NOTE 3—STOCK-BASED AWARDS AND PER SHARE INFORMATION

Stock-Based Compensation

The Company currently has one stock-based compensation plan, the 2002 Stock Incentive Plan (the “2002 Plan”). Eligible persons under the 2002 Plan include certain officers and employees of the Company, and directors of the Company, as well as consultants. Under the 2002 Plan, 6,950,000 shares of common stock have been authorized for issuance. As of March 31, 2013, 2,527,000 shares of common stock have been issued pursuant to options that were exercised, 4,337,000 shares of common stock have been reserved for options that are outstanding, and 86,000 shares of common stock remain available for future grant.

Compensation cost related to stock options recognized in operating results during the three months ended March 31, 2013 and 2012, totaled approximately $368,000 and $583,000, respectively. The net impact to earnings for the periods ended March 31, 2013 and 2012 was $(0.01) and $(0.01) per basic and diluted share, respectively. At March 31, 2013, the Company had approximately $2.5 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under our existing plans. The Company expects that cost to be recognized over a weighted-average period of 1.3 years.

The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):

The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:

A summary of option activity under our stock option plans for the three months ended March 31, 2013 is as follows:

Cash proceeds along with fair value disclosures related to grants, exercises and vesting options are provided in the following table (in thousands, except per share amounts):

Warrants

On March 23, 2013, the Company issued warrants to purchase up to 50,000 shares of the Company’s common stock to a consultant, at a price per share of $4.50. The warrants vest and become exercisable only if the Company’s common stock closing price on NASDAQ reaches or exceeds $7.50. The warrant expires March 22, 2018. The issuance includes a bonus award of up to 50,000 additional shares if a $10.00 closing price on NASDAQ is achieved. As of March 31, 2013, no stock-based compensation has been recognized. The Company will reassess whether achievement of the contingent exercise provision is probable on a quarterly basis and recognize stock-based compensation when it is probable that the market performance requirement will be achieved.

Warrants issued in connection with the lines of credit with Comerica Bank were exercised during the three months ended March 31, 2013. See Note 8 – Lines of Credit and Other Borrowings for further discussion.

Net Loss Per Share - Basic and Diluted

Basic net loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding for the period. In computing diluted net loss per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.

Outstanding stock options and warrants to purchase 5,060,000 shares were not included in the computation of diluted loss per share for the three months ended March 31, 2013 as a result of their anti-dilutive effect. For the same 2012 period, anti-dilutive outstanding stock options and warrants to purchase 4,514,000 shares were not included in the computation of diluted loss per share.

Stock Dividends

The Company intends to pay a 2% annual stock dividend, in quarterly installments, for the year ending December 31, 2013. Stock dividends are discussed quarterly by the Board and management. The actual declaration of future stock dividends and the establishment of the record and payment dates are subject to final determination by the Board after its review of the Company’s financial performance, the expected results of future operations, availability of shares, and other factors that the Board may deem relevant. The Company’s dividend policy may be changed at any time by the Board, and there is no assurance, with respect to the amount or frequency, that any stock dividend will be declared in the future.

In February 2013, the Board declared a one-half percent stock dividend payable March 29, 2013 to stockholders of record on March 15, 2013. The Board deems this stock dividend to be a special dividend and there is no assurance, with respect to amount or frequency, that any stock dividend will be declared again in the future. All stock information presented, other than that related to stock options and warrants, has been adjusted to reflect the effects of the dividend.