STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2012

STOCK-BASED COMPENSATION [Text Block]

10. STOCK-BASED COMPENSATION

Stock Options

The Company has granted incentive and non-qualified stock options to its employees and directors under its 2006 Stock Incentive Plan. The Company has also granted non-qualified, non-plan stock options, which have been authorized by the Company’s board of directors. Stock options are generally granted at an exercise price equal to or greater than the quoted market price on the date of grant.

There are 5,724,910 stock options outstanding at June 30, 2012 issued pursuant to the Company’s 2006 Stock Incentive Plan. The outstanding options expire at various dates from 2012 to 2017. The Company did not grant any stock options during the three and six month periods ended June 30, 2012. During the three and six month periods ended June 30, 2012, the Company recognized $23,535 and $49,522, respectively, in compensation expense related to employee stock options that vest over time. The Company granted 1,044,500 and 1,544,500 stock options during the three and six month periods ended June 30, 2011, respectively. During the three and six month periods ended June 30, 2011, the Company recognized $47,746 and $103,695, respectively, in compensation expense related to employee stock options that vest over time.

As summarized in the following tables, during the three and six month periods ended June 30, 2012, there were no stock options granted nor exercised, and 10,625 and 23,375 were cancelled or forfeited, respectively.

Weighted

	Number of			Average
	Shares			Exercise Price
Three months ended June 30, 2012
Options outstanding at March 31, 2012	5,735,535		$	.34
Granted	-			-
Exercised	-			-
Cancelled/Forfeited	(10,625	)		.16
Options outstanding at June 30, 2012	5,724,910		$	.34

				Weighted
	Number of			Average
	Shares			Exercise Price
Six months ended June 30, 2012
Options outstanding at December 31, 2011	5,748,285		$	.34
Granted	-			-
Exercised	-			-
Cancelled/Forfeited	(23,375	)		.16
Options outstanding at June 30, 2012	5,724,910		$	.34

The following table summarizes certain additional information about the Company’s total and exercisable stock options outstanding as of June 30, 2012:

		Weighted
		Average		Weighted
		Remaining		Average
	Number	Contractual		Exercise		Intrinsic
	Outstanding	Life in Years		Price		Value
Total stock options	5,724,910	3.29	$	.34	$	-
Exercisable stock options	4,452,915	3.28	$	.40	$	-

The closing price of the Company’s common stock on the OTC Pink Sheets Market on June 29, 2012 was $0.06 per share. Accordingly, the intrinsic values of total stock options and exercisable stock options as of June 30, 2012 was $0.

The following table summarizes the unvested stock options outstanding as of June 30, 2012:

				Weighted Average
				Grant Date
	Number of Shares			Fair Value
Three months ended June 30, 2012
Unvested options outstanding at March 31, 2012	1,517,245		$	.10
Granted	-			-
Vested	(237,750	)		.11
Cancelled/Forfeited	(7,500	)		.11
Unvested Options outstanding at June 30, 2012	1,271,995		$	.10

				Weighted Average
				Grant Date
	Number of Shares			Fair Value
Six months ended June 30, 2012
Unvested options outstanding at December 31, 2011	1,526,620		$	.10
Granted	-			-
Vested	(237,750	)		.11
Cancelled/Forfeited	(16,875	)		.11
Unvested Options outstanding at June 30, 2012	1,271,995		$	.10

The total grant date fair value of options vested during the three and six month periods ended June 30, 2012 was $26,794. The Company recognizes stock option compensation expense on stock options with a graded vesting schedule on a straight line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. As of June 30, 2012, 1,271,995 stock options remain unvested, which will result in $53,121 in compensation expense to be recognized during the next two years.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options granted. The Company granted 1,044,500 and 1,544,500 options during the three and six month period ended June 30, 2011. Given that the 500,000 stock options granted in the first quarter of 2011 were granted to one employee, the Chief Executive Officer of the Company, and the fact that the stock options vested in full as of June 30, 2011, the Company utilized a 0% forfeiture rate for this stock option grant. The expected forfeiture rate of 8% for the stock options granted in the second quarter of 2011 was based on the Company’s historical forfeiture rate. The expected term of the options granted to employees is estimated using the formula set forth in SEC Staff Accounting Bulletin (“SAB”) No. 107. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the date of grant and the expected volatility is based on the weighted historical volatility of the Company’s common stock and that of its peer group.

There were no stock options granted during the six month period ending June 30, 2012. The fair values for the stock options granted during the six month period ended June 30, 2011 were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Six Months Ended
	June 30, 2011
Risk-free interest rate	0.67% to 0.87%
Expected life	2.5 to 3.25 years
Expected volatility	115% to 126%
Expected dividend yield	0%

Deferred Stock Units

During the three and six months ended June 30, 2012, certain equity-based fees have been paid to the Company’s non-executive directors in the form of awards issued pursuant to the Company’s 2006 Stock Incentive Plan. The non-executive directors have limited rights, exercisable within applicable time limits, to elect to have any percentage of such awards, and any percentage of cash fees, payable in deferred stock units. Each of the Company’s non-executive directors exercised such rights in respect of the equity-based fees payable to him for the three and six months ended June 30, 2012.

During the three and six months ended June 30, 2012, Douglas Hamilton, the Chairman of the Company’s Audit Committee, received 190,476 and 308,123 deferred stock units, respectively; John Cook, the Chairman of the Company’s Compensation Committee, received 154,762 and 250,350 deferred stock units, respectively; Stephen Seymour, the Chairman of the Company’s Corporate Governance and Nominating Committee, received 154,762 and 250,350 deferred stock units, respectively. During the three and six months ended June 30, 2012, the Company recognized expense of $26,250 and $52,500, respectively, related to the issuance of deferred stock units to its independent directors. The deferred stock units were granted under the 2006 Deferred Stock Unit Plan, which forms part of the Company’s 2006 Stock Incentive Plan. During the three and six months ended June 30, 2012, 0 and 310,977 deferred stock units were converted into shares of the Company’s common stock, respectively. As of June 30, 2012, there were 2,637,086 deferred stock units outstanding.

During the three and six months ended June 30, 2011, Douglas Hamilton, the Chairman of the Company’s Audit Committee, received 74,074 and 138,591 deferred stock units, respectively; John Cook, the Chairman of the Company’s Compensation Committee, received 60,185 and 112,604 deferred stock units, respectively; Stephen Seymour, the Chairman of the Company’s Corporate Governance and Nominating Committee, received 60,185 and 112,604 deferred stock units, respectively. During the three and six months ended June 30, 2011, the Company recognized expense of $26,250 and $52,500, respectively, related to the issuance of deferred stock units to its independent directors. The deferred stock units were granted under the 2006 Deferred Stock Unit Plan, which forms part of the Company’s 2006 Stock Incentive Plan. During the three and six months ended June 30, 2011, 0 and 280,357 deferred stock units were converted into shares of the Company’s common stock, respectively. As of June 30, 2011, there were 1,498,342 deferred stock units outstanding.