STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2014

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, 2014 and December 31, 2013.

Common Stock, Options and Stock Grants

Nine Months Ended September 30, 2014

During the nine months ended September 30, 2014, 55,728 shares of restricted common stock with an aggregate grant date fair value of approximately $53,000 vested. In connection with the reduction of the size of the board from seven to five directors and the ensuing restructuring of board compensation, members of the Board of Directors forfeited 40,398 shares of unvested restricted stock grants. The restructured board compensation approved by the Board of Directors provides that each non-Executive member of the Board would receive equal amounts: (i) $25,000 of the Company’s common stock annually at the beginning of each year, vesting over a two year period, and (ii) $10,000 in cash to be paid 25% each quarter in arrears and which may be converted into common stock in accordance with the terms of the Directors Deferred Compensation Plan. During the nine months ended September 30, 2014, the Company granted 114,058 shares of restricted common stock with a grant date fair value of approximately $115,000.  During the nine months ended September 30, 2014, the Company granted, to an employee of the Company, options to acquire 10,000 shares of common stock with an exercise price of $1.50 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 option model and the following assumptions: volatility of 95%, risk free rate of 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 $7,500.  During the nine months ended September 30, 2014, the Company recognized approximately $83,000 of expenses related to the vesting of outstanding stock options.

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.

Stock incentive Plans

The Company has granted 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 June 3, 2014, the Company’s stockholders approved the adoption of the 2014 Stock Incentive Plan (the “2014 Plan”).  The 2014 Plan replaces the 2004 Stock Option/Stock Issuance Plan which expired on August 20, 2014.  The 2014 Plan provides for the grant of non-qualified stock options, incentive stock options, and stock appreciation rights, shares of restricted stock, stock units and shares of unrestricted stock.  Eligible participants include officers, employees and directors.  The aggregate number of shares authorized for issuance under the 2014 Plan is 1,200,000, and is subject to adjustment as described in the 2014 Plan.  There are 354,687 shares available for issue under the 2014 plan. Awards that expire or are cancelled without delivery of shares general become available for issuance under the plans.

The following is a summary of stock option activity for nine months ended September 30, 2014, relating to all of the Company’s common stock plans:

	Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2014		800		$	1.31		3.77	$	-
Granted		10		$	1.50		4.53	$	-
Forfeited		(170	)	$	1.42			$	-
Expired		(76	)	$	1.18
Outstanding at September 30, 2014		564		$	1.30		2.96	$	-
Exercisable at September 30, 2014		211		$	1.16		2.35	$	-

The following table summarizes stock option information as of September 30, 2014:

				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Term	(in thousands)
$	1.15		347	2.4 years		184
$	1.20		27	1.7 years		27
$	1.50		90	4.5 years		–
$	1.65		100	4.1 years		–
Total			564	3.0 years		211

As of September 30, 2014, there was approximately $230,000 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, 2014 and changes during the nine months ended September 30, 2014 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2014		49		$	0.82
Granted		114		$	1.01
Forfeited		(40	)	$	1.07
Vested		(56	)	$	0.94
Non-vested at September 30, 2014		67		$	0.89

The future expected expense for non-vested shares is approximately $59,000 and will be recognized as expense through December 31, 2015.