ACCOUNTING FOR STOCK BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2013 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | ' |
NOTE 7 - ACCOUNTING FOR STOCK BASED COMPENSATION |
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The Company follows the provisions of ASC 718, “Share-Based Payment.” The Company’s results for the three and nine-month periods ended September 30, 2013 include share-based compensation expense totaling $316,081 and $479,214, respectively. Results for the three and nine-month periods ended September 30, 2012 include share-based compensation expense of $90,899 and $218,464, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within operating expenses. |
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On June 13, 2012, our shareholders approved the Company’s 2012 Incentive Compensation Plan (the “2012 Plan”). The 2012 Plan replaced the Company’s Amended and Restated 2000 Stock Option Plan, as amended (the “Prior Plan”), under which 0 additional grants will be made. Under the 2012 Plan, the total number of shares of the Company’s common stock reserved and available for issuance under the 2012 Plan at any time is 2,000,000 shares, plus any shares subject to awards that have been issued under the Prior Plan that expire, are cancelled or are terminated after June 13, 2012 without having been exercised in full and would have become available for subsequent grants under the Prior Plan. As of September 30, 2013, there were 691,304 shares available for issuance under the 2012 Plan. The 2012 Plan provides for the grant of Restricted Stock Awards, Non-Qualified Stock Options and Incentive Stock Options in compliance with the Internal Revenue Code of 1986, as amended, to employees, officers, directors, consultants and advisors of the Company who are expected to contribute to the Company’s future growth and success. |
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All service-based options granted have ten-year terms and, from the date of grant, vest annually and become fully exercisable after a maximum of five years. Performance-based options granted have ten-year terms and vest and become fully exercisable when determinable performance targets are achieved. Performance targets are agreed to, and approved by, the Company’s board of directors. |
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Under the Company’s 2012 Plan, options may be granted to purchase shares of the Company’s common stock exercisable at prices equal to or above the fair market value on the date of the grant. |
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The following table summarizes the restricted common stock awards granted to certain officers and directors of the Company during the nine-months ended September 30, 2012 under the 2012 Plan: |
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| | Number of Shares | | | Price per | | | | | | | | | |
Individuals | | Granted | | | Granted Share | | | Vesting Date | | | | | | |
Chief Executive Officer | | | 50,000 | | | $ | 1.15 | | | 13-Jun-12 | | (vested upon grant) | | | | |
| | | 26,957 | | | $ | 1.15 | | | 20-Mar-13 | | | | | | |
V.P. of Sales and Marketing | | | 21,739 | | | $ | 1.15 | | | 20-Mar-13 | | | | | | |
Board of Directors | | | 80,000 | | | $ | 1.15 | | | 13-Jun-12 | | (vested upon grant) | | | | |
| | | 80,000 | | | $ | 1.15 | | | 13-Jun-13 | | | | | | |
| | | 258,696 | | | | | | | | | | | | | |
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On August 19, 2013, upon the unanimous recommendation of the Compensation Committee, the Board of Directors approved the grant of performance-based restricted stock awards to certain employees of the Company, including its officers. Accordingly, the Company entered into restricted stock agreements pursuant to which certain employees of the Company were awarded, collectively, up to 100,000 shares of the Company’s common stock at $1.77 per share, which represents the closing price of the Company’s common stock as reported on the NYSE MKT on August 19, 2013, the date of grant. |
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Under the terms of the restricted stock agreements, the awards will fully vest and become exercisable on the date on which the Board shall have determined that specific financial milestones have been met, provided the employee remains in the employ of the Company at such time; provided, however, upon a Change in Control (as defined in the stock option agreements and the 2012 Plan), the restricted stock shall automatically vest as permitted by the 2012 Plan. For the performance-based restricted stock awarded in 2013, the Company’s Board of Directors adopted specific revenue and earnings performance targets as vesting conditions. As of September 30, 2013, the Company has not incurred expense relating to these performance-based stock awards as it is more likely than not that the performance targets will not be achieved. |
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The following table summarizes the restricted common stock awards granted to certain directors, officers and employees of the Company during the nine-months ended September 30, 2013 under the 2012 Plan: |
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| | Number of Shares | | | Price per | | | | | | | | | |
Individuals | | Granted | | | Granted Share | | | Vesting Date | | | | | | |
Chief Executive Officer | | | 42,000 | | | $ | 1.77 | | | Performance based | | | | | | |
Chief Financial Officer | | | 11,000 | | | $ | 1.77 | | | Performance based | | | | | | |
V.P. of Sales and Marketing | | | 26,000 | | | $ | 1.77 | | | Performance based | | | | | | |
Various Other Employees | | | 21,000 | | | $ | 1.77 | | | Performance based | | | | | | |
Board of Directors | | | 120,000 | | | $ | 1.51 | | | Next Annual Meeting | | (Expected June 2014) | | | | |
| | | 220,000 | | | | | | | | | | | | | |
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During the nine-months ended September 30, 2013, the Company repurchased 13,479 shares of restricted common stock from its Chief Executive Officer and 10,870 shares of restricted common stock from its V.P. of Sales and Marketing for $36,279, or $1.49 per share, During the nine-months ended September 30, 2012, the Company repurchased 23,334 shares of restricted common stock from its Chief Executive Officer for $26,834, or $1.15 per share. In accordance with the terms of the 2012 Plan, the Compensation Committee of the Board of Directors authorized the Company to repurchase, upon vesting of the restricted stock, that certain number of shares necessary to allow such grantees to satisfy their personal tax liability associated with the vesting of such shares. |
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A summary of the status of the Company’s non-vested restricted common stock, as granted under the Company’s approved stock compensation plan, as of September 30, 2013, and changes during the nine-months ended September 30, 2013 are presented below: |
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| | | | | Weighted Average | | | | | | | | | |
| | | | | Grant Date | | | | | | | | | |
Non-vested Shares | | Number of Shares | | | Fair Value | | | | | | | | | |
Non-vested at January 1, 2013 | | | 128,696 | | | $ | 1.15 | | | | | | | | | |
Granted | | | 220,000 | | | $ | 1.63 | | | | | | | | | |
Vested | | | (128,696 | ) | | $ | 1.15 | | | | | | | | | |
Non-vested at September 30, 2013 | | | 220,000 | | | $ | 1.63 | | | | | | | | | |
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As of September 30, 2013, the unearned compensation related to Company granted restricted common stock is $312,900 of which $135,900 will be amortized on a straight-line basis through the date of the Company’s next annual shareholders meeting to be held in 2014, the vesting date. The remaining balance of $177,000 will begin to be amortized when certain performance conditions are determined to be probable. |
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On August 19, 2013, upon the unanimous recommendation of the Compensation Committee, the Board of Directors approved the grant of performance-based stock options to certain employees of the Company, including its officers. Accordingly, the Company entered into stock option agreements pursuant to which certain employees of the Company were awarded options to purchase, collectively, up to 950,000 shares of the Company’s common stock at an exercise price of $1.77 per share, which represents the closing price of the Company’s common stock as reported on the NYSE MKT on August 19, 2013, the date of grant. |
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Under the terms of the stock option agreements the options will fully vest and become exercisable on the date on which the Board shall have determined that specific financial milestones have been met, provided the employee remains in the employ of the Company at such time; provided, however, upon a Change in Control (as defined in the stock option agreements and the 2012 Plan), the options shall automatically accelerate and become fully exercisable as permitted by the 2012 Plan. For the performance-based stock options awarded in 2013, the Company’s Board of Directors adopted specific revenue and earnings performance targets as vesting conditions. As of September 30, 2013, the Company has not incurred expense relating to these performance-based stock options as it is more likely than not that the performance targets will not be achieved. |
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A summary of performance-based stock option activity, and related information for the nine-months ended September 30, 2013 follows: |
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| | | | | Weighted Average | | | | | | | | | |
| | Options | | | Exercise Price | | | | | | | | | |
Outstanding, January 1, 2013 | | | 1,300,000 | | | $ | 0.93 | | | | | | | | | |
Granted | | | 950,000 | | | $ | 1.77 | | | | | | | | | |
Exercised | | | — | | | | — | | | | | | | | | |
Forfeited | | | — | | | | — | | | | | | | | | |
Canceled/Expired | | | — | | | | — | | | | | | | | | |
Outstanding, September 30, 2013 | | | 2,250,000 | | | $ | 1.28 | | | | | | | | | |
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Options exercisable, September 30, 2013 | | | — | | | | — | | | | | | | | | |
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The aggregate intrinsic value of performance-based stock options outstanding as of September 30, 2013 and December 31, 2012 was $1,671,250 and $416,150, respectively. The aggregate intrinsic value of performance-based stock options exercisable as of September 30, 2013 was $0. |
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The per share fair-value of performance-based options granted during the three and nine-month periods ended September 30, 2013 was $0.91. |
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A summary of service-based stock option activity, and related information for the nine-months ended September 30, 2013 follows: |
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| | | | | Weighted Average | | | | | | | | | |
| | Options | | | Exercise Price | | | | | | | | | |
Outstanding, January 1, 2013 | | | 862,000 | | | $ | 2.61 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Exercised | | | — | | | | — | | | | | | | | | |
Forfeited | | | — | | | | — | | | | | | | | | |
Canceled/Expired | | | (20,000 | ) | | $ | 1.95 | | | | | | | | | |
Outstanding, September 30, 2013 | | | 842,000 | | | $ | 2.63 | | | | | | | | | |
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Options exercisable, September 30, 2013 | | | 842,000 | | | $ | 2.63 | | | | | | | | | |
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The Company’s service-based stock options are fully amortized. The Company began amortizing its performance-based options at the end of 2011. For the three-months ended September 30, 2013 and 2012, the Company recorded compensation expense in the amount of $270,781 and $49,232, respectively. For the nine-months ended September 30, 2013 and 2012, the Company recorded compensation expense in the amount of $369,246 and $147,697, respectively. Through June 30, 2013, the unamortized amount was expensed on a straight-line basis through December 31, 2015, the expected implicit service period at that time. However, during the three-months ended September 30, 2013, management re-evaluated the date the respective performance conditions will likely be met. As a result, the Company has accelerated the expensing of such options through December 31, 2013, the revised implicit service date. The impact of the accelerated expense on net income for the three and nine-months ended September 30, 2013 was $221,548 or $0.01 per basic and diluted share. The unamortized balance of this tranche of options was $221,548 at September 30, 2013. |
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Unearned compensation in the amount of $867,683 relating to performance-based stock options granted in 2013 will not be recognized until management considers the respective performance conditions to be achievable. |
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The following summarizes the components of share-based compensation expense by equity type for the three and nine-months ended September 30: |
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| | Three Months Ended | | | Nine Months Ended | |
September 30, | September 30, |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Performance-Based Stock Options | | $ | 270,781 | | | $ | 49,232 | | | $ | 369,246 | | | $ | 147,697 | |
Restricted Common Stock | | | 45,300 | | | | 41,667 | | | | 109,968 | | | | 70,767 | |
Total Share-Based Compensation Expense | | $ | 316,081 | | | $ | 90,899 | | | $ | 479,214 | | | $ | 218,464 | |
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Stock-based compensation for the three and nine-months ended 2013 and 2012 is included in general and administrative expenses in the accompanying condensed consolidated statement of operations. |