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STOCKHOLDERS' EQUITY
 12 Months Ended
Dec. 31, 2011
STOCKHOLDERS' EQUITY  
STOCKHOLDERS' EQUITY
NOTE 11 - STOCKHOLDERS' EQUITY

Preferred and Common Stock

On June 23, 2010, the Company amended its articles of incorporation to increase the total number of authorized common shares from 60,000,000 shares to 95,000,000 shares, and to authorize 5,000,000 shares of preferred stock. The preferred stock may be issued in series with such designations, preferences, stated values, rights, qualifications or limitations as determined solely by the Company's board of directors.

On November 14, 2010, the Company issued 6,863 shares of common stock to its Chief Financial Officer with a fair value of $21,000 based on the closing market price as of that date of $3.06 per share.  The Company recognized compensation expense for the fair value as general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 2010.

Warrants

As of December 31, 2011, the Company had warrants outstanding and exercisable to purchase an aggregate of 150,000 shares of Company's common stock at exercise prices ranging from $3.00 to $3.80 per share, which expire May 16, 2013. At December 31, 2011, the warrants had a weighted-average exercise price of $3.40 per share, a weighted-average remaining contractual life of 1.4 years and a total intrinsic value of $0.  Warrants to purchase 1,750,000 shares of common stock at $2.80 to $3.60 per share as further discussed in Note 9 expired unexercised during the second quarter of 2011.  These warrants were treated as a derivative warrant liability at December 31, 2010.  Warrants to purchase an additional 16,666 shares of common stock at exercise prices ranging from $3.00 to $3.50 expired unexercised during the fourth quarter of 2011.

During the first quarter of 2010, the Company received cash proceeds of $2,583,000 pursuant to the exercise of warrants to purchase 1,085,292 shares of common stock at an exercise price of $2.38 per share. The warrants were issued in conjunction with the Company's February 1, 2007 Unit Offering. On February 1, 2010, warrants to purchase 88,235 shares of common stock at an exercise price of $2.38 per share expired unexercised.
 
 
On May 17, 2010, the Company issued three-year warrants to purchase 150,000 shares of common stock to a consultant for services rendered. The exercise price is $3.00 per share for 75,000 shares and $3.80 per share for the remaining 75,000 shares. The issue-date fair value of the warrants of $116,993 was recorded as general and administrative expense in the accompanying consolidated financial statements as of the date of issuance.  The fair value of the warrants issued was determined using the Black-Scholes Option Pricing Model, using the following assumptions: risk free interest rate of 1.30%, expected dividend yield of 0%, expected volatility of 67.0% and an expected life of three years. The exercise price of the warrants exceeded the market price of the common stock on the date of grant. 

  Employee Stock Options

2009 Stock Option Plan

On September 2, 2009, the Company's Board of Directors adopted, and on September 3, 2009 its stockholders approved, the 2009 Stock Option Plan of the Company (the "2009 Option Plan"), which gave the Company the ability to grant stock options and restricted stock to its employees or consultants, or employees or consultants of its subsidiaries and to the non-employee members of its Board of Directors or the board of directors of any of its subsidiaries. The 2009 Option Plan currently allows for awards of stock options and restricted stock for up to 1,000,000 shares of common stock. As of December 31, 2011, options to purchase an aggregate of 300,000 shares of common stock had been granted under the 2009 Option Plan, of which 40,000 have been exercised and 50,000 have failed to vest and have been forfeited. In connection with the adoption of the 2010 Long-Term Incentive Plan of the Company (the "2010 Incentive Plan") as described in the paragraph below, the Company's Board of Directors determined that no additional awards of stock options or restricted stock will be made under the 2009 Option Plan, and that the 2009 Option Plan will be terminated following the exercise or expiration of all stock options currently outstanding under such plan.

2010 Incentive Plan

On November 12, 2010, the Company's Board of Directors adopted, and on December 22, 2010 its stockholders approved, the 2010 Incentive Plan, which gave the Company the ability to grant stock options, restricted (nonvested) stock, stock appreciation rights and performance units to its employees, directors and consultants, or those who will become employees, directors and consultants of the Company and/or its subsidiaries. The 2010 Incentive Plan currently allows for equity awards of up to 4,000,000 shares of common stock.

The Company granted stock options under the 2009 and 2010 Stock Options Plan during the years ended December 31, 2011 and 2010, and recognized $196,184 and $207,423, respectively, of compensation expense as general and administrative expenses related to employee stock options. The total income tax benefit recognized from the related stock-based compensation was $49,046 and $51,856 for the years ended December 31, 2011 and 2010, respectively.

The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model using the assumptions noted in the following paragraphs. Expected volatility is based on the historical volatility of the Company's common stock prices. The Company uses historical data to estimate employee termination rates. The expected term of options granted is determined by the simplified method, which is one-half of the original contractual term. The simplified method is used due to the lack of historical share option exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
 
 
On May 25, 2011 the Company issued two-year options to purchase a total of 100,000 shares of its common stock under the 2010 Incentive Plan to two of its executive officers. The Company's Chief Executive Officer was granted non-qualified stock options to purchase 50,000 shares of common stock at an exercise price of $2.54 per share, the closing price of the Company's common stock on the day prior to the day of grant, expiring on May 25, 2013, of which 25,000 shares shall vest on May 25, 2012, and 25,000 shares shall vest on the three-month anniversary of the achievement of certain performance-based vesting criteria. The Company also granted its Chief Financial Officer non-qualified stock options to purchase 50,000 shares of common stock at an exercise price of $2.54 per share, the closing price of the Company's common stock on the day prior to the day of grant, expiring on May 25, 2013, of which 25,000 shares shall vest on April 28, 2012, and 25,000 shares shall vest on the three-month anniversary of the achievement of certain performance-based vesting criteria.

The grant-date fair value of the options of $0.71 per share, or $70,580 in total, was based on the grant-date closing market price of $2.54 per share and on the following weighted-average assumptions: risk free interest rate of 0.54%, expected dividend yield of 0%, expected volatility of 70.4% and an expected life of 1.0 years.

In addition, on May 25, 2011, the Company awarded 125,000 nonvested shares of common stock under the 2010 Incentive Plan to two of its executive officers valued at $317,500 based on the closing market price on the date of grant of $2.54 per share. The nonvested shares vest as follows: 25,000 shares on April 28, 2012, 50,000 shares on May 25, 2012, and 50,000 shares vest on the six-month anniversary of the closing of an offering of securities of the Company for aggregate gross proceeds of at least $20 million by April 27, 2012, provided the officer is employed on that date. The Company is holding the shares, subject to their vesting, and can cancel the shares if they do not vest. Compensation for the 75,000 shares that vest under the service condition is being recognized over the period the shares vest. A total of $127,000 of compensation will be recognized upon the achievement of the vesting criteria for the 50,000 performance-based shares. The Company recognized $119,913 of compensation during the year ended December 31, 2011 relative to the nonvested shares.

On April 28, 2010, the Company granted three-year options to purchase 200,000 shares of common stock under the 2009 Stock Option Plan to an executive officer of the Company. The exercise price is $3.47 per share based on the closing market price for the Company's common stock as of that date. The options vest one year from the date of grant; however, options to purchase 50,000 shares were forfeitable if performance milestones were not met by December 31, 2010.  As of December 31, 2010 the performance milestones were not achieved and the options to purchase 50,000 shares were forfeited.  The grant-date fair value of the options of $1.13 per share, or $226,560 in total, which includes $56,640 from the portion that was forfeited, was determined using the following weighted-average assumptions: risk free interest rate of 1.61%, expected dividend yield of 0%, expected volatility of 67.6% and an expected life of 1.5 years. The forfeited portion has not and will not be recognized as compensation.

On October 13, 2009, the Company granted options to purchase 100,000 shares of common stock at an exercise price of $2.75 per share to an officer of the Company under the 2009 Stock Option Plan. The options vest in two equal tranches on April 28, 2010 and September 30, 2010 and expire two years from the respective vesting dates. The exercise price for the options represents 85% of the market price on the date of grant. The grant-date fair value of the option of $1.35 per share, or $134,600 in total, was based on the grant-date closing market price of $3.23 per share and on the following weighted-average assumptions: risk free interest rate of 1.42%, expected dividend yield of 0%, expected volatility of 79.1% and an expected life of 1.4 years.

On November 14, 2010, the Company issued 4,052 shares of common stock to its Chief Financial Officer upon the exercise of 40,000 options to purchase common stock at an exercise price of $2.75 per share. The total intrinsic value of the options exercised was $12,400. The options were exercised on a cashless basis and the exercise price was paid by the officer giving up 35,948 shares of common stock based on the closing market price on the exercise date of $3.06.

A summary of option activity under the 2009 Stock Option Plan and 2010 Incentive Plan as of December 31, 2011 and 2010, and changes during the years then ended is presented below:
 
 
               
Weighted-
          
         
Weighted-
    
Average
          
         
Average
    
Remaining
      
Aggregate
  
         
Exercise
    
Contractual
      
Intrinsic
  
   
Shares
    
Price
    
Term (Years)
      
Value
  
Outstanding at December 31, 2009
     100,000     $ 2.75                
Granted
     200,000       3.47                
Exercised
     (40,000 )     2.75                
Forfeited
     (50,000 )     3.47                
Outstanding at December 31, 2010
     210,000       3.26                
Granted
     100,000       2.54                
Exercised
     -       -                
Forfeited
     -       -                
Outstanding at December 31, 2011
     310,000     $ 3.03    
                1.22
     $  
            -
  
Exercisable at December 31, 2011
     210,000     $ 3.26    
                1.14
     $  
            -
  
 
A summary of the status of the Company's nonvested shares at December 31, 2011, and changes during the year then ended, is presented below:
 
         
Weighted-
  
         
Average
  
         
Grant-Date
  
   
Shares
    
Fair Value
  
Awarded
     125,000     $ 2.54  
Nonvested at December 31, 2011
     125,000     $ 2.54  
 
At December 31, 2011, the total remaining unrecognized compensation expense related to stock options was $49,928, of which $14,638 will be recognized in the first half of 2012. In addition, a total of $35,290 will be recognized upon the achievement of certain performance-based vesting criteria. As of December 31, 2011, the aggregate intrinsic value of the options was $0.  At December 31, 2011, the total remaining unrecognized compensation expense related to nonvested stock awards was $198,307, of which $71,307 will be recognized in the first half of 2012 and $127,000 will be recognized only upon the achievement of the performance-based vesting criteria.  None of the performance-based criteria had been met for the non-qualified stock options and nonvested stock for the year ended December 31, 2011.