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Stockholders' Equity
 9 Months Ended
Sep. 30, 2012
Stockholders' Equity [Abstract]  
Stockholders' Equity
5. Stockholders' Equity

 

Stock Issued in Private Placements - On February 13, 2012, the Company completed the sale of $3,000,000 of investment units (the "Units") in a private placement. A total of 30 Units were sold, at a price of $100,000 per Unit. Each Unit consisted of (i) 32,258 shares of the Company's common stock, and (ii) a five-year warrant to purchase up to 16,129 shares of the Company's common stock at an exercise price of $3.10 per share. The private placement resulted in aggregate cash proceeds to the Company of $3,000,000. In connection with the private placement, the Company paid a placement agent fee of $210,000 and issued to the placement agent a five-year warrant to purchase up to an aggregate of 58,064 shares of Common Stock at an exercise price of $3.10. The placement agent warrant had a fair value of $177,000.

 

Stock Warrants - On February 20, 2012, the Company and ipCapital Group, Inc. ("ipCapital") entered into an engagement letter (the "ipCapital Engagement Letter") for the provision of certain IP strategic consulting services by ipCapital for the 2012 calendar year (the "Services"). The managing director and 42% owner of ipCapital, John Cronin, is also a director of the Company. Fees will range from $240,000 to $365,000 for services provided in 2012. In addition the Company issued ipCapital a five-year warrant (the "Warrant") to purchase up to 100,000 shares of the Company's common stock at an exercise price of $4.62 per share (the "Warrant Stock"). The Warrant vests and becomes exercisable to the extent of 33 1/3 percent of the Warrant Stock upon each of the first, second and third anniversary dates, respectively, of the Issuance Date. The warrant is valued using the Black Scholes Merton option pricing model at each reporting period through the earlier of the completion of services or the expiration of the service term. The warrant was valued at approximately $190,000 as of September 30, 2012. In addition, on February 20, 2012, the Company entered into a second consulting arrangement with ipCapital (the "ipCapital Consulting Agreement") for which ipCapital will provide strategic advice to the Company's senior management team on the development of the Company's Digital Group infrastructure and cloud computing business strategy. The ipCapital Consulting Agreement has a three year term. As ipCapital's sole source of compensation under the ipCapital Consulting Agreement, the Company issued ipCapital a five-year warrant (the "Consulting Warrant") to purchase up to 200,000 shares of the Company's common stock at an exercise price of $4.50 per share (the "Consulting Warrant Stock"). The Consulting Warrant vests and becomes exercisable to the extent of 33 1/3 percent of the Consulting Warrant Stock upon each of the first, second and third anniversary dates, respectively, of the Consulting Warrant Issuance Date. The warrant is valued using the Black Scholes-Merton option pricing model at each reporting period through the requisite service period, in this case the vesting period. The warrant was valued at approximately $386,000 as of September 30, 2012.

 

Also, on February 20, 2012, the Company entered into consulting arrangement with Century Media Group for the provision of investor relations services. As compensation Century Media Group will receive a fee of $10,000 per month for the one year term, plus the Company issued Century Media Group a 14-month warrant (the "Century Media Warrant") to purchase up to 250,000 shares of the Company's common stock at exercise prices of $4.50, $4.75, $5.00, $5.25 and $6.00 for each 50,000 shares subject to the Century Media Warrant. The Century Media Warrant vested in full on the date of issuance. The Company calculated the fair value of the warrant at approximately $248,000, using the Black Scholes-Merton option pricing model. Expense for consulting services is being recorded over the 12-month service term.

 

On July 30, 2012, the Company issued as compensation to a consultant a five-year warrant to purchase 45,000 shares of the Company's common stock at an exercise price of $4.00. One-third of the option vested on July 30, 2012, one-third of the option will vest on July 30, 2013, and the remaining one-third will vest on July 30, 2014. The Company valued the option at approximately $92,000 using the Black-Sholes-Merton option pricing model and will expense it in accordance with the service period.

 

During the nine months ended September 30, 2012, a total of 215,734 shares of common stock were issued by the Company upon the exercise of warrants in exchange for aggregate proceeds of approximately $609,000.

 

Restricted Stock - During the nine months ended September 30, 2012, the Company granted two restricted stock awards to an employee. The first award grants the employee 30,000 shares of common stock that vest ratably over four years and has a grant date fair value of $101,400. Expense related to the first grant is being recorded on a straight-line basis as shares vest. The second award grants the employee 100,000 shares of common stock that vest in four tranches upon reaching net sales goals. The grant date fair value of the second award amounted to $338,000. As of September 30, 2012, no expense was recorded for the second award as vesting was determined to be remote.

 

Stock Options - The Company records stock-based payment expense related to these options based on the grant date fair value in accordance with FASB ASC 718. During the nine months ended September 30, 2012, the Company issued options to purchase up to an aggregate of 40,000 shares of its common stock to its non-executive board members at an exercise price of $2.55 per share. The fair value of these options amounted to approximately $40,000 determined by utilizing the Black Scholes Merton option pricing model. On September 21, 2012, the Company issued options to purchase up to an aggregate of 280,000 shares of its common stock to certain of its employees and senior management at an exercise price of $4.26 per share that will vest upon the closing of the proposed merger, as described in Note 9. The grant date fair value of these options determined by utilizing the Black Scholes Merton option pricing model amounted to approximately $470,000. The Company believes vesting is likely and is recording of stock based compensation expense over the implicit service period.

 

Stock-Based Compensation - Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the nine months ended September 30, 2012, the Company had stock compensation expense of approximately $631,000 or $0.03 per share ($319,000; $0.02 per share - 2011).

 

As of September 30, 2012, there was approximately $1,342,000 of total unrecognized compensation costs (excluding $932,000 that vest upon the occurrence of certain events) related to options and restricted stock granted under the Company's stock option plans, which the Company expects to recognize over the weighted average period of approximately one year.

 

Stock Option Plans - During the second quarter of 2012, a proposal to increase the number of shares under the 2004 Employee Stock Option Plan from 1,700,000 to 3,400,000 and a proposal to increase the number of shares under the 2004 Non-Executive Director Stock Option Plan from 200,000 to 500,000 was approved by the Company's stockholders.