Note 10 - Shareholders Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note Disclosure [Text Block]

10.   Shareholders’ Equity

Private Placement

Between February 29, 2012 and March 2, 2012, the Company raised $4.9 million by entering into Securities Purchase Agreements with ten investors, under which it sold 19,600,000 units, each of which consists of one share of the Company’s common stock, par value $0.0001 per share, and one-half warrant to purchase one share of common stock.  The purchase price of each unit was $0.25, based on a formula involving the stock’s 30 day average price prior to February 24, 2012.  Each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.54.  Each warrant is immediately separable from the unit and immediately exercisable, and expires three years from the date of issuance.  The Company used the proceeds of the offering to retire debt and for working capital purposes.  Eight of the ten investors were new investors and the largest single investment was $1.0 million.

Warrants

The Company has issued warrants in conjunction with various private placements of its common stock, debt financing arrangements and acquisitions.  There have been no warrants issued to employees, directors, or consultants for compensation purposes.

As a result of the Private Placement in 2012 discussed above, warrants that were issued in 2008 originally priced at $3.08 per share were re-priced to $1.97 per share, and warrants issued in 2009 originally price at $0.65 per share were re-priced to $0.49 per share.  The warrants were re-priced in accordance with their respective agreements, based upon a formula taking into account the dilutive effect of new share issuances and the price of those issuances relative to the number of shares outstanding prior to the issuances and the original exercise price of the warrants.

The activity relating to warrants was as follows:

	Warrants Outstanding			Weighted Average Exercise Price
Balance, December 31, 2009		4,437,639		$	1.24
Warrants issued		855,000			0.50
Warrants exercised		(1,730,062	)		0.01
Warrants cancelled		(271,199	)		4.50
Balance, December 31, 2010		3,291,378		$	1.42
Warrants issued		125,000			0.01
Warrants exercised		(160,000	)		0.01
Balance, December 31, 2011		3,256,378		$	1.43
Warrants issued		9,800,000			0.54
Balance, December 31, 2012		13,056,378		$	0.76
Exercisable, December 31, 2012		12,856,378		$	0.77

In December 2009, the Company entered into a strategic alliance with Woodstone Energy LLC (“Woodstone”), a commercial and industrial energy services company. This strategic alliance created a path for contracts totaling not less than $15 million to be issued by Woodstone to SRC.  In return for this Woodstone commitment, the Company issued 600,000 warrants.  400,000 of those warrants became exercisable by Woodstone upon the written commitment of $10 million in specific secured contracts.  The remaining 200,000 warrants will become exercisable upon the written commitment of an additional $5 million in specific secured contracts.  SRC has received approximately $4.4 million in specific secured contracts toward the additional $5 million through December 31, 2012. The warrants are exercisable at $0.49 per share and expire on December 31, 2014.

The number of warrants and weighted average remaining life (in years) by price for both total outstanding warrants and total exercisable warrants at December 31, 2012 was as follows:

Exercise Price		Number of Shares Outstanding		Weighted Average Remaining Contactual Life		Number of Shares Exercisable		Weighted Average Remaining Contactual Life
				(in years)				(in years)
$	0.01		300,000		2.7		300,000		2.7
$	0.49		600,000		2.0		400,000		2.0
$	0.54		9,800,000		2.2		9,800,000		2.2
$	1.20		350,000		2.2		350,000		2.2
$	1.97		2,006,378		0.2		2,006,378		0.2
			13,056,378		3.4		12,856,378		3.4

Stock-based Compensation

On September 30, 2008, the Company’s shareholders approved its 2008 Incentive Stock Plan (the “Plan”).  The Plan was subsequently amended in 2010 and 2012 to increase the maximum aggregate number of stock awards to 5,000,000 shares, plus any shares remaining available for grant under existing plans.  Under existing plans, only a limited number of shares remained available for grant.  The Company has two other equity-based compensation plans under which options are currently outstanding; however, no new awards may be granted under these plans as they have been terminated or have expired.  At December 31, 2012, there are 3.3 million shares available in the Plan for grant.  Generally, stock options are granted at fair market value and expire ten years after the grant date.  Employee grants generally vest in three or four years, while grants to non-employee directors generally vest in one year.  Executive officers and certain other employees have been awarded options with different vesting criteria.  The specific terms of each grant are determined by the Compensation Committee of the Company’s Board of Directors.

Stock-based compensation expense is attributed to the granting of stock options and restricted stock awards. For all stock-based awards, we recognize compensation expense using a straight-line amortization method.

The impact on our results for stock-based compensation was as follows (in thousands):

	Years ended December 31,
	2012		2011		2010
Cost of sales	$	-	$	-	$	2
Research and development		27		37		43
Sales and marketing		27		141		96
General and administrative		146		248		737
Total stock-based compensation	$	200	$	426	$	878

At December 31, 2012 and 2011, the Company had unamortized stock compensation expense of $228 thousand and $373 thousand, respectively.  The remaining weighted average life was approximately 1.0 and 1.3 years as of December 31, 2012 and 2011, respectively.

Stock Options

The per share weighted average fair value of stock options granted during 2012, 2011, and 2010 was $0.15, $0.47 and $0.80, respectively.  We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model and the following assumptions:

	2012			2011			2010
Expected life of option (years)		5.6			6.1			4.0
Risk-free interest rate		0.82	%		2.36	%		1.61	%
Expected volatility		59.00	%		56.35	%		98.31	%
Dividend yield		0	%		0	%		0	%

The estimated expected life of the option is calculated based on contractual life of the option, the vesting life of the option, and historical exercise patterns of vested options.  The risk-free interest rate is based on U.S. treasury security rates corresponding to the expected term in effect as of the grant date.  As the Company’s stock is thinly traded, the volatility estimates are calculated using historical pricing experience of a peer group over the most recent period corresponding to the expected term as of the grant date.  The Company has not paid dividends in the past, and does not expect to pay dividends over the corresponding expected term as of the grant date.

Options outstanding under all plans at December 31, 2012 have a contractual life of ten years, and vesting periods between one and four years.  A summary of option activity under all plans was as follows:

	Number of Options			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2009		1,769,750		$	3.63
Granted		1,115,000			1.08
Cancelled		(993,583	)		1.68
Exercised		(13,750	)		0.60
Outstanding at December 31, 2010		1,877,417		$	3.36
Granted		1,040,000			0.84
Cancelled		(591,419	)		2.99
Exercised		(7,500	)		0.60
Outstanding at December 31, 2011		2,318,498		$	2.28
Granted		120,000			0.27
Cancelled		(253,915	)		2.22
Exercised		-			-
Outstanding at December 31, 2012		2,184,583		$	2.20
Vested and Expected to Vest at December 31, 2012		2,058,833		$	2.29
Exercisable at December 31, 2012		1,494,063		$	2.87

The “Expected to Vest” option are the unvested options that remain after applying the pre-vesting forfeiture rate assumption to total unvested options.

The options outstanding at December 31, 2012 have been segregated into ranges for additional disclosure as follows:

Range of Exercise Prices				Number of Shares Outstanding		Weighted Average Remaining Contactual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
						(in years)
	$0.26	-	$0.71		729,500		8.2	$	0.52		341,279	$	0.56
	$1.00	-	$1.40		803,333		7.5	$	1.16		501,034	$	1.07
	$2.00	-	$3.35		248,750		5.0	$	2.12		248,750	$	2.12
	$4.91	-	$6.45		167,000		4.5	$	6.04		167,000	$	6.04
	$7.00	-	$11.66		236,000		2.7	$	8.29		236,000	$	8.29
					2,184,583		6.7	$	2.20		1,494,063		2.87

Restricted Stock

In the past, the Company has issued restricted stock to Executive Officers and Director in lieu of a portion of cash compensation or Directors’ fees.  Additionally, in 2010 a key employee was issued restricted stock as a bonus.  The restricted stock was valued at the fair market value of the Company’s Common Stock on grant date, and expense was amortized over the applicable service period.

A summary of restricted stock activity was as follows:

	Restricted Stock Outstanding			Weighted Average Grant Date Fair Value
At December 31, 2009		228,128		$	0.67
Granted		392,490			1.01
Vested		(122,989	)		1.51
At December 31, 2010		497,629		$	0.73
Granted		114,767			0.96
Vested		(197,721	)	$	0.87
At December 31, 2011		414,675		$	0.73
Granted		-			-
Vested		-			-
At December 31, 2012		414,675		$	0.73

1994 Employee Stock Purchase Plan

A total of 600,000 shares of common stock have been reserved for issuance under the 1994 Employee Stock Purchase Plan, as amended.  The plan permits eligible employees to purchase common stock through payroll deductions at a price equal to the lower of 85% of the fair market value of the Company’s common stock at the beginning or end of the offering period.  Employees may end their participation at any time during the offering period, and participation ends automatically on termination of employment with the Company.  At December 31, 2012, 2011, and 2010, approximately 476,000, 291,000 and 134,000 shares had been issued under this plan since inception, respectively.