Share-based Compensation

12 Months Ended

Dec. 31, 2012

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-based Compensation

Note 10 - Share-based Compensation

Options

We have two nonqualified stock option plans approved by shareholders with an aggregate of approximately 2.1 million shares remaining available for grant as of December 31, 2012.  The exercise price of the options are established by the Board of Directors on the date of grant and are generally equal to the market price of the stock on the grant date.  The Board of Directors may determine the vesting period for each new grant. Options issued are exercisable in whole or in part for a period as determined by the Board of Directors of up to ten years from the date of grant.

We estimated the fair value of each option award at the grant date by using the Black-Scholes option pricing model with the following range of assumptions for awards:

	For the Year Ended
	December 31,			December 31,
	2012			2011
Dividend yield		0	%		0	%
Expected volatility, in years		125	%		82% to 136	%
Risk-free interest rates		0.8% to 0.9	%		0.4% to 2.6	%
Expected lives, in years		5			2 to 7

For options awarded during the years ended December 31, 2012 and 2011, the weighted average fair value per share on grant date was $0.61 and $0.93, respectively.

During the years ended December 31, 2012 and 2011, we awarded options to purchase 250,000 and 1,130,000 shares, respectively of our common stock at a weighted average exercise price of $0.72 and $1.14 per share, respectively to employees as components of their initial hiring compensation. The right to exercise these options is based on (i) service time or (ii) in certain instances the optionee’s achievement of specific objectives. We estimated the fair value on the date of grant for the service time-vested options awarded during the years ended December 31, 2012 and 2011 and amortized those fair values over the service time requirement. During the years ended December 31, 2012 and 2011, we amortized approximately $161,300 and $488,200, respectively fo those fair values to operating expenses. For those option awards that vest on the optionee’s achievement of certain objectives, until it is probable that the optionee will achieve the specific objective, the award is not earned and the fair value of the option is not estimated. During the years ended December 31, 2012 and 2011, certain objective-based options were earned, and the aggregate estimated fair value of those options of approximately $22,300 and $92,000, respectively were charged to operating expenses.

Additionally, during the year ended December 31, 2011, we issued options to purchase 835,000 shares of our common stock at a weighted average exercise price of $1.50, to certain employees in recognition of services rendered and as an incentive for services to be rendered or additional objectives to be achieved. During the year ended December 31, 2011, we charged the fair value of those options earned based on service time of approximately $404,500 to operating expenses. During the year ended December 31, 2012, it was deemed probable that certain of the objective-based options would be earned therefore the estimated fair values of these options of approximately $131,000 were charged to operating expenses.

Options to purchase 400,000 shares of our common stock at a weighted average exercise price of $1.20 were issued during the year ended December 31, 2011, to certain of our directors for board responsibilities. The fair value of these options on their date of grant based on the Black-Scholes option pricing model was approximately $363,800. During the years ended December 31, 2012 and 2011 we charged approximately $28,400 and $330,700, respectively of the fair value to operating expenses, with approximately $4,700 of the fair value remaining to be charged to operating expenses subsequent to December 31, 2012.

We issued options to purchase 50,000 and 232,500 shares of our common stock to certain advisory board members during the years ended December 31, 2012 and 2011, respectively, with weighted average exercise prices of $0.74 and $1.13 per share, respectively. Their fair values on the date of grant, based on the Black-Scholes option pricing model, were approximately $31,200 and $222,000, which were charged to operating expenses during the years ended December 31, 2012 and 2011, respectively.

In addition to the charges to operating expenses during the years ended December 31, 2012 and 2011 for the fair value of options awarded and earned during the respective year, certain options awarded in prior periods were amortized over their vesting periods encompassing the years ended December 31, 2012 and 2011. We charged to operating expenses approximately $71,800 and $316,100 during the years ended December 31, 2012 and 2011, respectively.

During the years ended December 31, 2012 and 2011, an aggregate of approximately $445,900 and $1,853,400 was recognized in operating expenses in relation to options.

The following table summarizes our stock option activity for the periods presented:

				Weighted-
	Number			Average
	of Shares			Exercise
	Issuable			Price
Balance, January 1, 2011		3,488,761		$	1.02
Granted		2,597,500		$	1.26
Exercised		-			-
Cancelled		(200,000	)	$	1.40
Balance, December 31, 2011		5,886,261		$	1.11
Granted		300,000		$	0.72
Exercised		-			-
Cancelled		(476,136	)	$	1.15
Balance, December 31, 2012		5,710,125		$	1.10

The following table summarizes options outstanding at December 31, 2011:

			Weighted-		Weighted-
	Number		Average		Average		Aggregate
	of Shares		Exercise		Remaining		Intrinsic
	Issuable		Price		Term (Years)		Value
Exercisable		3,578,567	$	1.04		3.0	$	82,177
Not vested		2,131,558	$	1.22		3.3	$	200,034
Balance, December 31, 2012:		5,710,125	$	1.10		3.2	$	282,211

Warrants

From time to time, we compensate consultants, advisors and investors with warrants to purchase shares of our common stock, in lieu of cash payments. Net share settlement is available to warrant holders.

The following table sets forth our warrant activity during the periods presented:

				Weighted-
	Number			Average
	of Shares			Exercise
	Issuable			Price
Balance, January 1, 2011		5,329,783		$	1.16
Granted		582,358		$	0.90
Exercised		(460,000	)	$	0.60
Cancelled
Balance, December 31, 2011		5,452,141		$	1.18
Granted		22,048,510		$	0.67
Exercised		-
Cancelled		(147,500	)	$	2.25
Balance, December 31, 2012		27,353,151		$	0.76

The following table sets forth the warrants granted during the year ended December 31, 2012:

			Weighted-
	Number		Average
	of Shares		Exercise
	Issuable		Price
10% convertible debenture - bonus warrants		166,675	$	0.60
10% convertible preferred stock - warrants		3,761,365	$	1.00
8% convertible promissory notes - warrants		17,820,470	$	0.60
Consultants		300,000	$	0.82
Total		22,048,510	$	0.76

During the years ended December 31, 2012 and 2011, we issued warrants to purchase 166,675 and 316,682 shares of our common stock, respectively at exercise prices of $0.60 to the holders of our 10% convertible debentures pursuant to their amended terms. Since the fair value of those warrants was initially recorded as a derivative liability and charged to other expenses in our statement of operation upon the amendment of the debentures, upon issuance of the warrants, these fair values of approximately $57,000 and $234,700, respectively was charged to the derivative liability and credited to equity. See Notes 6 and 7 for further discussion of these warrants.

During the years ended December 31, 2012 and 2011, we issued warrants to purchase 300,000 and 265,676 shares of our common stock, respectively to consultants and advisors at weighted average exercise prices of $0.82 and $1.25 per share, respectively. These warrants had a fair value of approximately $78,600 and $265,100, respectively at the date of grant which was charged to our statement of operations. For the warrants issued during the year ended December 31, 2012, we estimated the fair value of these warrants at their grant dates by using the Black-Scholes option pricing model with the following range of assumptions: (i) no dividend yield, (ii) expected volatility of between 100% and 118%, (iii) risk-free interest rates of between 0.4% and 0.6%, and (iv) expected lives of three to five years.

During the year ended December 31, 2012, we issued warrants to purchase 3,761,365 shares of our common stock at an exercise price of $1.00 to the holders of our 10% convertible preferred stock pursuant to the terms of the agreement. When it was probable we would be required to issue these warrants, their fair value was estimated to be $2.4 million, which was recorded as a derivative liability and a charge to other expense in our statement of operations. We estimated the initial fair value of these warrants by using the Black-Scholes option pricing model with the following assumptions - (i) no dividend yield, (ii) an expected volatility of 110%, (iii) a risk-free interest rate 0.6%, and (iv) an expected life of fifty-one months. See Notes 6 and 8 for further discussion of these warrants. Upon issuance of the warrants, the derivative liability of $1.8 million was eliminated and a credit to equity was made. 

During the year ended December 31, 2012, pursuant to our 8% convertible promissory notes, we issued warrants to purchase 17,820,470 shares of our common stock at an initial exercise price of $0.60 per share. These warrants had fair values on their dates of issuances of approximately $443,300 which were recorded as a credit to derivative liabilities and a charge to debt discount associated with our 8% convertible promissory notes. See Notes 6 and 7 for further discussion of these warrants. The estimated fair value of the warrants was computed by a third party using Monte Carlo simulation models.

In addition, the fair value of a previously issued warrant which is being amortized over a service period spanning multiple reporting periods, was revalued using the Black-Scholes option pricing model, at the end of each reporting period. During the year ended December 31, 2012, we reduced the fair value by approximately $157,800 and recorded a credit in our statement of operations. During the year ended December 31, 2011, based on the fair value we recorded a charge in our statement of operations of approximately $273,400.