Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2011
Stock-Based Compensation  
Stock-Based Compensation
12. 
Stock-Based Compensation
 
On August 5, 2003, the Company established a stock option plan (the "Plan"). Under the Plan, the Company grants stock options to key employees, directors and consultants of the Company. For all grants prior to September 12, 2005 and grants to employees of the Company after September 12, 2005, the vesting period is 30% on the first anniversary of the grant date, an additional 30% on the second anniversary and the remaining 40% on the third anniversary. Options expire between five and ten years from the date of grant.
 
For grants to non-employee consultants of the Company after September 12, 2005, the vesting period is between one to three years, subject to the fulfillment of certain conditions in the individual stock option grant agreements, or 100% upon the occurrence of certain events specified in the individual stock option grant agreements. Options authorized for issuance under the Plan total 17,000,000 after giving effect to an amendment to the Plan approved at the Annual Meeting of the Stockholders of the Company on June 2, 2006.  At December 31, 2011, 8,673,000 shares of common stock were available for issuance.
 
Prior to adoption of the Plan, the Company made restricted stock grants. During 2003 all existing restricted stock grants were converted to stock options. The converted options maintained the same full vesting period as the original restricted stock grants.
 
Accounting for Employee Awards
 
The Company's results of operations for the years ended December 31, 2011, 2010 and 2009 include share-based employee compensation expense totaling $597,637, $470,366, and $565,150 respectively. Such amounts have been included in the Statement of Operations in general and administrative and research and development expenses. No income tax benefit has been recognized in the Statement of Operations for share-based compensation arrangements as the Company has provided for a 100% valuation allowance on its deferred tax assets.
 
Employee stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite vesting service period for the entire portion of the award.
 
Accounting for Non-Employee Awards
 
Stock compensation expenses related to non-employee options were $40,970, $114,291 and $(67,619) for the years ended December 31, 2011, 2010 and 2009, respectively. Such amounts have been included in the Statement of Operations in general and administrative and research and development expenses.
 
Summary of Stock Compensation Expense Recognized
 
Total stock-based compensation recognized by the Company in the years ended December 31, 2011, 2010 and 2009, and the period from inception (March 19, 2001) to December 31, 2011, all of which relates to stock options is as follows:
 
         
Inception
(March 19, 2001)
to
  
   
Year Ended December 31,
    
December 31
  
   
2011
    
2010
    
2009
    
2011
  
Statement of operations line item:
General and administrative:
                        
Payroll
   $ 501,884     $ 393,425     $ 443,013     $ 2,495,400  
Consulting and other professional fees
     26,566       93,581       (67,644 )     786,523  
Research and development:
                                
Payroll
     95,753       76,941       122,137       972,049  
Consulting and other professional fees
     14,404       20,710       25       1,323,657  
                                 
Total
   $ 638,607     $ 584,657     $ 497,531     $ 5,577,629  
 
Summary of Stock Option Transactions
 
There were a total of 450,000 stock options granted with exercise prices ranging from $0.38-1.84, fair value on the grant date of $425,320 and a weighted average grant date fair value of $0.95 during the year ended December 31, 2011.  There were a total of 725,000 stock options granted with exercise prices ranging from $1.17-$1.33, fair value on the date of grant of $616,000, and a weighted average grant date fair value of $0.85 during the year ended December 31, 2010.  A total of 180,000 stock options were granted with exercise prices ranging from $0.73 - $1.28, grant date fair value of $134,917, and a weighted average grant date fair value of $0.75 during the year ended December 31, 2009.  The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of the Company's stock. The expected term is based upon the simplified method as allowed under SAB 107.
 
The assumptions made in calculating the fair values of options are as follows:
 
   
For the Year Ended December 31,
  
   
2011
    
2010
    
2009
  
Black Scholes weighted average assumptions:
                  
Expected Dividend Yield
     0 %     0 %     0 %
Expected volatility
     96-101 %     103-107 %     100-108 %
Risk free interest rate
     0.11-2.29 %     0.26-2.40 %     0.51-2.55 %
Expected term (in years)
  
5 Years
    
1-5 Years
    
1-5 Years
  

The following table summarizes the employee and non-employee share-based transactions:
 
   
2011
    
2010
  
   
Shares Subject
to Options
    
Weighted Avg.
Exercise Prices
    
Shares Subject 
to Options
    
Weighted Avg.
Exercise Prices
  
Outstanding at
January 1
      8,076,795     $   1.01        7,715,795     $   0.98  
Granted
     450,000     $ 1.28       725,000     $ 1.26  
Exercised
     (183,000 )   $ 0.32       (155,500 )   $ 0.68  
Cancelled
     (697,000 )   $ 0.91       (208,500 )   $ 1.19  
                                 
Outstanding at December 31
     7,646,795     $ 1.05       8,076,795     $ 1.01  
 
The following table summarizes information about stock options outstanding as of December 31, 2011 and 2010:

   
Shares Subject
to Options
    
Weighted Avg.
Exercise Prices
  
Weighted
Average
Remaining
Contractual Term
  
Aggregate
Intrinsic
Value
  
Outstanding at December 31, 2011
     7,646,795     $  1.05  
4.8 years
   $ 83,611  
                           
Exercisable at December 31, 2011
    6,911,795     $ 1.02  
4.4 years
   $ 83,611  
                           
Outstanding at December 31, 2010
    8,076,795     $ 1.01  
5.4 years
   $ 2,198,790  
                           
Exercisable at December 31, 2010
    6,762,795     $ 1.00  
4.8 years
   $ 2,023,980  
 
The total intrinsic value of the options exercised was $163,450, $239,560 and $9,300, for the years ended December 31, 2011, 2010 and 2009, respectively.  The weighted average fair value of the vested options was $0.70, $0.76 and $0.54 for the years ended December 31, 2011, 2010, and 2009, respectively.
 
A summary of the Company's unvested shares as of December 31, 2011 and changes during the year ended December 31, 2011 is presented below:
 
   
2011
  
   
Subject to
Options
    
Weighted
Average Fair
Value at Grant
Date
  
Unvested at January 1, 2011
     1,314,000     $ 0.76  
Granted
     450,000     $ 0.95  
Vested
     (938,000 )   $ 0.70  
Cancelled
     (91,000 )   $ 0.89  
                 
Unvested at December 31, 2011
     735,000     $ 0.92  
 
As of December 31, 2011 and 2010, there was $397,593 and $685,636 of total unrecognized compensation cost, related to all unvested stock options, which is expected to be recognized over a weighted average vesting period of 1.6 years and 1.4 years, respectively.