Stock Options and Grants

3 Months Ended

Mar. 31, 2012

10. Stock Options and Grants

2011 Plan – On July 27, 2011, in connection with the Merger, the Company obtained the written consent of holders of a majority of its outstanding common stock approving the 2011 Incentive Stock Plan (the “2011 Plan”). The 2011 Plan covers up to 8,000,000 shares of common stock, and all officers, directors, employees, consultants and advisors are eligible to be granted awards under the 2011 Plan. An incentive stock option may be granted under the 2011 Plan only to a person who, at the time of the grant, is an employee of the Company or its subsidiaries. The 2011 Plan expires on July 26, 2021, and is administered by the Company’s Board. As of March 31, 2012, there were 192,500 shares of common stock available for issuance under the 2011 Plan.

A summary of stock option activity under the 2011 Plan as of March 31, 2012 and changes during the three months then ended are presented below:

	Shares		Weighted Average Fair Value Per Share		Weighted Average Exercise Price Per Share		Weighted Average Remaining Terms (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2011		5,407,500	$	0.09	$	0.20
Granted		2,400,000		0.11		0.71
Exercised		-		-		-
Cancelled		-		-		-
Outstanding – March 31, 2012		7,807,500	$	0.36	$	0.36		9.67	$	912,375
Exercisable – December 31, 2011		1,719,167	$	0.09	$	0.20		9.86	$	307,083
Exercisable – March 31, 2012		2,519,167	$	0.36	$	0.36		9.67	$	289,958

For the three months ended March 31, 2012, the Company recognized stock-based compensation expense of $87,263, which is included in payroll and related expenses in the accompanying statement of operations.

As of March 31, 2012, there was $512,354 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of 1.67 years. The intrinsic value is calculated as the difference between the fair value as of December 31, 2011 and the exercise price of each of the outstanding stock options. The fair value at March 31, 2012 and December 31, 2011 was $0.37 and $0.38, respectively as determined by using a weighted value between the income approach method, the public company market multiple method and a fair value method developed by the Company.

On January 2, 2012, the Chief Executive Officer of the Company was granted an option to purchase 2,000,000 shares of the Company’s Common Stock with an exercise price of $0.75 (“CEO Options”). One third of the options vest upon the grant date, the second third vests on the first anniversary date of the grant date, and the remaining third vests on the second anniversary of the grant date.

On March 20, 2012, three employees of the Company were granted options to purchase a total of 215,000 shares of the Company’s Common Stock with an exercise price of $0.50. These options were granted under the same terms of the CEO Options.

On March 21, 2012, seven employees and directors of the Company were granted options to purchase 155,000 shares of the Company’s Common Stock with an exercise price of $0.50. These options were granted under the same terms of the CEO Options.

During 2011, the Company executed a two year consulting agreement with a consultant, to act as a Senior Advisor of the Company. In consideration for the services to be performed under the agreement, the Company shall on the last business day of each month during the term, grant the consultant an option to purchase 10,000 shares of the Company’s Common Stock with an exercise price ranging from $0.45 to $0.60. The terms of these options are the same as the CEO Options. During the three months ending March 31, 2012, the consultant was granted options to purchase 30,000 shares of the Company’s Common Stock.

The fair value of the stock-based option awards granted during the three months ended March 31, 2012 was estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

Expected dividend yield		0.00	%
Expected stock volatility		50	%
Risk-free interest rate		0.71 – 1.22	%
Expected life	5.5 years

Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards. The simplified method is calculated by averaging the vesting period and contractual term of the options.