Equity Based Compensation

9 Months Ended

Sep. 30, 2011

Equity Based Compensation

Equity Based Compensation

Note 3: Equity Based Compensation

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option valuation model.  Expected volatility is based on the historical volatility of the price of the Company's stock.  The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option.  The Company uses historical data to estimate expected dividend yield, expected life and forfeiture rates.  The fair values of the options granted, were estimated based on the following weighted average assumptions:

	Nine Months Ended September 30,
	2010	2011
Risk-free interest rate	1.02% - 2.03%	0.89% - 2.24%
Expected dividend yield	-	-
Expected lives	5.0 yrs.	5.0 years
Expected volatility	109.57%-110.01%	104.29%-104.88%
Weighted average grant date fair value per options and warrants issued	$0.42 per option for 1,425,000 options	$0.30 per option for 990,000 options

Stock option activity during the nine months ended September 30, 2010 and 2011, respectively, is as follows:

Stock option activity for employees:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2009		6,228,752	$	2.60		6.95	$	0
Options granted		993,728		0.80		9.42		0
Options forfeited		0		0		0		0
Outstanding December 31, 2010		7,222,480	$	2.35		6.21	$	0
Options granted		930,000		0.42		9.71		0
Options forfeited		0		0		0		0
Outstanding September 30, 2011		8,152,480	$	2.13		5.95	$	0
Exercisable September 30, 2011		8,071,924	$	2.14		5.95	$	0

Options to purchase 930,000 shares were granted to employees during the nine months ended September 30, 2011 at a premium value of 110% of the NYSE Amex stock closing price.  The options vest immediately to proportionately over 18 months.  The weighted average grant-date fair value of the options granted during the nine months ended September 30, 2010 and 2011 was $384,000 and $279,000, respectively.

Unvested stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2009		38,333		$	1.54		8.00	$	0
Options granted		20,000			0.66		9.50		0
Options vested		(7,778	)		0.66		9.50		0
Options forfeited		0			0		0		0
Outstanding December 31, 2010		50,555		$	1.33		7.60	$	0
Options granted		40,000			0.37		10.00		0
Options vested		(9,999	)		0.66		8.45		0
Options forfeited		0			0		0		0
Outstanding September 30, 2011		80,556		$	0.94		8.20	$	0

Stock option activity for non-employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2009		2,233,432		$	2.44		5.73	$	0
Options granted		625,000			0.55		9.52		0
Options exercised		0			0		0		0
Options forfeited		(10,000	)		2.46		0		0
Outstanding December 31, 2010		2,848,432		$	2.03		5.80	$	0
Options granted		60,000			0.46		9.67		0
Options exercised		0			0		0		0
Options forfeited		0			0		0		0
Outstanding September 30, 2011		2,908,432		$	2.00		5.15	$	0
Exercisable September 30, 2011		2,844,473		$	1.98		5.34	$	0

The weighted-average grant-date fair value of non-employee options granted during the nine months ended September 30, 2010 and 2011 was approximately $225,000 and $17,000, respectively.

Unvested stock option activity for non-employees during the year:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2009		139,584		$	2.68		3.76	$	0
Options granted		0			0		0		0
Options vested		(37,500	)		2.81		2.50		0
Options forfeited		0			0		0		0
Outstanding December 31, 2010		102,084		$	2.63		3.54	$	0
Options granted		0			0		0		0
Options vested		(38,125	)		2.81		1.75		0
Options forfeited		0			0		0		0
Outstanding September 30, 2011		63,959		$	2.52		3.41	$	0

The impact on the Company's results of operations of recording equity based compensation for the nine months ended September 30, 2010 and 2011 was to increase general and administrative expenses by approximately $659,000 and $348,000, respectively.  The impact on basic and fully diluted earnings per share for the nine months ended September 30, 2010 and 2011 was $0.01 and $0.00, respectively.

As of September 30, 2010 and 2011, respectively, there was approximately $181,000 and $120,000 of unrecognized equity based compensation cost related to options granted under the Equity Incentive Plan.  The $120,000 unrecognized equity based compensation as of September, 2011 will be fully expensed by June 2013.