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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2011
Notes to Financial Statements |
Note 10 - Stock-Based Compensation | The stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. We consider our option programs critical to our operation and productivity. Currently, we grant options and restricted stock awards ("RSAs") from the 2005 Long-Term Incentive Plan ("2005 LTIP") and the 2010 Equity Compensation Plan (“2010 ECP”), approved by the shareholders on June 18, 2010. Option and restricted stock unit vesting periods are generally zero to three years. On September 23, 2011, all unexpired stock options had their expiration term extended by 5 years from the date of grant. The extension of the termination period for these stock options increased the expected life of the options by approximately one year and accordingly increased the fair market value of these stock options by approximately $283,000 of which $117,000 was related to fully vested stock options and was recorded as a charge during the year ended December 31, 2011. The remaining $166,000 will be expensed over the remaining vesting periods. As of December 31, 2011, we reserved 785,588 shares of common stock for issuance under the 2010 ECP and 1.0 million shares of common stock under our 2005 LTIP The following table summarizes all stock based compensation grants as of December 31, 2011:
|  | Stock Options |  |  | RSA's |  |  | Available Shares |  |  | Total |
2010 ECP |  |  | 667,705 |  |  |  | 109,796 |  |  |  | 8,087 |  |  |  | 785,588 |
2005 LTIP |  |  | 691,012 |  |  |  | 216,754 |  |  |  | 92,234 |  |  |  | 1,000,000 |
Total |  |  | 1,358,717 |  |  |  | 326,550 |  |  |  | 100,321 |  |  |  | 1,785,588 |
The fair value of restricted stock units is determined using market value of the common stock on the date of the grant. The fair value of stock options is determined using the Black-Scholes-Merton valuation model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Under ASC 718, “Accounting for Stock Options and Other Stock Based Compensation,” forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which is estimated at a weighted average of 25% of unvested options outstanding, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. In 2011, we granted options to purchase 40,000 shares of common stock under the 2005 LTIP with an average exercise price of $2.05 per share. We also granted options to purchase 300,000 shares of common stock under the newly adopted 2010 ECP with an average exercise price of $2.93 per share. We recorded stock-based compensation expense for all equity incentive plans of approximately $957,000 and $790,000 for the years ended December 31, 2011 and 2010, respectively. At December 31, 2011, the aggregate intrinsic value of all outstanding options was $0 with a weighted average remaining contractual term of 8.0 years, of which 629,043 of the outstanding options are currently exercisable with an aggregate intrinsic value of $0, a weighted average exercise price of $3.03 and a weighted average remaining contractual term of 7.4 years. There were no options exercised during the years ended December 31, 2011 and 2010. The total compensation cost at December 31, 2011 related to non-vested awards not yet recognized was approximately $1,144,000 that will be recognized over a weighted-average recognition period of .84 years. The total fair value of options vested during 2011 and 2010 was approximately $466,000 and $1.1 million, respectively. The following table summarizes information about stock option activity during the years ended December 31, 2011 and 2010:
|  | 2011 |  |  | 2010 |
|  | Options |  |  | Weighted Average Exercise Price |  |  | Options |  |  | Weighted Average Exercise Price |
Outstanding, beginning of year |  |  | 1,223,159 |  |  | $ | 3.74 |  |  |  | 987,963 |  |  | $ | 5.70 |
Granted |  |  | 340,000 |  |  | $ | 2.83 |  |  |  | 527,238 |  |  | $ | 2.46 |
Forfeited or expired |  |  | (204,442 | ) |  | $ | 6.61 |  |  |  | (292,042 | ) |  | $ | 4.47 |
Exercised |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | - |
Outstanding, end of year |  |  | 1,358,717 |  |  | $ | 2.81 |  |  |  | 1,223,159 |  |  | $ | 3.74 |
Exercisable, end of year |  |  | 629,043 |  |  | $ | 3.03 |  |  |  | 372,663 |  |  | $ | 6.94 |
The weighted average grant date fair value of options granted during 2011 and 2010 were $2.83 and $2.46, respectively. The following table summarizes information about stock options outstanding as of December 31, 2011, which includes 667,705 2010 ECP options, 691,012 2005 LTIP options:
Range of Exercise Price |  |  | Shares |  |  | Weighted Average Remaining Contractual Life ( Years) |  |  | Weighted Average Exercise Price |
$ | 1.70 – $3.00 |  |  |  | 1,280,467 |  |  |  | 8.10 |  |  | $ | 2.57 |
$ | 3.01 - $9.99 |  |  |  | 78,250 |  |  |  | 6.47 |  |  |  | 6.75 |
$ | 10.00 - $25.00 |  |  |  | - |  |  |  | - |  |  |  | - |
$ | 25.01 - $53.00 |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  |  | 1,358,717 |  |  |  | 8.00 |  |  | $ | 2.81 |
In accordance with ASC 718, the fair values of options granted prior to adoption and determined for purposes of disclosure under ASC 718 have not been changed. The fair value of options granted was estimated assuming the following weighted averages:
|  | 2011 |  |  | 2010 |
Expected life (in years) |  |  | 4.90 |  |  |  | 5.00 |
Volatility |  |  | 163.4 | % |  |  | 164.0 | %
Risk free interest rate |  |  | 1.96 | % |  |  | 1.82 | %
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Expected volatility is based on the historical volatility of our common stock over the period commensurate with or longer than the expected life of the options. The expected life of the options is based on the vesting schedule of the option in relation to the overall term of the option. The risk free interest rate is based on the market yield of the U.S. Treasury Bill with a five year term. We do not anticipate paying any dividends so the dividend yield in the model is zero. Deferred Compensation and Stock Compensation During the year ended December 31, 2011, our executive officers, certain of our senior management and our board of directors, voluntarily elected to defer a portion of their compensation. The amount of the deferred compensation was approximately $418,000 for our executive officers and senior management and $72,000 for our board of directors. As an incentive for officers, management and directors to participate in the elected deferrals, we granted them RSAs with a fair value equal to the amount of the deferred compensation, with the exception of the board of directors as they received approximately $36,000 in RSA’s. We paid approximately $15,000 of these deferred amounts in 2012 with the remaining amounts paid in our common stock. The RSAs will vest upon the earlier of payment of the deferred compensation or one year from the date of grant. The number of RSAs granted in conjunction with the deferred compensation program was 326,291 for the year ended December 31, 2011 and were granted at an exercise price ranging from $1.09 per share to $2.94 per share on the date of each grant. As of December 31, 2011, none of the shares of restricted stock granted in connection with these elected deferrals were issued. Of these amounts, approximately $573,000 was recorded as stock compensation expense. In 2010, we issued an aggregate of 112,422 shares of our common stock valued at approximately $232,500 to our executive officers and certain of our senior management in lieu of cash compensation. The value of the shares equaled the fair market value of our common stock on the date of issuance. Additionally in 2010, we issued an aggregate of 8,715 shares of our common stock valued at approximately $24,000 to our board of directors in lieu of cash compensation. The value of these shares equaled the fair market value of our common stock on the date of issuance. The recipients were accredited or otherwise sophisticated individuals who had such knowledge and experience in business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. The recipients had access to business and financial information concerning us. The securities were issued in reliance on an exemption from registration provided by Section 4(2) of the Securities Act of 1933.

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