Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

5. STOCK-BASED COMPENSATION

FASB ASC 718, Stock Compensation requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.

Total estimated stock-based compensation expense, related to all of the Company's stock-based awards, recognized for the three and six months ended June 30, 2011 and 2010 was comprised as follows:

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Sales and marketing	$	24,576	$	282,645	$	26,421	$	284,490
General and administrative		3,239		5,949		3,788		6,498
Software development		5,750		11,676		5,750		23,352
Total stock-based compensation	$	33,565	$	300,270	$	35,959	$	314,340

At June 30, 2011 there was $3,041 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 0.50 years.

We calculate the fair value of stock options granted under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions:

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Expected dividend yield		—			—			—			—
Expected stock price volatility		187	%		176	%		187	%		176	%
Risk-free interest rate		4	%		4	%		4	%		4	%
Expected life of options		2.1 years			2.5 years			2.1 years			2.5 years
Weighted average fair value of options and warrants granted	$	0.03		$	0.12		$	0.03		$	0.12

The following table represents stock option and warrant activity for the six months ended June 30, 2011:

	Options and Warrants			Weighted- Average Exercise Price
Outstanding at December 31, 2010		12,707,803		$	0.08
Granted under company stock option plan		3,655,000		$	0.04
Warrants granted		8,552,803		$	0.04
Stock options canceled		(3,655,000	)	$	0.07
Warrants canceled		(8,552,803	)	$	0.07
Outstanding at June 30, 2011		12,707,803		$	0.05

The following table summarizes our non-vested stock option and warrant activity for the six months ended June 30, 2011:

	Options and Warrants			Weighted- Average Grant Date Fair Value
Non-vested stock options and warrants at December 31, 2010		40,417		$	0.07
Granted during the period		19,792		$	0.04
Vested during the period		(25,417	)	$	0.06
Forfeited during the period		(19,792	)	$	0.07
Non-vested stock options and warrants at June 30, 2011		15,000		$	0.04

	Options and Warrants Outstanding						Options and Warrants Exercisable
	Number Outstanding June 30, 2011		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at June 30, 2011		Weighted Average Exercise Price
$0.05-0.10		12,207,803		4.07	$	0.04		12,192,803	$	0.04
$0.11-0.40		500,000		3.39	$	0.40		500,000	$	0.40

In April 2011, the Company's Board of Directors and Compensation Committee authorized a reduction of the exercise price of a total of 12,207,803 stock options and warrants granted to employees and directors. The new exercise price for those options and warrants was fixed at $0.036 per share, which was the market price of the Company's common stock at the time of the repricings. The vesting period and the expiry dates of the repriced options and warrants remained unchanged. The repricing of the options and warrants will be accounted for as an exchange of the original awards for new awards. The incremental increase in fair value of the new awards resulted in additional stock-based compensation expenses totaling $31,475 that was recognized in full in April 2011.

As at June 30, 2011 all stock options and warrants have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant.

At June 30, 2011 the aggregate intrinsic value of options and warrants outstanding was $170,909. The aggregate intrinsic value of options and warrants exercisable was $170,699. The intrinsic value of stock options and warrants are calculated as the amount by which the market price of our common stock exceeds the exercise price of the option or warrant.

The Company is authorized to issue up to 100,000,000 common shares and 10,000,000 non-designated preferred shares. Until such time as the Company is able to increase its authorized number of shares of common stock, in the event that an exercise of warrants or stock options would result in the number of issued common shares exceeding the authorized limit, the Company would designate the preferred shares with the same rights and preferences as the common shares to accommodate the exercise of the options or warrants.