Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 6 – STOCKHOLDERS’ EQUITY

(a)           Common stock issued for services

During the year ended December 31, 2010, the Company issued 300 shares of common stock to its prior chief financial officer for services rendered pursuant to an employment agreement. The shares, which were issued pursuant to the Company’s 2010 long–term incentive plan, were valued at fair value on the respective dates of grant, and the Company recorded stock-based compensation of $14,670.

During the year ended December 31, 2010, the Company issued an aggregate of 5,600 shares of common stock to its chief executive officer pursuant to its 2010 long-term incentive plan. The shares were valued at fair value of the common stock on the date of grant, and the Company recorded stock-based compensation of $275,030.

During the year ended December 31, 2010, the Company issued an aggregate of 4,000 shares of common stock to two key employees who are not executive officers pursuant to its 2010 long-term incentive plan. The shares were valued at fair value on the respective dates of grant, and the Company recorded stock-based compensation of $196,450.

The Company has a consulting agreement with a company that provides the services of its vice president of financial reporting.  Pursuant to this agreement, the Company issued 200 shares of common stock on each of March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010, for an aggregate of 800 shares of common stock.  The shares were valued at fair value on the respective dates of grant date based on the quoted trading price of the common stock, and the Company recorded stock-based compensation of $34,560 during the year ended December 31, 2010.

On July 29, 2010, the Company entered into an amended director’s agreement with a director for the period from July 1, 2010 to June 30, 2011.  Pursuant to this agreement, the Company is to issue an aggregate of 1,000 shares of common stock of which 250 were issued on July 29, 2010 and 250 are issuable on a quarterly basis on each of October 1, 2010, January 1, 2011 and April 1, 2011.  The 500 shares issued during 2010 are valued at fair value on the date of grant, and the Company recorded stock-based compensation of $22,550 during 2010.

On December 31, 2010, the Company issued 172 shares of its common stock to a director. The shares, which were issued pursuant to the Company’s 2010 long–term incentive plan, were valued at fair value on the grant date of $6,172 date based on the quoted trading price of the common stock, and the Company recorded stock-based compensation of $6,172, of which $3,703 was recognized in 2010 and $2,469 was recognized in 2011.

During the year ended December 31, 2011, the Company issued an aggregate of 1,891 shares of its common stock to its three directors. The shares are valued at the fair value on the grant date based on the quoted trading price of the common stock and the Company recorded stock-based compensation of $30,351.

During the year ended December 31, 2011, the Company issued an aggregate of 3,000 shares of its common stock to its chief financial officer pursuant to an employment agreement which terminated effective December 31, 2011. The shares are valued at the fair value on the grant date based on the quoted trading price of the common stock and the Company recorded stock-based compensation of $59,700.

During the year ended December 31, 2011, the Company issued an aggregate of 12,175 shares of its common stock to employees, of which 4,800 shares were granted to the Company’s chief executive officer. None of the other shares were issued to executive officers or directors. The shares are valued at the fair value on the grant date based on the quoted trading price of the common stock and the Company recorded stock-based compensation of $200,478.

The Company has a consulting agreement with a company that provides the services of its vice president of financial reporting.  Pursuant to this agreement, the Company issued 200 shares of common stock on each of March 31, 2011, June 30, 2011, September 30, 2011 and December 31, 2011 and an additional 700 shares in December 2011, for an aggregate of 1,500 shares of common stock.  The shares were valued at fair value on the respective dates of grant based on the quoted trading price of the common stock, and the Company recorded stock-based compensation of $12,220 during the year ended December 31, 2011.

On April 14, 2011, the Company issued 1,300 shares of common stock to an investor relations firm pursuant to an agreement with the firm for the twelve months beginning May 1, 2010. The shares were valued at the fair value on the grant date based on the quoted trading price of the common stock. For the year ended December 31, 2011, the Company recorded stock-based professional fees of $37,440.

On May 26, 2011, the Company issued 1,250 shares of common stock to an investor relations firm pursuant to an agreement with the firm for the twelve months beginning May 1, 2011. The shares were valued at the fair value on the grant date based on the quoted trading price of the common stock, and the Company recorded stock-based professional fees of $15,667 and prepaid expenses of $7,833 which will be amortized over the remaining service period.

All of the shares issued as compensation, other than the shares issued to the former chief financial officer pursuant to his employment agreement, were issued pursuant to the Company’s long-term incentive plan.

(b)   Common stock issued for preferred share conversions

During the year ended December 31, 2010, the Company issued 182,300 shares of common stock upon the conversion of 5,469,000 shares of series A preferred stock.

During the year ended December 31, 2011, the Company issued 197,206 shares of common stock upon the conversion of 5,916,176 shares of series A preferred stock.

(c)   Common stock sold for cash

On November 25, 2010, the Company sold 9,500 shares of common stock to an investor and received cash of $380,000.

On January 18, 2011, the Company sold 3,501 shares of its common stock to its chief financial officer for $125,000, representing the market price on January 18, 2011, the date of the stock purchase agreement.

(d)   Common stock issued on exercise of warrants

During 2010, the Company issued 27,345 shares of common stock and 6,255,180 shares of series A preferred stock upon the exercise of warrants, for which the Company received cash proceeds of $3,320,000.  In connection with the issuance of the 2,380,176 shares of series A preferred stock, the investor entered into an agreement with the Company’s chief executive officer, who is the Company’s principal beneficial owner of common stock, pursuant to which the chief executive officer has the right to vote the series A preferred stock and the underlying common stock as to all matters for which stockholder approval is obtained as long as the investor or its affiliates own the stock. Upon the sale of the series A preferred stock or the underlying common stock to a person other than an affiliate of the investor, the voting agreement terminates as to the transferred shares and the chief executive officer has no voting rights with respect to the transferred shares. The investor had executed similar agreements in connection with the purchase of series A preferred stock in September and October 2009. As of December 31, 2011, all of these shares of series A preferred stock had been converted into common stock and all but 64,192 shares had been sold.

Subsequent to December 31, 2011, all of the shares to which the Company’s chief executive officer had voting rights had been sold.

On May 4, 2010, the Company issued 4,375 shares of its common stock upon cashless exercise of warrants to purchase 5,833 shares of common stock.

In May 2011, the Company issued 4,185 shares of its common stock upon the cashless exercise of warrants.

(e)  Series A preferred stock issued upon exercise of warrants

During the year ended December 31, 2011, the Company issued a total of 706,715 shares of series A preferred stock upon the exercise of warrants, for which the Company received total cash proceeds of $400,000.  Each share of series A preferred stock is convertible into one-thirtieth of a share of common stock.

(f) Warrants

Warrant activities for the years ended December 31, 2011 and 2010 are summarized as follows:

	Year Ended December 31, 2011					Year Ended December 31, 2010
	Number of Warrants			Weighted Average Exercise Price		Number of Warrants			Weighted Average Exercise Price
Balance at beginning of year		252,465		$	15.73		494,150		$	14.90
Issued		-			-		-			-
Exercised		(32,307	)		15.60		(241,685	)		14.00
Forfeited		-			-		-			-
Balance at end of year		220,158		$	15.73		252,465		$	15.73
Warrants exercisable at end of year		220,158		$	15.73		252,465		$	15.73

The following table summarizes the shares of the Company's common stock issuable upon exercise of warrants outstanding at December 31, 2011:

Warrants Outstanding								Warrants Exercisable
Range of Exercise Price		Number Outstanding at December 31, 2011		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at December 31, 2011		Weighted Average Exercise Price
$	16.98		164,999		0.87	$	16.98		164,999	$	16.98
$	12.00		55,159		0.87		12.00		55,159		12.00
			220,158		0.87	$	15.73		220,158	$	15.73

(g)   Agreement with respect to Series A Preferred Stock and Common Stock Purchase Warrants

On March 26, 2010, the holders of the outstanding shares of series A preferred shares and the sole holder of all of the Company’s common stock purchase warrants that included a provision that provided for an adjustment in the exercise price in the event of a sale of common stock at a price below the exercise price of the warrants agreed to eliminate and waive any rights they may have under the provisions of the Statement of Designations relating to the series A preferred stock that provide for a reduction in the conversion price of the series A preferred stock, in the event that the Company issues stock at a price which is less than the conversion price of the series A preferred stock; and the warrant holder agreed to delete from the warrants the provisions that provide for a reduction in the exercise price of the warrants in the event that the Company issues stock at a price which is less than the exercise price of the warrants. The Company agreed not to issue shares of Common Stock at a price, or options, warrants or convertible securities with an exercise or conversion price, that is less than the conversion price of the then outstanding series A preferred stock or the exercise price of the then outstanding warrants, as the case may be.   Accordingly, the Company did not record a derivative liability related to the warrants at December 31, 2011 and 2010.

(h)   Series A Preferred Stock

The series A preferred stock has the following rights, preferences and limitations:

·   There are 30,000,000 authorized shares of series A preferred stock.   

·   No dividends shall be payable with respect to the series A preferred stock. No dividends shall be declared or payable with respect to the common stock while the series A preferred stock is outstanding. The Company shall not redeem or purchase any shares of common stock or any other class or series of capital stock which is junior to or on parity with the series A preferred stock while the series A preferred stock is outstanding.

·   The holders of the series A preferred stock have no voting rights except as required by law. However, so long as any shares of series A preferred stock are outstanding, the Company shall not, without the affirmative approval of the holders of 75% of the shares of the series A preferred stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the series A preferred stock or alter or amend the statement of designations relating to the series A preferred stock, (b) authorize or create any class of stock ranking as to dividends or distribution of assets upon a liquidation senior to or pari passu with the series A preferred stock, or any of preferred stock possessing greater voting rights or the right to convert at a more favorable price than the series A preferred stock, (c) amend its certificate of incorporation or other charter documents in breach of any of the provisions of the certificate of designation, (d) increase the authorized number of shares of series A preferred stock or the number of authorized shares of preferred stock, or (e) enter into any agreement with respect to the foregoing.

·   Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the series A preferred stock have a liquidation preference of $0.374 per share. 

·   Each share of series A preferred stock is convertible at any time (subject to the 4.9% limitations described below) into 1/30th of a share of common stock, subject to adjustment. 

·   All of the outstanding shares of series A preferred stock shall be automatically converted into common stock upon the close of business on the business day immediately preceding the date fixed for consummation of any transaction resulting in a change of control of the Company, as defined in the statement of designation.

·   The holders may not convert the series A preferred stock to the extent that such conversion would result in the holder and its affiliates beneficially owning more than 4.9% of the Company’s common stock. This provision may not be waived or amended.

(i)   November 2007 Securities Purchase Agreement

Pursuant to the securities purchase agreement relating to the Company’s November 2007 private placement, as amended:

· The Company agreed to have appointed such number of independent directors that would result in a majority of its directors being independent directors, that the audit committee would be composed solely of not less than three independent directors and the compensation committee would have at least three directors, a majority of which shall be independent directors.  

· The Company agreed to have a qualified chief financial officer.  If the Company cannot hire a qualified chief financial officer promptly upon the resignation or termination of employment of a former chief financial officer, the Company may engage an accountant or accounting firm to perform the duties of the chief financial officer.  In no event shall the Company either (i) fail to file an annual, quarterly or other report in a timely manner because of the absence of a qualified chief financial officer, or (ii) not have a person who can make the statements and sign the certifications required to be filed in an annual or quarterly report under the Securities Exchange Act of 1934.

· Liquidated damages would be payable if, during the period which ended November 13, 2010, the Company failed to comply with the independent director requirement or the Company failed to file an annual or quarterly report in a timely manner because of the absence or lack of a qualified chief financial officer.

· Until November 13, 2010, the Investors had a right of first refusal on future financings.

· Until November 13, 2011, the Company was restricted from issuing convertible debt or preferred stock.

· Until November 13, 2010, the Company’s debt could not exceed twice the preceding four quarters earnings before interest, taxes, depreciation and amortization.

· The Company’s officers and directors agreed, with certain limited exceptions, not to publicly sell shares of common stock for 27 months.  This 27 month period expired on February 13, 2010.

(j)   2010 Long-Term Incentive Plan

In January 2010, the Company’s board of directors adopted, and in March 2010, the stockholders approved the Company’s 2010 long-term incentive plan, which covers 200,000 shares of common stock. The plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director. In the absence of a committee, the plan is administered by the board of directors. Members of the committee are not eligible for stock options or stock grants pursuant to the plan unless such stock options or stock grant are granted by a majority of the Company’s independent directors other than the proposed grantee. As of December 31, 2011, the Company had issued a total of 26,938 shares of common stock under the plan.