Stockholders' Deficiency

12 Months Ended

Dec. 31, 2012

Equity [Abstract]

Stockholders' Deficiency

10. Stockholders’ Deficiency

The Company is authorized to issue up to 50,000,000 shares of common stock with a par value of $0.001 per share and 1,000,000 shares of preferred stock with a par value of $0.001 per share.

Common Stock

During the years ended December 31, 2012 and 2011, the Company sold an aggregate of 116,670 and 597,542 shares of its common stock to investors, for aggregate net proceeds of $525,004 and $1,972,241 respectively.

On October 4, 2012, the Company commenced a private placement offering of units, where a unit consisted of (i) one share of the Company’s common stock; and (ii) five-year warrants to purchase three shares of the Company’s common stock at an exercise price of $0.25 per share. Pursuant to the terms of the offering, the minimum proceeds required for a closing was $2,000,000 and the proceeds were scheduled to be used to satisfy the Company’s obligations to repay the Notes and the Convertible Notes, plus for general working capital purposes.  Through December 31, 2012, the Company received $850,002 from accredited investors for the purchase of units. As of December 31, 2012, these funds were on deposit in a bank escrow account and are classified as Restricted Cash on the consolidated balance sheet.  Since these funds would have to be returned to investors if the minimum offering amount wasn’t reached, the Company has included the $850,002 in accrued expenses and other liabilities on the accompanying consolidated balance sheet at December 31, 2012, until such time the closing occurs (see Note 16).

Treasury Stock

On September 2, 2011, the Company purchased 1,179,212 shares of its common stock from a greater than 10% stockholder of the Company, at the time, which constituted all of the outstanding shares of common stock owned by the stockholder. The purchase price was $2.90 per share, or a total purchase price of $3,419,715 that is recorded as treasury stock on the Company’s consolidated balance sheet at December 31, 2012 and 2011.

Preferred Stock

Series A Preferred Stock

The Company has designated 200,000 of the 1,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The Series A Preferred Stock is non-voting, has a liquidation preference equal to its purchase price, and does not pay dividends. The holders can call for the conversion of the Series A Preferred Stock at any time and are entitled to half a share of the Company’s common stock for each share of Series A Preferred Stock converted. As of December 31, 2012, 44,443 shares of Series A Preferred Stock are available to be issued.  There is no Series A Preferred Stock outstanding as of December 31, 2012 or 2011.

Series B Preferred Stock

The Company has designated 625,000 of the 1,000,000 authorized shares of preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”). The Series B Preferred Stock has voting rights equal to one vote for each common share equivalent, has a liquidation preference equal to its purchase price, and receives preferred dividends equal to 7% of all outstanding shares in either cash or payment-in-kind. The holders can call for the conversion of the Series B Preferred Stock at any time and are entitled to five shares of the Company’s common stock for each share of Series B Preferred Stock converted. In addition, the Series B Preferred Stock is subject to weighted average anti-dilution protection whereby if shares of common stock are sold below the current conversion price, the conversion price is reduced pursuant to a pre-defined formula. As of December 31, 2012 and 2011, the Company had accrued contractual dividends of $261,084 and $244,001 respectively, related to the Series B Preferred Stock. On January 1, 2013, 2012 and 2011, the Company issued 27,630, 25,823 and 3,597 shares of Series B convertible preferred stock valued at $261,084, $244,001 and $33,992, and representing approximately $0.66, $0.66 and $0.09 in value per share of Series B Preferred Stock outstanding, respectively, to the Series B convertible preferred stock owners as payment in kind for dividends.  As of June 10, 2013, Series B holders are entitled to convert into 8.22 shares of the Company’s common stock for each share of Series B Preferred Stock due to the anti-dilution feature.

Series C Preferred Stock  -  Redeemable Preferred Stock

On October 17, 2011, the Company filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware fixing the rights, preferences and restrictions of a newly formed class of Series C Preferred Stock.  The Certificate of Designation designates 10,000 shares of the Company's preferred stock as Series C Preferred Stock to be issued at an original issue price of $100 per share.  The Series C Preferred Stock has voting rights equal to one vote for each share held, has a liquidation preference equal to its purchase price, and has certain redemption rights available at the option of the holder.  The holder can make a mandatory redemption request at any time on or after the earliest of (i) January 15, 2013, (ii) any date prior to January 15, 2013 on which the Convertible Notes are declared by the holders thereof to be, or automatically become, due and payable on an event of default, acceleration event or otherwise, (iii) immediately prior to an Asset Transfer or Acquisition, or (iv) the date on which the Convertible Notes are no longer outstanding.  The Series C Preferred Stock is non-convertible and does not pay dividends.

On October 17, 2011, the Company received net cash proceeds of $1,000,000 for the sale of 10,000 shares of Series C Preferred Stock to a greater than 10% stockholder of the Company (the “Series C Holder”). Since certain of the Company’s preferred shares contain redemption rights which are not solely within the Company’s control, these issuances of preferred stock were initially presented as temporary equity. In connection with the issuance, the investor received five-year immediately exercisable warrants to purchase 270,000 shares of the Company’s common stock at an exercise price of $2.90 per share and which had a relative fair value of $526,522 on the date of grant. The $526,522 relative fair value was recorded as a discount against the Series C Preferred Stock and was initially amortized as deemed dividends over the period through January 15, 2013.

On October 31, 2012, the Company entered into a letter agreement (the “Series C Letter”) with the Series C Holder relating to its Series C Preferred Stock. Pursuant to the Series C Letter, the Series C Holder agreed to exchange (the “Exchange”) all its shares of Series C Preferred Stock for common stock of the Company if (i) the Company receives at least $4 million in proceeds from qualifying private placements of common stock (as defined) on or prior to December 31, 2012 (the “Private Placements”) and (ii) all the Company’s Convertible Notes due December 31, 2012 and all the Company’s Notes due January 15, 2013 cease to be outstanding, and would not be replaced with other debt securities, other than debt securities issued to lenders approved by the Series C Holder. If the Exchange had occurred, for each share of Series C Preferred exchanged, the Series C Holder would have received a number of shares of common stock equal to $100 divided by the weighted average price of the shares of common stock sold in the Private Placements. However, the Company failed to raise the funds required in the Series C Letter.

On February 13, 2013, the Company received a Notice of Redemption of Series C Preferred Stock. As a result of the Convertible Notes coming due and not being paid on December 31, 2012 (see Note 7), the Company accelerated the accretion rate of the deemed dividend on the Redeemable Preferred Stock – Series C and reclassified the Redeemable Preferred Stock – Series C from temporary equity to current liabilities. The Company must now apply all of its assets to the redemption of the Series C Preferred Stock and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders (the Company is not permitted to utilize those assets required to pay its debts as they come due and those assets required to continue as a going concern toward the redemption). The Company recorded Series C deemed dividends of $433,606 and $92,916 during the years ended December 31, 2012 and 2011 respectively.  As of December 31, 2012, the discount associated with the Series C Preferred Stock was fully amortized.

Incentive Compensation/Stock Option Plans

The 2009 Incentive Compensation Plan (the “2009 Plan”) was approved on May 15, 2009 and June 4, 2009, and the increase in the total number of shares of common stock issuable pursuant to the 2009 Plan to 2,881,425 shares was approved on October 4, 2010 and September 20, 2011, by the Board of Directors and the Stockholders, respectively.

The 2009 Plan imposes individual limitations on the amount of certain awards. Under these limitations, during any fiscal year of the Company, the number of options, stock appreciation rights, shares of restricted stock, shares of deferred stock, performance shares and other stock-based awards granted to any one participant under the 2009 Plan may not exceed 250,000 shares, subject to adjustment in certain circumstances. The maximum amount that may be paid out as performance units in any 12-month performance period is an aggregate value of $2,000,000, and the maximum amount that may be paid out as performance units in any performance period greater than 12 months is an aggregate value of $4,000,000. The maximum term of each option or stock appreciation right, the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised options or stock appreciation rights at or following termination of employment generally are fixed by the board of directors or committee of the Company’s board of directors designated to administer the 2009 Plan (the “Committee”), except that no option or stock appreciation right may have a term exceeding ten years. The exercise price per share subject to an option and the grant price of a stock appreciation rights are determined by the Committee, but in the case of an incentive stock option, the exercise price must not be less than the fair market value of a share of common stock on the date of grant.

Stock Options

Grants

During the year ended December 31, 2011, the Company granted options to purchase an aggregate of 360,000 shares of common stock to certain employees and directors. These options vest over a three year period, have a term of 10 years, and contain an exercise price between $3.30 and $4.62 per share. The options were granted under the 2009 Plan and had an aggregate grant date value of $1,106,879.

During the year ended December 31, 2011, the Company granted options to purchase an aggregate of 140,000 shares of common stock to consultants. These options vest over a three year period, have a term of 10 years, and contain an exercise price between $4.10 and $4.62 per share. The options were granted under the 2009 Plan had an aggregate grant date value of $399,989.

On August 31, 2011, the Company granted an option to an officer of the Company to purchase 250,000 shares of common stock at an exercise price of $3.80 per share. The option was not granted pursuant to an established plan. The shares vest when a specified financing is secured. The option has a term of five years and a grant date value of $891,569.  Since the option contains performance conditions, the fair value of such option has not been recorded since securing the financing is not currently considered probable.

On March 30, 2012, the Company granted options to four directors to purchase an aggregate of 60,000 shares of common stock under the 2009 Plan at an exercise price of $6.99 per share. The options have an aggregate grant date value of $391,028, vest over a three year period and have a term of ten years.

On March 30, 2012, the Company granted options to employees to purchase an aggregate of 30,000 shares of common stock under the 2009 Plan at an exercise price of $6.99 per share. The options have an aggregate grant date value of $195,514, vest over a three year period and have a term of ten years.

On October 15, 2012, the Company granted options to employees to purchase an aggregate of 76,000 shares of common stock under the 2009 Plan at an exercise price of $4.95 per share for an aggregate grant date value of $359,609.  The options vest over a three year period and have a term of ten years.

On October 15, 2012, the Company granted an option to an officer of the Company to purchase 250,000 shares of common stock under the 2009 Plan at an exercise price of $4.95 per share for a grant date value of $1,182,925.  The option vests over a three year period and has a term of ten years.

Exercises

On July 26, 2011, a former officer exercised an option to purchase 50,000 shares of common stock at an exercise price of $0.80 per share for aggregate cash proceeds of $40,000.

On November 2, 2011, a former officer was issued 31,934 shares upon the cashless exercise of an option to purchase 37,875 shares of common stock at an exercise price of $0.80 per share.

On January 6, 2012, a former officer was issued 92,858 shares of common stock pursuant to a cashless exercise of a stock option to purchase 105,450 shares of common stock with an exercise price of $0.80 per share.

On May 4, 2012, the Company received $26,662 in proceeds from the exercise of options to purchase 4,166 shares of the common stock at $2.80 per share and 4,166 shares of common stock at $3.60 per share.

On November 12, 2012, a former officer was issued 63,129 shares of common stock pursuant to a cashless exercise of a stock option to purchase 17,575 shares of common stock (14,676 net shares) at an exercise price of $0.80 per share and a stock option to purchase 100,000 shares of common stock (48,453 net shares) at an exercise price of $2.50 per share.

The aggregate intrinsic value of options exercised was $932,795 and $324,075 for the years ended December 31, 2012 and 2011, respectively.

Valuation and Amortization

Option valuation models require the input of highly subjective assumptions. Through June 30, 2011 and in prior periods, the fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices of comparable entities until sufficient data existed to estimate the volatility using the Company’s own historical stock prices.  Beginning in July 2011, the Company began to use the historical trading prices of its own common stock as a component in the calculation of an estimated volatility figure to determine the fair value of new stock-based payment awards using the Black-Scholes model. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of options in accordance with the “simplified” method which enables the use of the simplified method for “plain vanilla” share options as defined in Staff Accounting Bulletin No. 107.  The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.

The fair value of stock-based payment awards was estimated using the Black-Scholes pricing model with the following assumptions as follows:

	For the Year Ended December 31, 2012	For the Year Ended December 31, 2011
Risk-free interest rate	0.67% to 1.04%	0.88% to 2.72%
Dividend yield	None	None
Expected volatility	163.7%-172.2%	133.4% to 185.2%
Expected life in years	6.00	6.00

The weighted average fair value of the stock options granted during the years ended December 31, 2012 and 2011 were $5.12 and $3.20, respectively.

In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. The Company estimated forfeitures related to option grants at a weighted average annual rate of 5% and 0% per year for options granted during the years ended December 31, 2012 and 2011, respectively.

Stock-based compensation expense for the years ended December 31, 2012 and 2011 was recorded in the consolidated statements of operations as a component of selling, general and administrative expenses and totaled $556,148 and $948,923, respectively.

As of December 31, 2012, stock-based compensation expense of approximately $2,898,361 remains unamortized, including $2,006,792 which is being amortized over the weighted average remaining period of 2.7 years.  The remaining $891,569 is related to a performance based option where vesting is currently deemed to be improbable and no amount is being amortized.

Summary

Details of the options outstanding under the 2009 Plan are as follows:

	Shares			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at January 1, 2011		1,996,300		$	2.14
Granted		750,000		$	4.08
Expired		-			-
Canceled		(492,500	)	$	1.96
Exercised		(87,875	)	$	0.80
Options outstanding at January 1, 2012		2,165,925		$	2.89
Granted		416,000		$	5.39
Expired		--			--
Canceled		(166,669	)	$	4.03
Exercised		(231,357	)	$	1.62
Options outstanding at December 31, 2012		2,183,899		$	3.42		5.97	$	2,348,938
Options exercisable at December 31, 2012		1,133,898		$	2.50		4.79	$	2,001,437

		Options Outstanding				Options Exercisable
Range of Exercise Price		Weighted Average Exercise Price		Outstanding Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life in Years		Exercisable Number of Options
	$0.80 - $2.20	$	1.58		485,900	$	1.58		2.7		485,900
	$2.21 - $3.80	$	3.18		955,333	$	2.90		5.8		514,666
	$3.81 - $6.99	$	4.92		742,666	$	4.31		8.3		133,332
	$0.80 - $6.99	$	3.42		2,183,899	$	2.50		4.8		1,133,898

Warrants

Grants

On August 31, 2011, the Company granted a warrant to a consultant to purchase 250,000 shares of common stock at an exercise price of $3.80 per share. The warrant was not granted pursuant to an established plan. The shares vest when a specified financing is secured. The warrant has a term of five years and a grant date value of $576,840. Since the warrant contains performance conditions, the fair value of such warrant has not been recorded since securing the financing is not currently considered probable.

On October 15, 2012, the Company granted a consultant a ten-year warrant to purchase 30,000 shares of common stock at an exercise price of $4.95 per share. The warrant had a grant date value of $115,049 which will be recognized over the three year vesting period.

Exercises

During the year ended December 31, 2011, the Company issued an aggregate of 14,135 shares of common stock to a warrant holder who elected to exercise a warrant to purchase 18,750 shares of common stock at an exercise price of $1.60 per share on a “cashless basis” under the terms of the warrants. The warrant holder was the Company’s investment advisor and the Company’s Audit Committee Chairman was a senior managing director of this investment advisory firm when the warrant was granted in 2010.

During the year ended December 31, 2012, the Company issued an aggregate of 1,465,578 shares of common stock to three holders of warrants who elected to exercise 2,353,744 warrants on a “cashless” basis under the terms of the warrants. The warrants had exercise prices of $1.60 per share (471,628 net shares), $3.00 per share (701,388 net shares) and $2.90 per share (292,562 net shares).

The aggregate intrinsic value of warrants exercised was $10,316,439 and $91,875 for the years ended December 31, 2012 and 2011, respectively.

Summary

Details of outstanding warrants are as follows:

	Shares			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Warrants outstanding at January 1, 2011		1,915,340		$	2.53
Issued		1,020,000		$	2.90
Expired		-			-
Exercised		(18,750	)	$	1.60
Warrants outstanding at January 1, 2012		2,916,590		$	2.67
Issued		30,000		$	4.95
Expired		-			-
Exercised		(2,353,744	)	$	2.61
Warrants outstanding at December 31, 2012		592,846		$	3.01	3.98	$	755,558
Warrants exercisable at December 31, 2012		312,846		$	2.91	3.67	$	418,058

Range of Exercise		Number Outstanding		Weighted Average Remaining Contractual Term		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
	$2.90 – $3.00		562,846		3.67	$	2.91		312,846	$	2.91
	$3.01 – $4.95		30,000		9.79	$	4.95		-		-
	$2.90 – $4.95		592,846		3.98	$	3.01		312,846	$	2.91