STOCK OPTIONS - Note 21

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

STOCK OPTIONS - Note 21

NOTE 21 - STOCK OPTIONS

Previous Plan

Prior to the acquisition of Gold Lion, the Company issued stock options to its previous employees, officers and directors. Pursuant to terms of the SEA, outstanding stock options at the closing of the acquisition remained valid for the full life of the options regardless if the employee, officer and director remained in any capacity with the Company. There were 423,100 options outstanding as of September 22, 2009, the effective date of the reverse merger between Zoom and Gold Lion, with expiration in 3 years from the date of grant and in various stages of vesting. The non-cash compensation charges of these stock options were recorded by the spun-off subsidiary, Zoom Telephonics, and were expensed by the Company.

On the closing of the Merger, 30,000 stock options were granted to four exiting directors of the Company, for their anticipated cooperation with Post-Merger management, including the provision of any historical information about the Company that may be needed in future activities. Such options are exercisable at $10.14 per share, vest in six months from the date of grant and expired two years later. The non-cash compensation charges of these 30,000 shares of options will be expensed by the Company. All such options have expired or were exercised.

The following summary represents options activity for the nine months ended September 30, 2012 under the previous plan.

	Under Previous Plan	Weighted Average Exercise Price		Aggregate Intrinsic Value
Balance, December 31, 2011	129,350	$	1.80	$	-
Granted	-		-
Lapsed	(129,350)		1.80
Exercised	-		-
Cancelled	-		-
Balance, September 30, 2012	-	$	-	$	-

STOCK OPTIONS - The 2009 Equity Incentive Compensation Plan

On December 10, 2009, the Company's Board of Directors ("BOD") approved and adopted the 2009 Equity Incentive Compensation Plan (the "New Plan"), and a total of 1,100,000 options were granted on the same day to current employees, executives and directors of the Company, with an exercise price of $6.18 per share, expiration between 1 and 3 years, and vesting over the life of the options.

On November 28, 2010, the Company's BOD approved re-pricing of the outstanding options from the exercise price of $6.18 to $3.75 per share, the market price for the Company's common stock at the time of the re-pricing.

On December 1, 2010, the Company's BOD approved of the granting of 677,000 options to current employees and executives of the Company, with an exercise price of $3.75 per share, the market price for the Company's common stock at the time of the re-pricing, vesting over 3 years and expiration in 3.25 years.

On May 22, 2012, the Company issued 302,800 shares of its common stock to its employees and directors in replacement for cancelling 1,339,000 outstanding options that were held by the same recipients. The shares have the same vesting schedule as the options and were valued at $1.12 per share, the closing price on the date of Board Approval, which is considered the market price at that time. Based on the difference between the market value of the shares and the Black-Scholes value of the cancelled options as of May 22, 2012, there is an extra non-cash compensation expense of $66,977 for the quarter ended September 30, 2012.

The following summary represents options activity during the nine months ended September 30, 2012 under the New Plan.

	Under Previous Plan	Weighted Average Exercise Price		Aggregate Intrinsic Value
Balance, December 31, 2011	3,557,000	$	3.02	$	-
Granted	-		-
Lapsed	(408,000)		3.18
Exercised	-		-
Cancelled	(1,339,000)		3.18
Balance, September 30, 2012	1,810,000	$	2.97	$	-

The following represents options summary as of September 30, 2012 under the New Plan.

	Options Outstanding					Options Exercisable
	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
Options	1,810,000	2.71 years		$	$2.97	963,750	$	2.62

The Company determined the grant date fair value of 865,000 options of $1.80 per share which was calculated using the Black Scholes Options Pricing Model as follows: Stock price of $6.18 per share, exercise price of $6.18 per share, expected life of 3.25 years, volatility of 39.18% and discount rate of 1.26%.

For the re-pricing of the above 865,000 options on November 28, 2010, from the exercise price of $6.18 to $3.75 per share, the Company determined the incremental fair value of $0.48 per share which was calculated by taking the difference between the Black Scholes values of the new exercise price and that of the old exercise price. Other data used in the calculations include: the stock market price of $3.54, expected of 2.28 years, volatility of 33.59% and discount rate of 0.78%.

The Company determined the grant date fair value of 235,000 options of $1.20 per share which was calculated using the Black Scholes Options Pricing Model as follows: Stock price of $6.18 per share, exercise price of $6.18 per share, expected life of 1.5 years, volatility of 39.18% and discount rate of 0.78%.

For the re-pricing of the above 235,000 options on November 28, 2010, from the exercise price of $6.18 to $3.75 per share, the Company determined the incremental fair value of $0.26 per share which was calculated by taking the difference between the Black Scholes values of the new exercise price and that of the old exercise price. Other data used in the calculations include: the stock market price of $3.54, expected of 0.53 years, volatility of 33.59% and discount rate of 0.28%.

The Company determined the grant date fair value of 677,000 options of $0.74 per share which was calculated using the Black Scholes Options Pricing Model as follows: Stock price of $3.45 per share, exercise price of $3.75 per share, expected life of 3.25 years, volatility of 33.42% and discount rate of 0.84%.

The Company recorded $259,701 of non-cash compensation expense related to stock options for the quarter ended September 30, 2012. As of September 30, 2012, there was $705,979 of non-cash compensation to be recorded up to 2014 based on options valued at grant date.