Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 11 – STOCKHOLDERS’ EQUITY

(a)           Preferred stock issued for warrant modification

On February 7, 2012, in an effort to induce its warrant holder to exercise their warrants, the Company signed an agreement with Barron Partners LP (“Barron”), pursuant to which Barron, as the holder of warrants to purchase 55,158 shares of common stock at $12.00 per share and 165,000 shares of common stock at $16.98 per share, agreed to exchange or convert such warrants into (i) 2,201,582 shares of the Company’s series A preferred stock which are convertible into 73,386 shares of common stock, and (ii) warrants to purchase 73,386 shares of this Company’s common stock at $2.70 per common share, with the proceeds from the exercise of the warrants being used to pay expenses incurred by the Company in connection with its public company expenses. In connection with the warrant modification, the Company valued the 2,201,582 series A preferred shares issued at fair market value on the date of grant of $197,408 based on the 73,386 common shares issuable upon conversion of the series A preferred stock multiplied by the quoted trading price of the common stock on the grant date of $2.70 per share. In connection with the transaction, on February 7, 2012, the Company revalued the fair market value of the original warrants by using the Black-Scholes option-pricing model. The total fair market value of the original warrants was estimated to be $52,896 on February 7, 2012. The fair market value of the newly issued exchanged warrants was estimated to be $90,621 using the Black-Scholes option-pricing model. In connection with the Black-Scholes option pricing calculation, the following weighted-average assumptions were used: stock price of $2.70; expected dividend yield 0%; risk-free interest rate of 0.15%; volatility of 139.58% and an expected term of 0.77 year. The Company recorded the difference between the fair market value of original warrants of $52,896 and the fair market value of exchanged warrants of $90,621 which amounted to $37,725 as a warrant modification expense with a corresponding credit of additional paid-in capital. Accordingly, for the year ended December 31, 2012, the Company recorded an aggregate warrant modification expense of $235,133 on the accompanying consolidated statement of income. For the year ended December 31, 2011, the Company did not record any warrant modification expense.

(b)       Common stock issued for services

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 in 2011 and prepaid expenses of $7,833 which was amortized in 2012.

During the year ended December 31, 2012, the Company issued a total of 121,053 shares of common stock pursuant to its 2010 long-term incentive plan, of which 250 shares were issued to a director, 35,000 shares were issued to the chief executive officer, 28,403 shares were issued to the chief financial officer and 57,400 shares were issued to other employees and consultants.  These shares were issued for services rendered through December 31, 2012, which have been accounted for as stock-based compensation and for services to be rendered during 2013, which have been accounted for as prepaid expense at December 31, 2012. The shares were valued at the fair market value on the date of grant. During the year ended December 31, 2012, the Company recorded stock-based compensation of $159,881 and prepaid expense of $281,265, which will be amortized in 2013.

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.

(c)        Common stock issued upon conversion of 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.

During the year ended December 31, 2012, the Company issued 439,912 shares of common stock upon the conversion of 13,197,389 shares of series A preferred stock. As of December 31, 2012, the Company had no preferred stock outstanding and all authorized shares of preferred stock were without designation as to series.

(d)        Common stock sold for cash

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

On November 28, 2012, the Company sold 157,966 shares of its common stock to its chief executive officer and his wife for $612,903, representing the market price on November 28, 2012, the date of the stock purchase agreement.

(e)       Common stock issued for exercise of warrants

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

During the year ended December 31, 2012, the Company issued 73,386 shares of its common stock upon the exercise of warrants, for which the Company received cash proceeds of $198,142. At December 31, 2012, there were no warrants outstanding.

(f)          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 was convertible into one-thirtieth of a share of common stock. As of December 31, 2012, there were no shares of series A preferred stock outstanding.

 (g)        Warrants

Warrant activities for the years ended December 31, 2012 and 2011 were summarized as follows:

	Year Ended December 31, 2012						Year Ended December 31, 2011
	Number of Warrants			Weighted Average Exercise Price			Number of Warrants			Weighted Average Exercise Price
Balance at beginning of year		220,158		$	15.73			252,465		$	15.73
Issued		73,386			2.70			-			-
Exercised		(73,386	)		(2.70	)		(32,307	)		15.60
Cancelled		(220,158	)		(15.73	)		-			-
Balance at end of year		-		$	-			220,158		$	15.73
Warrants exercisable at end of year		-		$	-			220,158		$	15.73

(h) 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, 2012, the Company had issued a total of 147,991 shares of common stock under the plan.