Stock Options and Grants

3 Months Ended

Mar. 31, 2013

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 March 31, 2013, there were 3,928 shares of common stock available for issuance under the 2011 Plan.

During 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 March 31, 2013, there were 136,071 shares of common stock available for issuance under this approval.

A summary of stock option activity as of March 31, 2013 and changes during the three 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, 2012		9,317,501	$	0.11	$	0.36
Granted		542,500		0.08		0.42
Exercised		-		-		-
Cancelled		-		-		-
Outstanding – March 31, 2013		9,860,001	$	0.11	$	0.36		8.84	$	215,200
Exercisable – December 31, 2012		4,973,333	$	0.11	$	0.30		8,97	$	359,600
Exercisable – March 31, 2013		5,954,167	$	0.11	$	0.36		8.77	$	142,900

For the three months ended March 31, 2013, the Company recognized stock-based compensation expense of $113,485 which is included in payroll and related expenses in the accompanying condensed consolidated statements of operations.

As of March 31, 2013, there was $317,377 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of 0.93 years. The intrinsic value is calculated as the difference between the fair value as of the balance sheet date and the exercise price of each of the outstanding stock options. The fair value at March 31, 2013 and December 31, 2012 was $0.24 and $0.30 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.

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. 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. During the three months ending March 31, 2013, the consultant was granted options to purchase 30,000 shares of the Company’s Common Stock with exercise prices ranging from $0.16 to $0.20 per share. These options were not granted under the 2011 Plan. The fair value of these options amounted to $5,153.

On March 14, 2013, under the 2011 Plan, three employees and directors of the Company were granted options to purchase 150,000 shares of the Company’s Common Stock with an exercise price of $0.43 per share. 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. The fair value of these options amounted to $11,310.

On March 14, 2013, seven employees and directors of the Company were granted options to purchase 362,500 shares of the Company’s Common Stock with an exercise price of $0.43 per share.  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 the first anniversary date of the grant date, and the remaining third vests on the second anniversary of the grant date. The fair value of these options amounted to $27,333.

The fair value of the stock-based option awards granted during the three months ended March 31, 2013 were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

Stock price	$	0.24
Expected dividend yield		0.00	%
Expected stock volatility		50	%
Risk-free interest rate		0.88-2.02	%
Expected life	5.5 - 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.