Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Notes to Financial Statements

10. Stock-Based Compensation

 Stock Options

 The Company accounts for share-based payment awards exchanged for employee services at the estimated grant date fair value of the award.  Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant.  These options generally vest over a four- to ten-year period.

 The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield.  The risk free interest rate is based on U.S. Treasury zero-coupon yield curve over the expected term of the option.  The expected term assumption is determined using the weighted average midpoint between vest and expiration for all individuals within the grant.  The expected volatility assumption is based on the standard deviation of the Company’s underlying stock price’s daily logarithmic returns.  The Company’s model includes a zero dividend yield assumption, as the Company has not historically paid nor does it anticipate paying dividends on its common stock.  The Company’s model does not include a discount for post-vesting restrictions, as the Company has not issued awards with such restrictions.  The periodic expense is then determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded.  The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest.

 The Company recognized $2,144 in stock-based compensation expense during the six-month period ended June 30, 2013, relating to the vesting of stock options, and had no unrecognized compensation, as of that date.  For the six-month periods ended June 30, 2012, the Company recognized $20,000 in stock-based compensation expense.

 A summary of option activity under the Company’s employee stock option plan for the six months ended June 30, 2013, is presented below:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,163		$	22.34		4.4
Granted		-		$	-
Exercised		-		$	-
Expired or forfeited		(500	)	$	-
Outstanding at June 30, 2013		6,663		$	21.01		4.0	$	-
Options exercisable at June 30, 2013		6,663		$	21.01		4.0	$	-

 Restricted Stock Awards

 A restricted stock award entitles the recipient to receive shares of unrestricted common stock upon vesting of the award and expiration of the restrictions.  The fair value of each restricted stock award is determined upon granting of the shares and the related compensation expense is recognized ratably over the vesting period and charged to the operations as non-cash compensation expense.  Shares contained in the unvested portion of restricted stock awards are forfeited upon termination of employment, unless otherwise agreed.  The fair value of restricted stock issued under the Plan is determined based on the closing price of the Company’s common stock on the grant date.

 A summary of the restricted stock award activity for the six months ended June 30, 2013 is as follows:

	Number of Units		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2013		122,500	$	6.83
Granted		-
Vested		-
Forfeited		(2,000)
Nonvested at June 30, 2013		120,500	$	6.83

 The Company incurred $6,143 and none in compensation expense during the six months ended June 30, 2013 and 2012, respectively, related to the restricted stock awards previously granted.  At June 30, 2013, unrecognized compensation expense associated with the restricted stock awards was $1,024, which will be amortized over approximately 0.75 year.

 At the end of December 2012, the Company entered into a Consulting Agreement with an entity wholly-owned by Mr. Harvey Kesner, a member of the board of directors and Interim Chief Executive Officer of the Company, pursuant to which the entity was issued 120,000 shares of common stock in exchange for its services.  The shares will vest if prior to December 31, 2017, the Company; (i) closes an acquisition either approved by the stockholders or in excess of $25 million; (ii) closes a private or public financing of at least $7.5 million; (iii) sells all or substantially all of its assets; or (iv) otherwise undergoes a change in control.  In such an event, the affiliate shall also be entitled to a one-time payment of $250,000.  Expense is recognized upon satisfaction of the above contingencies.  No expense was recognized during the six months ended June 30, 2013.

 Proposed 2013 Plan

 In April 2013, the Company’s board of directors adopted the Spherix Incorporated 2013 Equity Incentive Plan (the “2013 Plan”), an omnibus equity incentive plan pursuant to which the Company may grant equity and cash and equity-linked awards to certain management, directors, consultants and others.  The plan is subject to approval by the Company’s shareholders.

 The 2013 Plan authorizes approximately 15% or our fully-diluted Common Stock (2,800,000 shares) be reserved for issuance under the Plan, after giving effect to the shares of our capital stock issuable under the Merger.  On April 4, 2013, the Company issued 2,005,500 option shares to executives of the Company and certain outside consultants under the 2013 Plan, subject to shareholder approval of the 2013 Plan.  The total fair value of the options on the date of grant was approximately $11.2 million under the Black-Scholes model of valuing options.

Set forth below is information relating to the option grants under the 2013 Plan which are subject to shareholder approval and have therefore not yet been recognized for accounting purposes.

Name		Number of Options		Exercise Price		Expiration
Harvey Kesner	(1)		1,000,000	$	7.08	4/1/2023
Douglas Brown	(2)		75,000	$	7.08	4/1/2023
Edward Karr	(2)		75,000	$	7.08	4/1/2023
Robert Vander Zander	(2)		75,000	$	7.08	4/1/2023
Executive Group			1,225,000
North South CEO	(3)		750,000	$	7.08	4/1/2023
Consultant	(4)		25,000	$	7.08	4/1/2023
Consultant	(5)		5,000	$	7.08	4/1/2023
Other staff			500	$	7.08	4/1/2023
Total			2,005,500

(1) 750,000 options vest in 4 equal semi-annual installments beginning on October 4, 2013 as long as the shareholders have approved the 2013 Plan.  Remaining 250,000 options are subject to certain performance conditions requiring the Company to achieve a VWAP of $12 per share for 30 out of 90 consecutive days prior to December 31, 2014 and provided Optionee remains a director.

(2) Eligibility date of October 4, 2013, provided Optionee remains a director of Spherix through said date.

 (3) Eligibility upon the last to occur of (i) shareholder approval of Plan, (ii) closing of merger of North South Holdings, Inc. into Nuta Technology Corp, and (iii) Optionee’s employment as the Chief Executive Officer of Spherix.

(4) Eligibility effective immediately upon shareholder approval.

(5)   Eligibility effective immediately upon shareholder approval.

The Company would record compensation cost over the contractual service or vesting period based on the fair value of the award on the date of grant.