Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
 3 Months Ended
Mar. 31, 2012
Stockholders' Equity [Text Block]

Note 8. Stockholders’ Equity

At March 31, 2012 there are 500,000,000 shares of authorized common stock. Total common stock outstanding at March 31, 2012 and December 31, 2011 was 12,464,766 and 12,427,220 shares, respectively. At March 31, 2012, there were 977 shares reserved for future issuance, 1,034,996 stock warrants, 1,668,898 stock options outstanding and 99,595 total unvested shares of restricted stock (of which 35,594 shares of unvested restricted stock were issued but not vested and therefore not considered in our total outstanding shares on the accompanying balance sheet), all totaling 15,269,232 of total stock and stock equivalents outstanding at March 31, 2012.

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:

(i)

No more than an aggregate of 1,250,000 shares can be granted for the purchase of restricted common shares during the term of the stock plan;

   
(ii)

The maximum number of shares of common stock with respect to which options may be granted to any one person during any fiscal year may not exceed 266,667 shares; and

   
(iii)

The maximum number of restricted shares that may be granted to any one person during any fiscal year may not exceed 166,667 common shares.

Total stock options outstanding at March 31, 2012 and December 31, 2011 were 1,668,898 and 1,674,065, respectively of which 1,466,638 and 1,345,541 of these options were vested at March 31, 2012 and December 31, 2011, respectively. Stock option expense was approximately $0.2 million and approximately $0.3 million for the three months ended March 31, 2012 and 2011, respectively.

Stock option transactions to the employees, directors, advisory board members and consultants are summarized as follows for the three months ended March 31, 2012 and the year ended December 31, 2011:

    2012     2011  
             
Beginning of the period   1,674,065     1,772,348  
Granted   --     87,887  
Exercised   --     --  
Forfeited   (167 )   (2,833 )
Expired   (5,000 )   (183,337 )
             
End of period   1,668,898     1,674,065  
Options exercisable   1,466,638     1,345,541

The above table includes options issued and outstanding as of March 31, 2012 as follows:

 

i)

A total of 290,203 non-qualified 5-10 year options have been issued, and are outstanding, to advisory board members at exercise prices of $4.50 to $14.40 per share.

   
ii)

A total of 1,161,736 non-qualified 8-10 year options have been issued, and are outstanding, to our directors, officers and employees at exercise prices of $5.42 to $23.85 per share. From this total, 665,088 options are outstanding to the Chief Executive Officer who is also a director, with remaining contractual lives of 3.9 - 9.0 years. All other options issued to directors, officers and employees have a remaining contractual life ranging from 3.7 years to 9.0 years.

   
iii)

A total of 216,959 non-qualified 5-10 year options have been issued, and are outstanding, to our consultants at exercise prices of $6.30 to $19.20 per share.

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

    Stock Options Outstanding     Stock Options Vested  
    Weighted                    
    Average                 Weighted  
    Remaining                 Average  
    Contractual Life     Number of     Number of     Exercise  
    - Years     Awards     Awards     Price  
Exercise Prices                        
$4.50 - $8.70   6.82     871,028     668,768   $  6.38  
$9.00 - $12.90   5.67     130,673     130,673   $  10.45  
$13.50-$18.90   4.03     360,529     360,529   $  14.17  
$19.20-$23.85   3.40     306,668     306,668   $  22.84  
Total   5.50     1,668,898     1,466,638   $  12.10  

The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at December 31, 2011:

    Stock Options Outstanding     Stock Options Vested  
    Weighted                    
    Average                 Weighted  
    Remaining                 Average  
    Contractual Life     Number of     Number of     Exercise  
    - Years     Awards     Awards     Price  
Exercise Prices                        
$4.50 - $8.70   7.07     871,195     542,671   $  6.48  
$9.00 - $12.90   5.08     152,340     152,340   $  10.51  
$13.50-$18.90   4.26     343,862     343,862   $  14.14  
$19.20-$23.85   3.65     306,668     306,668   $  22.84  
Total   5.69     1,674,065     1,345,541   $  12.62  

The aggregate intrinsic value of stock options outstanding at March 31, 2012 and December 31, 2011 was $0, all of which related to vested awards. Intrinsic value is calculated based on the difference between the exercise price of the underlying awards and the quoted price of our common stock as of the reporting date ($3.20 and $2.04 per share as of the close on March 31, 2012 and December 31, 2011, respectively).

Restricted Stock Award Activity

The following summarizes our restricted stock unit activity:

          Weighted  
          Average  
          Grant  
    Number of     Date Fair  
    Units     Value  
Total awards outstanding at December 31, 2011   120,021   $  6.14  
Units granted            
Units vested   (20,426 ) $  7.61  
Units Cancelled/Forfeited            
Total awards outstanding at March 31, 2012   99,595   $  5.84  
Total units vested   -        
Total units non-vested   99,595   $  5.84  
Total units outstanding at March 31, 2012   99,595   $  5.84  

Scheduled vesting for outstanding restricted stock units at March 31, 2012 is as follows:

 

   Year Ended                          

 

   December 31,                          

 

   2012     2013     2014     2015     Thereafter     Total  

Scheduled vesting—restricted stock units

  56,563     28,739     14,293     --     --     99,595  

As of March 31, 2012 and December 31, 2011, there was $0.3 million and $0.4 million 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 $0.2 million of the compensation expected to be expensed in the next twelve months, and the total unrecognized has a weighted average recognition period of 1.38 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 occur. We have estimated that 1.5% and 3.3% of our option and restricted stock grants respectively, will be forfeited prior to vesting.

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

    12/31/2011  
       
Average risk-free interest rate   3.35%  
Average expected life- years   10  
Expected volatility   94.32%  
Expected dividends   0%  

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 March 31, 2012 and 2011, approximately $0.4 million was recorded as total stock-based compensation for each period. Stock-based compensation expense is recorded under the caption general and administrative expenses in the accompanying consolidated statement of operations.

Common Stock reserved for Future Issuance

Common stock reserved for future issuance at March 31, 2012 consists of:

    Shares of        
    Common        
    S tock     Amount  
             
Stock-based compensation   977   $  3,125