Note 8. Stockholders’ Equity

     At September 30, 2013, there are 500,000,000 shares of authorized common stock. Total common stock outstanding at September 30, 2013 and December 31, 2012, was 12,556,400 and 12,526,240 shares, respectively. At September 30, 2013, there were no shares reserved for future issuance, 1,034,996 stock warrants, 1,630,925 stock options outstanding and 15,136 total unvested shares of restricted stock, all totaling 15,237,457 of total stock and stock equivalents outstanding at September 30, 2013.

Stock-based Compensation – Stock Options and Restricted Stock

Stock Plan

     We have a stock-based compensation plan to reward for services rendered by officers, directors, employees and consultants. On July 17, 2006, we amended this stock plan. We have reserved 2,500,000 shares of common stock of our unissued share capital for the stock plan. Other limitations are as follows:

Total stock options outstanding at September 30, 2013 and December 31, 2012, were 1,630,925 and 1,639,842 of which 1,594,126 and 1,523,536 of these options were vested at September 30, 2013 and December 31, 2012, respectively. Stock option expense was approximately $45 thousand and approximately $145 thousand for the three months ended September 30, 2013 and 2012, respectively. Stock option expense was approximately $190 thousand and approximately $560 thousand for the nine months ended September 30, 2013 and 2012, respectively.

     Stock option transactions to the employees, directors, advisory board members and consultants are summarized as follows for the nine months ended September 30, 2013:

Stock option transactions to the employees, directors, advisory board members and consultants are summarized as follows for the year ended December 31, 2012:

The above tables include options issued and outstanding as of September 30, 2013 as follows:

     The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at September 30, 2013:

     The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at December 31, 2012:

     The aggregate intrinsic value of stock options outstanding at September 30, 2013 and December 31, 2012 was $0. Intrinsic value calculated based on the difference between the exercise price of the underlying awards and the quoted price of our common stock as the reporting date ($1.79 and $1.41 per share as of the close on September 30, 2013 and December 31, 2012, respectively).

Restricted Stock Award Activity

Scheduled vesting for outstanding restricted stock units at September 30, 2013 is as follows:

As of September 30, 2013 and December 31, 2012, there was approximately $40 thousand and $120 thousand of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements, respectively. This compensation is recognized on a straight line basis resulting in approximately $40 thousand of the compensation expected to be expensed in the next twelve months, and the total unrecognized has a weighted average recognition period of 0.5 years.

     We use the historical volatility of our stock price since January 5, 2006, the date we announced that we were becoming a public company, to estimate the future volatility of our stock. At this time we do not believe that there is a better objective method to predict the future volatility of our stock. We estimate the term of our option awards based on the full term of the award. To date we have had very few exercises of our options, and those exercises have occurred just before the expiration date of the awards. Since the strike price of most of our outstanding awards is greater than the price of our stock, generally awards have expired at the end of the term. We estimate the effect of future forfeitures of our grants based on an analysis of historical forfeitures of unvested grants, as we have no better objective basis for that estimate. The expense that we have recognized related to our grants of options and restricted stock includes the estimate for future pre-vest forfeitures. We will adjust the actual expense recognized as future pre-vest forfeitures as they occur. We have estimated that 1.4% and 2.9% of our option and restricted stock grants respectively, will be forfeited prior to vesting.

     There were no stock options granted for the nine months ended September 30, 2013 and the year ended December 31, 2012. Assumptions used in the Black Scholes option-pricing model for the year ended December 31, 2011 were as follows:

      Stock-based compensation expense includes the expense related to (1) grants of stock options, (2) grants of restricted stock, (3) stock issued as consideration for some of the services provided by our directors and strategic advisory council members, and (4) stock issued in lieu of cash to pay bonuses to our employees and contractors. We record stock-based compensation expenses in the caption with all of our other general and administrative expenses. Grants of stock options and restricted stock are awarded to our employees, directors, consultants and board members, and we recognize the fair market value of these awards ratably as they are earned. The expense related to payments in stock for services is recognized as the services are provided.

     During the three months ended September 30, 2013 and 2012, approximately $60 thousand and $200 thousand respectively, were recorded as total stock-based compensation. During the nine months ended September 30, 2013 and 2012, approximately $270 thousand and $830 thousand respectively, were recorded as total stock-based compensation. Stock-based compensation expense is recorded under the caption general and administrative expenses in the accompanying consolidated statements of operations.