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Stock-Based Compensation Plans | 3 Months Ended
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Mar. 31, 2012
Notes to Financial Statements |
Note 7. Stock-Based Compensation Plans | 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 two shareholder approved plans, the 2005 Long-Term Incentive Plan ("2005 LTIP") and the 2010 Equity Compensation Plan (“2010 ECP”). 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 charged to expense in the third quarter of 2011. We are amortizing $166,000 over the remaining vesting periods. On January 1, 2012, the number of our shares of common stock issuable under the 2010 ECP was increased by 100,357 shares due to the ever-green provision as part of the 2010 ECP . Additionally, effective February 29, 2012, our shareholders increased the number of shares of our common stock issuable under the 2010 ECP by 2.5 million shares. As of March 31, 2012, we had reserved under our 2005 LTIP 1.0 million shares of common stock for issuance and another 3,385,945 shares under our 2010 ECP. The following table summarizes unaudited all stock based compensation grants as of March 31, 2012:
|  | Stock Options Outstanding |  |  | RSA's Outstanding |  |  | Options and RSA’s Exercised |  | Available Shares |  |  | Total |
2010 ECP |  |  | 621,124 |  |  |  | 6,787 |  |  | 891,478 |  |  | 1,866,556 |  |  |  | 3,385,945 |
2005 LTIP |  |  | 649,675 |  |  |  | 75,000 |  |  | 172,193 |  |  | 103,132 |  |  |  | 1,000,000 |
Total |  |  | 1,270,799 |  |  |  | 81,787 |  |  | 1,063,671 |  |  | 1,969,688 |  |  |  | 4,385,945 |
The fair value of RSAs is determined using the market value of the common stock on the date of the grant. The fair value of stock options is determined using the Black-Scholes 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 Accounting Standards Codification (“ASC”) 718, “Compensation-Stock Compensation,” forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which is currently 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. We recorded stock-based compensation expense for all equity incentive plans of approximately $195,000 and $175,000 for the three months ended March 31, 2012 and 2011, respectively. At March 31, 2012, the aggregate intrinsic value of all outstanding options is $0 and has a weighted average remaining contractual term of 7.78 years. As of March 31, 2012, 721,456 of the outstanding options are exercisable and have an aggregate intrinsic value of $0, a weighted average exercise price of $3.02 and a weighted average remaining contractual term of approximately 7.41 years. The total compensation cost at March 31, 2012 related to non-vested awards not yet recognized was approximately $918,000 and has an average remaining expense recognition period of 1.2 years. As a result of the merger, we had 212,595 options outstanding as of March 31, 2012 that were not part of either plan. The following table summarizes information about stock option activity during the three months ended March 31, 2012 and 2011, respectively.
|  | 2012 |  |  | 2011 |
|  | Options |  |  | Weighted Average Exercise Price |  |  | Options |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 1,358,717 |  |  | $ | 2.81 |  |  |  | 1,223,159 |  |  | $ | 3.74 |
Granted |  |  | - |  |  | $ | - |  |  |  | 300,000 |  |  | $ | 2.93 |
Forfeited or expired |  |  | (87,918 | ) |  | $ | 2.54 |  |  |  | (55,005 | ) |  | $ | 5.31 |
Exercised |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | - |
Outstanding, end of period |  |  | 1,270,799 |  |  | $ | 2.83 |  |  |  | 1,468,154 |  |  | $ | 3.32 |
Exercisable, end of period |  |  | 721,955 |  |  | $ | 3.02 |  |  |  | 405,088 |  |  | $ | 4.70 |
No option or warrant exercises occurred under any share-based payment arrangements for the three months ended March 31, 2012 and 2011. In accordance with ASC 718, the fair values of options granted were not changed. There were no options granted during the three months ended March 31, 2012. The fair value of options granted during the three months ended March 31, 2011 were estimated assuming the following weighted averages:
|  | 2012 |  |  | 2011 |
Expected life in years |  |  | - |  |  |  | 4.2 |
Volatility |  |  | - |  |  |  | 176.3 | %
Risk free interest rate |  |  | - |  |  |  | 2.7 | %
Dividend yield |  |  | - |  |  |  | 0.0 | %
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 US Treasury Bill with a 5 year term. We do not anticipate paying any dividends so the dividend yield utilized in the model is zero. Deferred Compensation During the three months ended March 31, 2011, our executive officers, certain of our senior management and members of our board of directors, voluntarily elected to defer a portion of their compensation. The amount of the deferred compensation was approximately $187,000 for the three months ended March 31, 2011. As an incentive for our executive 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. The RSAs vested upon the earlier of payment of the deferred compensation or one year from date of grant. The number of RSAs granted in conjunction with the deferred compensation was 66,155 for the three months ended March 31, 2011, and were granted at an exercise price ranging from $2.94 per share to $2.64 per share on the date of each grant. There was no deferred compensation in the three months ended March 31, 2012. As of March 31, 2012, all RSAs granted in connection with these elected deferrals were issued (see Note 8). Warrants Outstanding As of March 31, 2012, we have outstanding warrants for the potential issuance of 765,000 shares of common stock. Exercise price for these warrants ranges from $1.50 to $15.00. These warrants were primarily issued in connection with acquisitions, private placements and debt issuances.

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