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v2.4.0.6
Stock Options
9 Months Ended
Sep. 30, 2012
Stock Options [Abstract]  
Stock Options
Note 5: Stock Options

The Company records stock-based compensation expense related to stock options and the stock incentive plan in accordance with ASC 718, "Compensation - Stock Compensation".

On June 15, 2011, the Company granted awards in the form of incentive stock options to its key employees for up to 1,170,000 shares of common stock. In the three-month period ended September 30, 2012, three employees left the Company electing not to exercise their vested options and 60,000 incentive stock options were forfeited. Awards are generally granted with an exercise price that approximates the market price of the Company's common stock at the date of grant.

The share-based compensation expense included in general and administrative expense for the three-month periods ended September 30, 2012 and 2011 was $820,959 and $16,604 respectively. The stock-based compensation expense included in general and administrative expense for the nine-month periods ended September 30, 2012 and 2011 was $841,559 and $69,784 respectively. ASC 718. "Compensation-Stock Compensation" requires that only the compensation expense expected to vest be recognized.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option. The risk-free rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option.

The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

The following assumptions were used to determine the fair value of the options at date of issuance:
   
Nine-months
Sept 30, 2012
   
Twelve-months
Dec 31, 2011
 
Dividend yield
    -       -  
Expected volatility
    86.8%       86.8%  
Risk-free interest rate
    1.6%       1.6%  
Term in years
    6.9       6.9  
Forfeiture rate
    10.3%       6.8%  

A summary of option activity as of September 30, 2012, and changes during the period then ended is presented below:
   
Options
   
Weighted average
exercise price
   
Average Remaining
Contractual Life
(Years)
   
Aggregate Intrinsic
Value
 
                         
Option granted June 15, 2011
    1,170,000       1.02       6.92       -  
Option forfeited or expired
    (120,000 )     1.02       6.92       -  
Outstanding at Dec 31, 2011
    1,050,000     $ 1.02       6.42     $ -  
Options granted for the quarter ended Sept 30, 2012
    -       -       -       -  
Options exercised
    -       -       -       -  
Options forfeited or expired
    (250,000 )     1.02       5.67       -  
Outstanding at Sept 30, 2012
    800,000     $ 1.02       5.67     $ -  
                                 
Exercisable at Sept 30, 2012
    -     $ -       -     $ -  

There were no options exercised during the three and nine month period ended September 30, 2012.

During the quarter ended September 30, 2012, the Company modified its Series A warrants by reducing the exercise price on September 8, 2012, from $2.00 to $0.45 which was the exchange quoted stock price on the date of the modification. The Company accounted for this re-pricing modification by measuring the difference between the fair value of the modified awards and the fair value of the original awards on the modification date. The incremental compensation cost as a result of this modification was $815,709 which the Company recognized on the date of modification as these warrants were effectively already vested as the service requirement for these warrants had been previously satisfied. These warrants were initially issued in connection with a reverse merger transaction on July 8, 2008 and therefore, the service requirement for the Series A warrants were satisfied upon the consummation of the reverse merger transaction.

The fair value of these modified warrants was calculated using the Black Scholes valuation model with the following inputs:
   
Before
   
After
 
Date
 
September 5, 2012
   
September 5, 2012
 
Stock Price
  $ 0.45     $ 0.45  
Exercise Price
  $ 2.00     $ 0.45  
Expected Life (YRS)
 
6 months
   
6 months
 
Risk Free Rate
    0.14 %     0.14 %
Volatility
    203 %     203 %
Rate of Dividends:
    -       -