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STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2012
STOCK-BASED COMPENSATION [Text Block]

17. STOCK–BASED COMPENSATION

2006 Stock Incentive Plan

The Company has adopted a stock incentive plan (the “2006 Stock Incentive Plan”) which was approved by the stockholders of the Company at the Annual General Meeting of Stockholders held on October 18, 2006. A total of 6,000,000 shares of common stock have been reserved for issuance under all awards that may be granted under the 2006 Stock Incentive Plan. “Eligible Participants” who are entitled to participate in the 2006 Stock Incentive Plan consist of employees, directors and consultants of (a) the Company or (b) any of the following entities: (i) any “parent corporation” as defined in the Internal Revenue Code of 1986, as amended (the “Code”); (ii) any “subsidiary corporation” as defined in the Code; or (iii) any business, corporation, partnership, limited liability company or other entity in which the Company, a parent corporation or a subsidiary corporation holds a substantial ownership interest, directly or indirectly. In October 2010, the Company filed a Form S-8 registration statement which increased the common shares available for distribution under the 2006 Stock Incentive Plan from 6,000,000 to 11,000,000.

The 2006 Stock Incentive Plan provides for the granting to Eligible Participants of such incentive awards (each, an “Award”) as the administrator of the 2006 Stock Incentive Plan may from time to time approve. Subject to applicable laws, including the rules of any applicable stock exchange or national market system, the administrator is authorized to grant any type of Award to an Eligible Participant (each a “Grantee”) that by its terms involves or may involve the issuance of: (i) shares of common stock, (ii) a stock option, (iii) a stock appreciation right entitling the Grantee to acquire such number of shares of common stock or such cash compensation as will be determined by reference to any appreciation in the value of the Company’s common stock, (iv) restricted stock issuable for such consideration (if any) and subject to such restrictions as may be established by the administrator, (v) unrestricted stock issuable for such consideration (if any) on such terms and conditions as may be established by the administrator, (vi) restricted stock units, subject to such restrictions as may be imposed by the administrator, and represented by notional accounts maintained in the respective names of the Grantees that are valued solely by reference to shares of common stock of the Company and payable only in shares after the restrictions eligible remuneration otherwise payable in shares of common stock, subject to settlement in accordance with the terms and conditions of the Award and represented by notional accounts maintained in the respective names of the Grantees, (viii) dividend equivalent rights, which are rights entitling the Grantee to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock, (ix) any other security with the value derived from the value of the Company’s common stock, or (x) any combination of the foregoing. Subject to payment of the exercise price, the Company issues common stock from treasury on a fully paid and non-assessable basis upon exercise of any stock options granted as Awards under the 2006 Stock Incentive Plan.

Under the 2006 Stock Incentive Plan, stock options may be granted as either incentive stock options or non–qualified stock options.

Stock Options

There are 4,438,494 stock options outstanding at December 31, 2012, all of which have been issued pursuant to the Company’s 2006 Stock Incentive Plan. The outstanding options expire at various dates from 2013 to 2017.

During 2012, the Company did not grant any stock options to employees and recognized $72,894 in compensation expense. During 2011, the Company granted 2,739,243 stock options to employees and directors and recognized $185,202 in compensation expense.

The following table summarizes the annual activity for all stock options for the years ended December 31, 2012 and 2011:

          Weighted Average  
    Number of Options     Exercise Price  
             
Options outstanding at January 1, 2011   4,551,674   $ . 47  
 Granted   2,739,243     .14  
 Exercised        
 Cancelled/Expired   (1,542,632 )   .36  
             
Options outstanding at December 31, 2011   5,748,285     .34  
 Granted        
 Exercised        
 Cancelled/Expired   (1,309,791 )   .87  
             
Options outstanding at December 31, 2012   4,438,494   $ . 18  

The following table summarizes certain additional information about the Company’s total and exercisable stock options outstanding as of December 31, 2012:

          Weighted              
          Average              
          Remaining     Weighted        
    Number     Contractual Life     Average        
    Outstanding     in Years     Exercise Price     Intrinsic Value  
                         
Total stock options   4,438,494     2.7   $ . 18   $   –  
Exercisable stock options   3,626,747     2.7   $ . 19   $   –  

The market price of the Company’s common stock on December 31, 2012 was $.02 per share. The weighted average exercise price of the total and exercisable stock options was $.18 and $.19, respectively. Accordingly, there was no intrinsic value of such total stock options and exercisable stock options on December 31, 2012.

The following table summarizes the activity in unvested stock options for the years ended December 31, 2012 and 2011:

          Weighted Average  
          Grant Date  
    Number of Options     Fair Value  
             
Non–vested options outstanding at January 1, 2011   518,505   $ . 07  
Granted   2,739,243     .10  
Vested   (1,643,294 )   .09  
Cancelled/Forfeited   (87,834 )   .05  
             
Non–vested options outstanding at December 31, 2011   1,526,620     .10  
Granted        
Vested   (635,998 )   .09  
Cancelled/Forfeited   (78,875 )   .11  
             
Non-vested options outstanding at December 31, 2012   811,747   $ . 11  

The total grant date fair value of options vested during the year ended December 31, 2012 was $60,128. The Company recognizes stock option compensation expense on stock options with a graded vesting schedule on a straight line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. As of December 31, 2012, 811,747 stock options remained unvested, resulting in $29,749 in compensation expense to be recognized over the next one and a half years.

The Company uses the Black–Scholes option pricing model to estimate the fair value of stock options granted. Given that the 500,000 stock options granted in the first quarter of 2011 were granted to one employee, the Chief Executive Officer of the Company, and the fact that the stock options vested in full as of the grant date, the Company utilized a 0% forfeiture rate for this stock option grant. The expected forfeiture rate of 8% for the stock options granted in the second quarter of 2011 was based on the Company’s historical forfeiture rate. The options issued in the third quarter were granted to the Chief Executive Officer and vest in three equal installments – the first third vesting upon issuance and the next two thirds vesting on the annual anniversary date of the issuance; due to these facts, the Company utilized a 0% forfeiture rate for this stock option grant. The expected life of the options granted is estimated using the formula set forth in Securities and Exchange Commission SAB No. 107. The risk–free interest rate is based upon the U.S. Treasury yield curve in effect at the date of grant and the expected volatility is based on the weighted historical volatility of the Company’s common stock and that of its peer group. The peer group is comprised of five publicly traded mining companies that have comparable operational and financial characteristics with that of the Company. The calculated historical volatility for each company in the peer group is given a 10% weighting, for a total peer group weighting of 50%. The calculated historical volatility for the Company is given a 50% weighing within the volatility calculation.

The fair values for the stock options granted during 2011 were estimated at the respective dates of grant using the Black–Scholes option pricing model with the following assumptions:

  2011
Risk–free interest rate 0.3% to 0.9%
Expected life 2.5 to 3.3 years
Expected volatility 115% to 126%
Expected dividend yield 0%