Share-Based Payments (Tables)

9 Months Ended

Sep. 30, 2012

The following table provides the details of the approximate total share based payments expense during the three months and nine months ended September 30, 2012 and 2011:

	3 Months Ended				9 Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Stock option amortization	$	192,000	$	150,000	$	602,000	$	442,000	(a)
Stock issued for services		139,000		-		178,000		10,000	(b)
Stock warrants issued for service		10,000		-		36,000		12,000
Right to purchase shares		-		-		44,000		155,000	(see note 12)
	$	341,000	$	150,000	$	860,000	$	619,000

(a)

The Company accounts for its stock option awards pursuant to the provisions of ASC 718, Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period. The Black-Scholes Merton model incorporated the following assumptions for the options granted in 2012 and 2011: risk-free interest rate of 1.73% to 3.43%, expected volatility of 60% and 75%, expected life of 10.0 years and expected dividend yield of 0%.

(b)

In the second quarter of 2012, the Company appointed two new "independent" (as defined under the NASDAQ listing requirements) members to the Board of Directors. In connection with the appointment we granted each of our three "independent" directors 10,000 restricted shares to be vested quarterly over one year. In the third quarter of 2012, the Company issued shares to certain consultants for services. We recorded the common shares at the closing price on the issue date and expensed to consulting and marketing services $139,000 and $178,000 during the three and nine months ended September 30, 2012. During the three and nine months ended September 30, 2011, we recorded $10,000 for other consulting services.

Stock option activity

Stock option activity for the nine months ended September 30, 2012 is summarized as follows:

	September 30, 2012
				Weighted		Aggregate
				Average		Intrinsic
	Shares			Exercise Price		Value
Options outstanding at beginning of year		1,383,567		$	3.32	$	1,016,867
Granted		227,567			-		-
Exercised		(1,347	)		3.80		(63	)
Cancelled/expired		(8,542	)		4.20		(170	)
Options outstanding at end of period		1,601,245		$	3.51	$	1,016,634

Options exercisable at end of period		1,012,198		$	3.32	$	732,047

Options available for issuance		2,398,755

Warrants outstanding

In connection with the Company's Share Exchange, capital raising efforts in 2007, the Company's January 2008 Financing of Convertible Notes and Class A Warrants, the April 2010 Convertible Note, the July 2010, June 2011 and August 2012 financings, the WB Agreement and a service agreement, the Company issued warrants to investors and service providers to purchase common stock of the Company. As of September 30, 2012, the weighted average exercise price was $14.02 and the weighted average remaining life was 4.03 years. The following table outlines the warrants outstanding as of September 30, 2012 and December 31, 2011:

	September 30,		December 31,
	2012		2011
	(unaudited)
	Number of		Number of
	Warrants		Warrants		Exercise		Expiration
Warants Outstanding	Outstanding		Outstanding		Price		Date
Share Exchange Consulting Warrants ($45.00 exercise price)		59,664		59,664	$	45.00	1/11/2013
2007 Private Placement Broker Warrants ($45.00 exercise price)		8,533		8,533	$	45.00	1/11/2013
2007 Private Placement Investor Warrants ($150.00 exercise price)		53,333		53,333	$	150.00	1/11/2013
July 2010 Sinotop Acquisition Warrants ($45.00 exercise price)		17,049		17,049	$	45.00	1/11/2013
July 2010 Sinotop Acquisition Warrants ($150.00 exercise price)		13,333		13,333	$	150.00	1/11/2013
May 2011 Warner Brothers Warrants ($6.60 excercise price)		200,000		200,000	$	6.60	5/11/2016
June 2011 Fidelity Right to Purchase ($6.60 exercise price)		75,000		75,000	$	6.60	12/3/2012
2011 Service Agreement Warrants ($7.20 exercise price)		16,667		6,667	$	7.20	6/15/2016
2012 August Financing Warrants ($4.25 exercise price)		977,063		-	$	4.25	8/30/2017
		1,420,642		433,579

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

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