Stock-based Compensation

6 Months Ended

Jun. 30, 2011

Stock-based Compensation [Abstract]

Stock-based Compensation

12. Stock-based Compensation

The Company measures the stock-based compensation costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the employee requisite service period.

The following table summarizes the consolidated stock-based compensation expense, by type of awards for the three and six months ended June 30, 2011 and 2010 (in thousands):

	For Three Months Ended				For Six Months Ended
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Employee stock options	$	94	$	90	$	142	$	181
Stock grants		—		8		8		16
Total stock-based compensation expense	$	94	$	98	$	150	$	197

The following table summarizes the consolidated stock-based compensation by line item for the three and six months ended June 30, 2011 and 2010 (in thousands):

	For Three Months Ended				For Six Months Ended
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
General and administrative	$	82	$	49	$	118	$	99
Sales, marketing and customer service		10		25		25		50
Engineering, design and product management		2		24		7		48
Total stock-based compensation expense		94		98		150		197
Tax effect on stock-based compensation expense		—		—		—		—
Total stock-based compensation expense after taxes	$	94	$	98	$	150	$	197

Stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimated its average pre-vesting forfeiture rate at 17.7% and 10.7% for the six months ended June 30, 2011 and 2010, respectively.

Valuation Assumptions

Valuation and Amortization Method — The Company estimates the fair value of service-based and performance-based stock options granted using the Black-Scholes-Merton option-pricing formula. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Service-based and performance-based options typically have a five-year life from date of grant and vesting periods of three to four years.

Expected Term — The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. For awards granted subject only to service vesting requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of historical exercise data. For its performance-based awards, the Company has determined the expected term to be five years based on contractual life and the seniority of the recipient.

Expected Volatility — The Company uses the historical volatility of the price of its common shares.

Expected Dividend — The Company has never paid dividends on its common shares and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate — The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation method upon the implied yield curve currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

During the three and six months ended June 30, 2011, the Company granted 3,700,000 service-based options fair-valued at $0.46 per option using the Black-Scholes-Merton model. The vesting for these options will occur over a four-year period beginning one year from the date of grant. During the three and six months ended June 30, 2010, the Company granted 805,000 service-based options fair-valued between $0.24 and $0.52 per option, respectively using the Black-Scholes-Merton model. The vesting for 705,000 of the service-based options will occur over a four-year period beginning one year from the date of grant and the vesting period for 100,000 of the service-based options will occur over a one-year period beginning on the date of grant.

Assumptions used in the determination of the fair value of share-based payment awards using the Black-Scholes-Merton model for stock option grants during the three and six months ended June 30, 2011 and 2010 were as follows:

	2011 Service-based			2010 Service-based
Expected term		3.75		3.0-3.75
Risk-free interest rate		0.94	%	1.47%
Volatility		201	%	54%
Dividend yield		0	%	0%

Equity Incentive Plan

At June 30, 2011 there were 16,819,220 total shares available to be issued under the plan (9% of the outstanding shares of 184,013,923 plus outstanding warrants of 2,866,302). There were 6,056,043 options and restricted shares issued and outstanding under the plan; 164,195 options have been exercised; and 10,598,982 shares are available to be issued.

The following table summarizes the Company’s stock option activities for the three and six month periods ended June 30, 2011 and 2010:

	2011									2010
						Weighted-									Weighted-
				Weighted-		Average							Weighted-		Average
				Average		Remaining							Average		Remaining
				Exercise Price		Contractual		Aggregate Intrinsic					Exercise Price		Contractual		Aggregate Intrinsic
	Shares			Per Share		Term		Value ($000)		Shares			Per Share		Term		Value ($000)
Outstanding January 1		2,505,175		$	0.92		2.99	$	—		2,694,400		$	1.20		2.80	$	80,832
Granted		—			—		—		—		805,000			1.24		4.76		—
Exercised		—			—		—		—		—			—		—		—
Forfeited		(25,000	)		0.55		—		—		(202,500	)		1.00		—		—
Outstanding March 31		2,480,175			0.91		2.75		—		3,296,900			1.22		3.18		197,814
Granted		3,700,000			0.49		3.75		—		—			—		—		—
Exercised		—			—		—		—		—			—		—		—
Forfeited		(650,000	)		—		—		—		(10,000	)		1.00		—		—
Outstanding June 30		5,530,175		$	0.68		3.84	$	—		3,286,900		$	1.22		2.93	$	—
Exercisable June 30		1,381,175		$	1.09		1.34	$	—		1,708,775		$	1.23		2.24	$	—

The weighted-average grant-date fair value of the options granted during the six months ended June 30, 2011 was $0.46. The weighted-average grant-date fair value of options granted during the six months ended June 30, 2010 was $0.48.

The following table summarizes the Company’s restricted stock activities for the three and six month periods ended June 30, 2011 and 2010:

	2011			2010
	Shares
Outstanding as of January 1		550,868			550,868
Granted		—			—
Exercised		—			—
Forfeited		(25,000	)		—
Outstanding March 31		525,868			550,868
Granted		—			—
Exercised		—			—
Forfeited		—			—
Outstanding June 30		525,868			550,868
Vested as of June 30		525,868			500,868

Changes in the Company’s non-vested stock options are summarized as follows:

	Service-based Options					Restricted Stock
				Weighted-Average					Weighted-Average
				Grant Date Fair					Grant Date Fair
	Shares			Value Per Share		Shares			Value Per Share
Non-vested as of January 1, 2011		1,334,125		$	0.78		25,000		$	1.34
Granted		—			—		—			—
Vested		(140,375	)		0.29		—			—
Forfeited		(25,000	)		0.59		(25,000	)		1.34
Non-vested as of March 31, 2011		1,168,750			0.74		—			1.34
Granted		3,700,000			0.46		—			—
Vested		(69,750	)		0.68		—			—
Forfeited		(650,000	)		0.39		—			—
Non-vested as of June 30, 2011		4,149,000		$	0.54		—		$	—

As of June 30, 2011, there was approximately $1,662,000, $0 and $0 of unrecognized compensation cost related to non-vested service-based options, performance-based options and restricted stock grants, respectively. The cost is expected to be recognized over a weighted-average of 3.84 years for service-based options. Performance-based options are fully vested. During the six months ended June 30, 2011 there were no changes to the contractual life of any fully vested options.