Note 2 - Stock-Based Compensation and Stock Option Activity

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 2: Stock-Based Compensation and Stock Option Activity

Pursuant to the provisions of ASC 718, Compensation – Stock Compensation, or ASC 718, Onvia measures compensation cost for all stock-based awards at fair value on the date of grant.  The fair value of stock options is determined using the Black-Scholes valuation model.  Such value is recognized as expense over the service period, net of estimated forfeitures.  The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.  Management considers many factors when estimating expected forfeitures, including employee class, historical experience and expected future activity.  Actual results, and future changes in estimates, may differ substantially from management’s current estimates.

Stock-Based Benefit Plans

Onvia, Inc. 2008 Equity Incentive Plan

The Onvia, Inc. 2008 Equity Incentive Plan, or the 2008 Plan, was adopted in September 2008 and it amended and restated the previous 1999 Stock Option Plan, or the 1999 Plan.  Shares that were outstanding from the 1999 Plan will continue to be outstanding under that plan until forfeited, at which time they would be added back to the 2008 Plan.  The 2008 Plan provides for the issuance of incentive and nonqualified common stock options, stock awards, restricted stock, restricted stock units and stock appreciation rights.  Awards under this plan can be granted for ten years after the adoption date.  The 2008 Plan requires that the exercise price for all options to be at least 100% of the fair market value of the underlying shares on the date of grant.  The 2008 Plan contains specific provisions that govern awards in the event of a change in control and provides for compliance with the requirements of Section 409A of the Internal Revenue Code to the extent that awards are treated as deferred compensation.  All employees, officers, directors and consultants of Onvia are eligible to participate in the 2008 Plan, although it is not anticipated that every eligible employee or consultant will receive awards.  Options under this plan vest in increments over time, but typically have either a four or five year vesting schedule, normally with 25% or 20%, respectively, vesting one year from the grant date and ratable monthly vesting thereafter.  As of December 31, 2012 the total number of options outstanding and the number of shares available for issuance under the 2008 Plan were 655,306 and 777,768, respectively.

2000 Directors’ Stock Option Plan

In March 2000, Onvia adopted a Directors’ Stock Option Plan or the Directors’ Plan.  This plan expired on February 28, 2010.  Options granted under this plan will remain active and will continue to vest according to the original grant provisions.  Grants were made under this plan to each eligible board member on the date such person was first elected or appointed as a board member.  At each annual stockholders’ meeting, each non-employee director was granted an additional option to purchase 1,000 shares of common stock under the Directors’ Plan, provided such person had been a board member of Onvia for at least the prior six months.  The initial option grants under the Directors’ Plan vested 25% each year for four years on the anniversary of the date of grant had a term of ten years, and an exercise price equal to the closing price of Onvia’s stock on the grant date.  The annual grants vest in full one year from the date of grant, have a ten year life, and an exercise price equal to the closing price on the date of grant.  As of December 31, 2008, all shares available for issuance under the Directors’ Plan had been granted.  Accordingly, on October 23, 2008, the Board of Directors approved the stock option grants with the same terms described above (historically made under our Directors’ Plan) under the Company’s 2008 Equity Incentive Plan.          

Employee Stock Purchase Plan

In May 2000, Onvia adopted the 2000 Employee Stock Purchase Plan, or ESPP, and initially authorized 60,000 shares of common stock for issuance under the ESPP.  Each year, the number of shares authorized for issuance under the ESPP is increased by the lesser of: 1% of the total number of shares of common stock then outstanding; 60,000 shares; or a lesser number of shares as determined by the Board of Directors.  Under the ESPP, an eligible employee may purchase shares of Onvia common stock, based on certain limitations, at a price equal to the lesser of 85% of the fair market value of the common stock at the beginning or end of the respective offering period.  This plan is compensatory under the provisions of ASC 718 and the fair value of purchases under the ESPP is recognized as compensation expense over the term of the awards. The ESPP purchases shares on a semi-annual basis.  The total number of shares authorized for future issuance under the ESPP as of December 31, 2012 was 491,074 shares.

Impact on Results of Operations

The impact on Onvia’s results of operations of recording stock-based compensation for the years ended December 31 was as follows:

	2012			2011
Cost of sales	$	1,027		$	4,555
Sales and marketing		(3,887	)		48,455
Technology and development		54,225			29,838
General and administrative		188,075			228,691
Total stock-based compensation	$	239,440		$	311,539

Stock-based compensation for the twelve months of 2012 includes the impact of options forfeited upon the departure of our Vice President of Enterprise Sales and Vice President of Content, which resulted in the reversal of approximately $62,000 in previously recognized expenses on forfeited options.

Valuation Assumptions

Onvia calculated the fair value of each option award on the date of grant using the Black-Scholes valuation model.  The following weighted average assumptions were used for options granted in the years ending December 31:

	2012			2011
Risk-free interest rate		1.00	%		1.95	%
Expected volatility		52	%		50	%
Expected dividends		0	%		0	%
Expected life (in years)		4.9			5.8

The fair value of each employee purchase under the ESPP is estimated on the first day of each purchase period using the Black-Scholes valuation model.  Purchase periods begin on May 1 and November 1 of each year.  The following weighted average assumptions were used for purchase periods beginning during the years ended December 31 under the ESPP:

	2012			2011
Risk-free interest rate		0.15	%		0.08	%
Expected volatility		48	%		53	%
Expected dividends		0	%		0	%
Expected life (in years)		0.5			0.5

Risk-Free Interest Rate

The average risk free interest rate was determined based on the market yield for U.S. Treasury securities for the expected term of the grant at the time of grant.

Expected Volatility

ASC 718 requires companies to estimate expected volatility over the expected term of the options granted.

Management used the historical volatility of Onvia’s common stock to estimate the future volatility of its common stock for purposes of estimating the fair value of options granted during 2012 and 2011.

Expected Dividends

Management does not currently intend to pay dividends; therefore, this assumption is set at 0%.

Expected Life

Onvia’s computation of expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting schedules and expectations of future employee behavior.  Onvia’s historical experience is limited, because the Company does not have complete life-cycle information on any of its options; therefore, management was required to estimate future exercise and cancellation behavior, generally by assuming that remaining shares would be exercised or cancelled ratably over their remaining contractual term, adjusted for certain expectations of future employee behavior.  Management examined the behavior patterns separately for distinct groups of employees that have similar historical experience.

Stock Option Activity

The following table summarizes activity under Onvia’s equity incentive plans for the year ended December 31, 2012:

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (1)
Total options outstanding at January 1, 2012		1,579,410		$	6.81
Options granted		241,000			3.26
Options exercised		(25,375	)		1.93
Options forfeited and cancelled		(697,799	)		9.27
Total options outstanding at December 31, 2012		1,097,236		$	4.58
Options exercisable at December 31, 2012		660,828		$	5.34		4.00	$	179,529
Options vested and expected to vest at December 31, 2012		1,064,995		$	4.62		5.76	$	382,012

(1) Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of Onvia’s common stock of $3.68 at December 31, 2012 for options that were in-the-money at December 31, 2012.  The number of in-the-money options outstanding and exercisable at December 31, 2012 was 526,702 and 195,715, respectively.

The weighted average grant date fair value of options granted during the years ended December 31, 2012 and 2011 was $1.44 and $1.85 per share, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was $34,362 and $91,758, respectively.

As of December 31, 2012, there was approximately $317,000 of unrecognized compensation cost related to unvested stock options and estimated purchases under the ESPP.  That cost is expected to be recognized over a weighted average period of 1.58 years.

During the years ended December 31, 2012 and 2011, respectively, approximately $75,000 and $152,000 was received for exercises of stock options and purchases under Onvia’s ESPP.

Restricted Stock Units

The following table summarizes changes in non-vested restricted stock units (“RSUs”) for the twelve months ended December 31, 2012:

	Number of shares		Weighted Average Grant Date Fair Value
Non-vested balance at January 1, 2012		13,954	$	4.12
Granted		-		-
Vested		-		-
Forfeited / Expired		-		-
Non-vested balance at December 31, 2012		13,954	$	4.12

All RSUs were granted in the first quarter of 2011 and valued on the grant date based upon the fair value of the underlying common stock on the grant date.  Prior to the first quarter of 2011, no RSUs had been granted.  The value of the RSUs granted is recognized as compensation expense over the applicable vesting period.  The RSUs granted during the first quarter of 2011 have a three year vesting period and were subject to accelerated vesting based upon achievement of 2011 financial targets.  The 2011 financial targets were not achieved and therefore these RSU’s will fully vest on December 31, 2013.  As of December 31, 2012, there was $19,593 of total unrecognized compensation cost related to non-vested RSU’s and remaining unrecognized compensation cost associated with these RSUs is expected to be recognized over a weighted average period of one year.