Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Stock-Based Compensation

Note 5:  Stock-Based Compensation

The Company has historically granted stock options to certain vendors and employees.  On January 26, 2011, the Company granted 384,000 stock options at a strike price of $0.25 that vest equally over a four year period.  The grant date fair value of the awards was $54,736 (net of estimated forfeitures of 10%) which was determined using a Black Scholes option pricing model using the following assumptions:  volatility of 68%, risk-free rate of return of 2.4%, stock price of $0.25 and expected term of 6.25 years.  The options expire in 2021.

On January 23, 2012, the Company granted 533,000 stock options at a strike price of $1.59 that vest equally over a four year period.  The grant date fair value of the awards was $394,625 (net of estimated forfeitures of 10%) which was determined using a Black Scholes option pricing model using the following assumptions:  volatility of 54%, risk-free rate of return of 1.2%, stock price of $1.59 and expected term of 6.25 years.  The options expire in 2022.

The volatility used was based on historical volatility of similar sized companies due to lack of historical data of the Company’s stock price. The risk free interest rate was determined based on treasury securities with maturities equal to the expected term of the underlying award.  The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110.

Stock option awards are expensed on a straight-line basis over the requisite service period.  During the three and six months ended June 30, 2012 the Company recognized expense of $36,241 and $66,270, respectively. During the three and six months ended June 30, 2011 the Company recognized expense of $11,662 and $25,288, respectively. At June 30, 2012, future stock compensation expense (net of estimated forfeitures) not yet recognized was $455,997 and will be recognized over a weighted average remaining vesting period of 1.8 years.  The following summarizes stock option activity for the six months ended June 30, 2012:

	Number of	Exercise	Fair	Remaining
	Shares	Price	Value	Contractual Life
Outstanding at December 31, 2011	1,318,000	$         0.25	$     0.16
Granted at market price	533,000	1.59	0.82
Exercised	(65,750)
Forfeited	(90,000)
Outstanding at June 30, 2012	1,695,250	0.60	0.33	7.8
Exercisable	407,083	$         0.25	$     0.16	8.0

The following table summarizes information about the Company’s stock options at June 30, 2012:

	Exercisable		Unexercisable		Total
		Weighted		Weighted		Weighted
	Number	Average	Number	Average	Number	Average
Range of Exercise Prices	Outstanding	Exercise Price	Outstanding	Exercise Price	Outstanding	Exercise Price
$.25 per share	407,083	$           0.25	770,167	0.25	1,177,250	$           0.25
$1.59 per share	-	-	518,000	1.59	518,000	$           1.59