Stock Options and Grants

9 Months Ended

Sep. 30, 2012

Stock Options and Grants [Abstract]

Stock Options and Grants

10.        Stock Options and Grants

2011 Plan – On July 27, 2011, in connection with the Merger, the Company obtained the written consent of holders of a majority of its outstanding common stock approving the 2011 Incentive Stock Plan (the “2011 Plan”). The 2011 Plan covers up to 8,000,000 shares of common stock, and all officers, directors, employees, consultants and advisors are eligible to be granted awards under the 2011 Plan. An incentive stock option may be granted under the 2011 Plan only to a person who, at the time of the grant, is an employee of the Company or its subsidiaries. The 2011 Plan expires on July 26, 2021, and is administered by the Company’s Board. As of September 30, 2012, there were 133,928 shares of common stock available for issuance under the 2011 Plan.

A summary of stock option activity under the 2011 Plan as of September 30, 2012 and changes during the nine months then ended are presented below:

	Shares		Weighted Average Fair Value Per Share		Weighted Average Exercise Price Per Share		Weighted Average Remaining Terms (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2011		5,407,500	$	0.09	$	0.20
Granted		3,880,001		0.14		0.57
Exercised		-		-		-
Cancelled		-		-		-
Outstanding – September 30, 2012		9,287,501	$	0.11	$	0.36		9.28	$	818,775
Exercisable – December 31, 2011		1,719,167	$	0.09	$	0.20		9.86	$	307,083
Exercisable – September 30, 2012		3,012,500	$	0.11	$	0.36		9.28	$	260,425

For the three months and nine months ended September 30, 2012, the Company recognized stock-based compensation expense of $166,835 and $416,219, respectively, which is included in payroll and related expenses in the accompanying condensed consolidated statements of operations.

As of September 30, 2012, there was $473,820 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of 1.25 years. The intrinsic value is calculated as the difference between the fair value as of December 31, 2011 and the exercise price of each of the outstanding stock options. The fair value at September 30, 2012 and December 31, 2011 was $0.35 per share and $0.38 per share, respectively, as determined by using a weighted value between the income approach method, the public company market multiple method, and a fair value method developed by the Company.

On January 2, 2012, the Chief Executive Officer of the Company was granted an option to purchase 2,000,000 shares of the Company’s Common Stock with an exercise price of $0.75 (“CEO Options”). One-third of the options vest upon the grant date, the second third vests on the first anniversary date of the grant date, and the remaining third vests on the second anniversary of the grant date.

On March 20, 2012, three employees of the Company were granted options to purchase a total of 215,000 shares of the Company’s Common Stock with an exercise price of $0.50. These options were granted under the same terms of the CEO Options.

On March 21, 2012, seven employees and directors of the Company were granted options to purchase 155,000 shares of the Company’s Common Stock with an exercise price of $0.50. These options were granted under the same terms of the CEO Options.

During 2011, the Company executed a two year consulting agreement with a consultant, to act as a Senior Advisor of the Company. In consideration for the services to be performed under the agreement, the Company shall on the last business day of each month during the term, grant the consultant an option to purchase 10,000 shares of the Company’s Common Stock with an exercise price equal to fair market value. The terms of these options are the same as the CEO Options. During the nine months ending September 30, 2012, the consultant was granted options to purchase 90,000 shares of the Company’s Common Stock with exercise prices ranging from $0.30 to $0.40.

During the nine months ended September 30, 2012, the Company’s board of directors approved the issuance of up to an additional 2,000,000 shares of the Company’s common stock in the form of restricted stock or options. These options generally have the same terms and conditions as those provided under the 2011 Plan, however, the authorization of these options is not subject to shareholder approval. The issuance of these options will be approved by the Company’s board of directors on a case-by-case basis.  As of September 30, 2012, there were 578,571 shares of common stock available for issuance under this approval.

In connection with the forgoing, on June 20, 2012, four consultants of the Company were granted options to purchase 195,000 shares of the Company’s Common Stock with an exercise price of $0.28.  These options were granted separate and apart from the 2011 Plan and were not granted from the shares available under the Company’s 2011 Plan.  One-third of the options vest upon the grant date, the second third vests on December 20, 2012 and the remaining third vests on June 20, 2013.

On August 7, 2012, eight executives and directors of the Company were granted options to purchase 125,001 shares of the Company’s Common Stock with an exercise price of $0.35. These options were granted under the same terms of the CEO Options.

On August 10, 2012, two consultants of the Company were granted options to purchase 1,100,000 shares of the Company’s Common Stock with an exercise price of $0.35. These options were granted under the same terms of the CEO Options.

The fair value of the stock-based option awards granted during the nine months ended September 30, 2012 were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

Expected dividend yield		0.00	%
Expected stock volatility		50	%
Risk-free interest rate		0.59 – 1.22	%
Expected life	5.25 - 10 years

Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards. The simplified method is calculated by averaging the vesting period and contractual term of the options.