Share-Based Compensation

6 Months Ended

Jun. 30, 2012

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

NOTE 7. SHARE-BASED COMPENSATION

We account for our share-based compensation in accordance with ASC standards on Share-based Payments. The standards apply to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. Under the ASC standards, we are required to follow a fair value approach using an option-pricing model, such as the Black-Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option.

In September 2010, the Company adopted its 2010 Long-Term Incentive Compensation Plan (the “Incentive Plan”), which provides for equity incentives to be granted to employees, officers or directors of the Company, as well as key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares on the date of grant, stock appreciation rights, restricted stock awards, stock bonus awards, other stock-based awards, or any combination of the foregoing. A maximum of 5,000,000 shares of Common Stock were authorized for issuance under the Incentive Plan.

Common Stock Options

During the six months June 30, 2012, the Company granted 2,025,750 common stock options to members of management and employees of the Company at an average exercise price of $1.65 with an average estimated fair value of $0.98 per share. The options have a life of ten years and vest in equal amounts over a three year period beginning with the date of grant.

We recorded share-based compensation expense of $1.2 million related to stock options for which the requisite service period elapsed during the six months ended June 30, 2012. These expenses are included in our selling, general and administrative expenses. No option exercises occurred during the six months ended June 30, 2012.

As of June 30, 2012, there was $2.3 million of total unrecognized compensation cost related to unvested shares associated with stock options which will be recognized over a weighted-average period of 1.53 years. We recognize compensation expense for our stock options on a straight-line basis over their vesting term. We are required to issue new shares of common stock upon the exercise of the stock options by such holder(s).

We estimated the fair value of each stock based grant using the Black-Scholes option pricing method for service and performance based options, and the Lattice Model for market based awards. The weighted average values for options issued for the quarter ended June 30, 2012 was as follows:

Number of options issued	$	2,025,750
Weighted average stock price	$	1.65
Weighted average exercise price	$	1.65
Weighted average expected life of options (a)		5.00
Weighted average expected volatility (b)		72.51	%
Weighted average risk-free interest rate		0.81	%
Expected annual dividend per share		—
Weighted average fair value of each option	$	0.98

(a) Based on our expectation of when the options will be exercised. The options have a life of ten years.

(b) The expected volatility of our common stock was estimated using an average of volatilities of publicly traded companies in similar energy businesses.

The following is a summary of stock option activity during the six months ended June 30, 2012.

	Number of Shares		Weighted average Exercise Price		Aggregate Intrinsic Value* ($000’s)
Outstanding – Beginning of Period		8,826,500	$	5.41	$	—
Granted		2,025,750	$	1.65		790
Exercised		—		—		—
Cancelled		—		—		—
Outstanding – End of Period		10,852,250	$	4.71	$	3,491
Exercisable – End of Period		6,068,162	$	7.35	$	226

* The Aggregate Intrinsic Value was calculated using the June 29, 2012 closing stock price of $2.04.

The following is a summary of stock options outstanding at June 30, 2012:

Exercise Price	Number of Options Outstanding		Weighted Average Remaining Contractual Life (Years)		Number of Exercisable Options
$                      0.90		2,050,000		8.77		—
$                      0.97		100,000		6.93		66,666
$                      1.41		200,000		7.45		100,000
$                      1.65		1,975,750		9.63		—
$                      1.79		50,000		9.64		—
$                      1.96		1,725,000		7.16		1,149,997
$                      5.00		3,247,000		4.88		3,247,000
$                      7.50		33,333		5.26		33,333
$                    10.00		243,333		5.41		243,333
$                    10.12		2,500		6.28		2,500
$                    12.00		6,500		5.49		6,500
$                    13.66		3,000		6.01		3,000
$                    17.76		40,000		5.62		40,000
$                    18.00		16,667		5.70		16,667
$                    18.91		1,099,167		5.63		1,099,166
$                    19.75		13,333		5.80		13,333
$                    20.64		25,000		5.94		25,000
$                    22.75		21,667		5.87		21,667
		10,852,250				6,068,162

Share Awards

During the six months ended June 30, 2012, we granted 31,064 shares of common stock to the nonemployee members of the Board of Directors as payment for their fees for the first quarter of 2011 in lieu of receiving cash for their fees. These common shares vested immediately and were valued at weighted average price of $2.22 per share based on the quoted market value of the stock on the date of the grant. We recognized $69 thousand of expense in our selling, general, and administrative expenses for the six months ended June 30, 2012, related to these shares. These shares were not issued as of June 30, 2012, but are included in weighted average basic shares outstanding as of June 30, 2012. At June 30, 2012, there were 58,139 shares owed to the non-employee members of the Board of Directors that were not issued, but are included in weighted average basic shares outstanding as of June 30, 2012.

On February 13, 2012, we granted 3,500 restricted shares to employees. These common shares vested immediately and were valued at a weighted average of $1.65 per share, based on the quoted market value of the stock on the date of the grant. We recognized $6 thousand of expense in our selling, general, and administrative expenses for the six months ended June 30, 2012, related to these shares. These shares were issued out of treasury.

On April 2, 2012, we granted 10,484 restricted shares to members of the board of directors as payment of their fees. These common shares vested immediately and were valued at a weighted average of $2.35 per share, based on the quoted market value of the stock on the date of the grant. We recognized $25 thousand of expense in our selling, general, and administrative expenses for the six months ended June 30, 2012, related to these shares. These shares were issued out of treasury.

During April 2011, the compensation committee approved the grant of shares of the Company’s common stock to be valued at $1.0 million or 1,111,111 shares of common stock based on the per share price of $0.90, the closing price on April 5, 2011, to the Company’s Chairman and Chief Executive Officer, pending shareholder approval. These shares are not included in shares outstanding, weighted average shares outstanding, and potentially dilutive securities, since the grant has not yet been approved by shareholders.

The following is a summary of unvested share awards for the six month ended June 30, 2012:

	June 30, 2012
	Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested - Beginning of Year		25,000		$	1.87
Granted		34,564			2.16
Cancelled		—			—
Exercised		—			—
Vested		(59,564	)		2.04
Unvested - End of Period		—		$	—