STOCK BASED COMPENSATION PLAN AND WARRANTS

3 Months Ended

Mar. 31, 2013

STOCK OPTION PLAN AND WARRANTS [Abstract]

STOCK OPTION PLAN AND WARRANTS

NOTE 13 – STOCK BASED COMPENSATION PLAN AND WARRANTS

The Company's Incentive Compensation Plan (the "Plan"), which was last amended and restated with shareholder approval in december 2012, provides for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units and cash incentive awards.

A summary of the status of stock options under the Plan as of March 31, 2013 and December 31, 2012 is as follows:

	3/31/2013					12/31/2012
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of year		7,728,877		$	1.01		5,645,202		$	1.10
Granted		1,986,535		$	1.67		2,354,275		$	0.80
Exercised		(170,000	)	$	1.13		(230,600	)	$	1.09
Expired and Cancelled		-		$	-		(40,000	)	$	0.86
		9,545,412					7,728,877
Outstanding, end of period		9,545,412		$	1.15		7,728,877		$	1.01
Exercisable at end of period		7,955,531		$	1.07		7,582,022		$	1.03

During the three months ended March 31, 2013, the Company granted 1,986,535 options, valued at $2,079,484.  Stock-based compensation expense for the three months ended March 31, 2013 was $676,932.  As of March 31, 2013, the unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Plan was $1,556,047 and will be recognized in each of the remaining fiscal 2013 quarters.

During the three months ended March 31, 2012, the Company granted 2,009,275 options, valued at $855,175.  The total fair value of options vested during the first quarter of 2012 was $190,112.

On February 22, 2013 a former employee exercised 10,000 stock options and the Company received proceeds of $10,100.   Also during this time the Company issued 79,825 shares of Common Stock on the cashless exercise of 160,000 stock options.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model.  This model uses the assumptions listed in the table below.  Expected volatilities are based on the historical volatility of the Company's stock.  The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	Three Months Ended March 31, 2013
Weighted average fair value per option granted	$	1.05
Risk-free interest rate		0.77 - 0.81	%
Expected dividend yield		0.00	%
Expected lives		2.695
Expected volatility		108	%

Stock options outstanding at March 31, 2013 are as follows:

			Weighted
			Average	Weighted
			Remaining	Average
	Options		Contractual	Exercise		Options
Range of Exercise Prices	Outstanding		Life	Price		Exercisable
$0.01-$1.50		7,213,877	2.8	$	0.97		7,113,897
$1.51-$3.00		2,196,535	4.5	$	1.66		706,634
$3.01-$5.00		135,000	4.6	$	3.11		135,000
		9,545,412	3.2	$	1.16		7,955,531

On January 22, 2013 the Company issued 114,944 shares of common stock to its four non-executive directors (28,736 shares each) – Mark Hershhorn, Brian Israel, Morris Garfinkle and Edward Smith III. The Company recognized a total expense of $200,002 related to these issuances.  These shares were valued based on the closing price on the grant date.  As of March 31, 2013, the Company had reserved 18.0 million shares for issuance under the Plan.  As of March 31, 2012, the Company had 7,952,788 million shares available for grant under the Plan

Warrants

As of March 31, 2013, the Company has warrants outstanding to purchase 21,313,421, shares of the Company's common stock, at prices ranging from $0.01 to $1.50 per share.  These warrants expire at various dates through February 2017.   There were no warrants issued in the three month period ended March 31, 2013.  There were 650,000 warrants issued in the three months ended March 31, 2012.  The summary of the status of the warrants issued by the Company as of March 31, 2013 and December 31, 2012 are as follows:

	3/31/2013					12/31/2012
	Number of Warrants			Weighted Average Exercise Price		Number of Warrants			Weighted Average Exercise Price
Outstanding at beginning of year		23,376,250		$	1.46		23,736,108		$	1.55
Granted		-		$	-		650,000		$	0.83
Exercised		(1,838,841	)	$	1.45		(490,424	)	$	0.62
Cashless Exercises		(223,988	)	$	1.00		(335,541	)	$	0.91
Expired and Cancelled		-		$	-		(183,893	)	$	14.73
		21,313,421					23,376,250
Outstanding, end of period		21,313,421		$	1.46		23,376,250		$	1.46
Exercisable at end of period		21,313,421		$	1.46		23,376,250		$	1.46

During the first quarter of 2013, several investors participated in a warrant exercise program that resulted in the exercise of 1,756,088 warrants into 1,756,088 shares of the Company's common stock.  The warrant program, which was open to all holders of $1.50 warrants, allowed those warrant holders to exercise their warrants for a $1.25 strike price during February 2013. The conversion of these warrants raised $2,195,110 of gross proceeds for the Company.

Also during the first quarter of 2013, investors exercised 82,753 warrants and received 82,753 shares of common stock with the Company receiving proceeds of $30,511.  Other investors exercised 223,988 of warrants on a cashless basis and the Company issued 117,999 shares of common stock during the quarter.

During the first quarter of fiscal 2012, there were no warrants exercised either on a cash or cashless basis.