Note 13 - Shareholders Equity

12 Months Ended

Dec. 31, 2013

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

13.    Shareholders’ Equity

Convertible Debt

Between the fourth quarter of 2012 and October of 2013, we entered into unsecured convertible notes totaling $7.6 million. The notes are convertible into shares of our common stock at $0.23 per share at various dates beginning on April 2013 through February 2014. See Note 9, Debt, for additional information. During the second through the fourth quarters of 2013 when convertible notes were issued, the fair market value of the our common stock was above the $0.23 per share conversion price of the notes, and ranged from $0.26 to $0.78 per share when the note agreements were consummated. In accordance with ASC Topic Number 420, Debt, $2.7 million was recorded as a discount on those notes under the captions “Long-term debt” and “Additional paid-in capital” in the Consolidated Balance Sheets at December 31, 2013. The discount is being amortized over the term of the applicable notes through December 31, 2016 unless the notes are converted prior to maturity.

During the second quarter of 2013, $1 million of the debt entered into in December 2012 was converted into 4.3 million shares of our common stock. During the fourth quarter of 2013, $500 thousand of the debt entered into during 2013 was converted into 2.2 million shares of our common stock. The unamortized discount of $204 thousand on the note converted during the fourth quarter was recognized under the caption “Interest expense” on the Consolidated Statements of Operations.

Private Placement

Between February 29, 2012 and March 2, 2012, we raised $4.9 million by entering into Securities Purchase Agreements with ten investors, under which we sold 19,600,000 units, each of which consists of one share of our common stock, and one-half warrant to purchase one share of common stock. Each warrant was immediately separable from the unit and immediately exercisable, and will expire three years from the date of issuance. We 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 investment from any single investor was $1.0 million.

Warrants

We have issued warrants in conjunction with various private placements of our common stock, debt financing arrangements and acquisitions. Additionally, there was a warrant issued to a former employee in 2013 as part of the sales of the pool products business.

As a result of the convertible debt issuance and the Private Placement in 2012 described above, the following 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 as follows:

Description of Warrants	Original Exercise Price		Exercise Price at December 31, 2013		Exercise Price at December 31, 2012
2012 Private Placement	$	0.54	$	0.43	$	0.54
2009 Strategic Alliance		0.65		0.40		0.49
2008 Private Placement		3.08		n/a		1.97

n/a – The warrants issued in the 2008 Private Placement expired in March 2013.

A summary of warrant activity was as follows:

	Warrants Outstanding			Weighted Average Exercise Price During the Period
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
Warrants issued		25,494			0.35
Warrants expired		(2,006,378	)		1.97
Balance, December 31, 2013		11,075,494		$	0.44
Exercisable, December 31, 2013		11,075,494		$	0.44

The number of warrants and weighted average remaining life (in years) by price for outstanding warrants at December 31, 2013 was as follows:

WARRANTS OUTSTANDING
Exercise Price		Number of Shares Outstanding		Weighted Average Remaining Contactual Life
				(in years)
$	0.01		300,000		1.7
$	0.35		25,494		2.9
$	0.40		600,000		1.0
$	0.43		9,800,000		1.2
$	1.20		350,000		1.2
			11,075,494		1.2

Stock-based Compensation

On September 30, 2008, our shareholders approved our 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. We have one other equity-based compensation plan under which options are currently outstanding; however, no new awards may be granted under this plan as it has been terminated. At December 31, 2013, there are 2.4 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. The specific terms of each grant are determined by the Compensation Committee of our Board of Directors.

In February of 2013, executive officers and certain other management level employees were awarded options with vesting criteria based upon our performance relative to our annual operating plan. Due to the financial performance for 2013, these options did not vest and were cancelled effective December 31, 2013. In November 2013, as a result of the sale of the pool products business, our Board of Directors approved the acceleration of the vesting of 70,000 options with a grant price of $0.23 per share for those employees who were being terminated as part of the sale. Additionally, the period in which these grants could be exercised was extended from three months from the date of termination to one year.

We granted 51,219 restricted stock units during the third quarter of 2013; however, 14,634 were forfeited leaving 36,585 outstanding at December 31, 2013. The fair market value on the date of grant was $0.41 per share. The shares vest one year from the grant date.

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):

	2013		2012		2011
Cost of sales	$	5	$	-	$	-
Research and development		28		27		37
Sales and marketing		32		27		141
General and administrative		136		146		248
Total stock-based compensation	$	201	$	200	$	426

At December 31, 2013 and 2012, we had unamortized stock compensation expense of $189 thousand and $228 thousand, respectively. The remaining weighted average life was 1.3 and 1.0 years as of December 31, 2013 and 2012, respectively.

Stock Options

The per share weighted average fair value of stock options granted during 2013, 2012, and 2011 was $0.21, $0.15 and $0.47, 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:

	2013			2012			2011
Expected life of option (years)		7.0			5.6			6.1
Risk-free interest rate		1.36	%		0.82	%		2.36	%
Expected volatility		92.00	%		59.00	%		56.35	%
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 zero-coupon yield curve on the grant date for a maturity similar to the expected life of the option. The volatility estimates are calculated using historical volatility of our stock price calculated over a period of time representative of the expected life of the option. We have not paid dividends in the past, and do not expect to pay dividends over the corresponding expected term as of the grant date.

Options outstanding under all plans at December 31, 2013 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, 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
Granted		2,079,500			0.31
Cancelled		(1,382,190	)		0.77
Exercised		(20,000	)		0.52
Outstanding at December 31, 2013		2,861,893		$	1.53
Vested and Expected to Vest at December 31, 2013		2,655,321		$	1.24
Exercisable at December 31, 2013		1,914,697		$	2.08

The “Expected to Vest” option are the unvested options that remain after applying the pre-vesting forfeiture rate assumption to total unvested options. The total intrinsic value of options exercised during 2013 was $5 thousand. The total intrinsic value of options outstanding and option exercisable was $222 thousand and $106 thousand in 2013 and 2012, respectively, which was calculated using the closing stock price at the end of the year of $0.47 per share less the option price of the in-the-money grants.

The options outstanding at December 31, 2013 have been segregated into ranges for additional disclosure as follows:

OPTIONS OUTSTANDING										OPTIONS EXERCISABLE
Range of Exercise Prices				Number of Shares Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
						(in years)
$	0.23	-	$0.23		855,000		9.2	$	0.23		398,332	$	0.23
$	0.26	-	$0.76		772,394		8.5		0.52		350,932		0.54
$	1.00	-	$2.33		882,499		5.9		1.37		813,433		1.39
$	4.91	-	$6.36		160,000		3.5		6.03		160,000		6.03
$	7.00	-	$10.64		192,000		1.9		8.38		192,000		8.38
					2,861,893		7.2	$	1.53		1,914,697		2.08

Restricted Stock

In the past, we have 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 our 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, 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
Granted		-			-
Vested		(40,865	)		0.73
At December 31, 2013		373,810		$	0.73

Employee Stock Purchase Plans

A total of 600,000 shares of common stock have been reserved for issuance under the 1994 Employee Stock Purchase Plan (the “1994 Plan”), as amended. In September 2013, our shareholders approved the 2013 Employee Stock Purchase Plan (the “2013 Plan”) to replace the 1994 Plan. A total of 5,000,000 shares of common stock have been reserved for issuance under the 2013 Plan. Both plans permit eligible employees to purchase common stock through payroll deductions at a price equal to the lower of 85% of the fair market value of our 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 upon termination of employment with us. During 2013, 2012 and 2011, employees purchased 176,548, 185,515 and 156,618 shares, respectively. At December 31, 2013, a total of 4.9 million shares remained available for purchase under the 2013 Plan.