dividend rate of zero, and expected term of 3.75 years. The grant date fair value of the stock options was determined to be approximately $500,000, of which approximately $72,000 was recognized as stock compensation expense for the nine months ended September 30, 2012.

STOCK OPTION PLANS

The Company grants options under multiple stock-based compensation plans that do not differ substantially in the characteristics of the awards.  Nonqualified and incentive stock options have been granted to directors, officers and employees of the Company under the Company’s stock option plans.  Options generally vest over three to four years and expire five years from the date of the grant.  On April 1, 2013, the Company’s 2003 Stock Option/Stock Issuance Plan and its 2003-A Stock Option/Stock Issuance Plan expired resulting in the expiration of 278,532 and 37,325 options, respectively, available for issuance.  As of September 30, 2013, 128,519 shares were available for issuance under the Company’s 2004 Stock Option/Stock Issuance Plan, its sole remaining plan under which options may be issued.

The following is a summary of stock option activity for the nine months ended September 30, 2013, relating to all of the Company’s common stock plans:

						Weighted Average Remaining
	Shares			Weighted Average Exercise		Contractual Term
	(in thousands)			Price		(in years)
Outstanding at January 1, 2013		906		$	1.17		3.90
Granted		181		$	1.44		2.40
Expired		(57	)	$	1.47
Exercised		(173	)	$	1.15
Forfeited		(173	)	$	1.16
Outstanding at September 30, 2013		684		$	1.23		3.66
Exercisable at September 30, 2013		229		$	1.16		3.29

The following table summarizes stock option information as of September 30, 2013:

					Weighted Average
			Number Outstanding		Remaining	Options Exercisable
Exercise Prices			(in thousands)		Contractual Life	(in thousands)
	$	1.15		512	3.4 years		198
	$	1.20		31	2.7 years		31
	$	1.25		50	4.7 years		–
	$	1.65		91	4.9 years		–
Total				684	3.7 years		229

As of September 30, 2013, there was approximately $267,000 of unrecognized compensation costs related to stock options outstanding.

RESTRICTED STOCK GRANTS

A summary of the status of the Company’s non-vested stock grants as of September 30, 2013 and changes during the nine months ended September 30, 2013 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2013		60		$	0.66
Granted		98		$	0.82
Vested		(82	)	$	0.73
Non-vested at September 30, 2013		76		$	0.79

The future expected expense for non-vested shares is approximately $60,000 and will be recognized as expense through December 31, 2014.