STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 8 — STOCKHOLDERS’ EQUITY

In February 2013, we granted 42,000 shares of stock to five employees under the long-term incentive bonus program. The 36,000 shares are not performance based and vest semi-annually over a three year period and 6,000 shares are performance based and vest semi-annually over a three year period, subject to ongoing employment. The 42,000 shares were valued at $2.50 per share of common stock using the fair value of the common stock at the date of grant and the fair value will be amortized to compensation expense semi-annually over three years.

In February 2013, we also granted 346,000 common stock options to seven employees and five outside board members. These options vest semi-annually over three years and have a five year term. These stock options were granted at an exercise price of $2.50 per common share and the fair value was determined using the Black Scholes option pricing model. The options are being amortized to share-based compensation expense semi-annually over the vesting period. Of the 346,000 options granted, 12,000 of the options are performance based.

In May 2013, we also granted 100,000 common stock options to an outside board member. These options vest semi-annually over three years and have a five year term. These stock options were granted at an exercise price of $3.00 per common share and the fair value was determined using the Black Scholes option pricing model. The options are being amortized to share-based compensation expense semi-annually over the vesting period.

The Company has computed the fair value of all options granted using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. The Company estimated a volatility factor utilizing a weighted average of comparable published volatilities of peer companies. The Company has estimated a forfeiture rate of zero as the effect of forfeitures has not been significant and the small number of option holders does not provide a reasonable basis for prediction. The Company estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk- free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The fair value of all options granted by the Company for 2011 through 2013 was determined using the following assumptions:

Expected volatility	70% - 89%
Risk free interest rate	0.80% - 1.72%
Expected term (years)	5
Dividend yield	0%

As a result of the above stock and option transactions, we recorded total stock-based compensation of $283,892, $919,755, $517,370 and $1,533,855 for the three and nine months ended September 30, 2013 and 2012, respectively.

Stock option activity is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Fair Value
Outstanding December 31, 2011		2,674,324		$	1.59	2.43 Years	$	4,252,175
Granted		1,014,000		$	2.30
Exercised		—			—
Forfeited		(33,000	)	$	2.47
Expired		(15,000	)	$	2.68
Outstanding December 31, 2012		3,640,324		$	1.76	2.69 Years	$	6,406,970
Granted		446,000		$	2.61
Exercised		(5,000	)	$	2.75
Forfeited		—			—
Expired		—			—
Outstanding September 30, 2013		4,081,324		$	1.85	2.31 Years	$	7,550,449
Exercisable at September 30, 2013		3,226,658		$	1.70		$	5,485,319
Available for grant at September 30, 2013		854,666