11. Stock Options

The Company has three stock option plans, one adopted in September 1999 and amended in June 2000 (the "1999 Option Plan"), one adopted on November 8, 2000 (the "Directors' Plan"), and one adopted in July 2010 (the "2010 Option Plan"). The 1999 Option Plan provides for the granting of up to 3,000,000 options, the Directors' Plan provides for the granting of up to 400,000 options, and the 2010 Option Plan provides for the granting of 2,000,000 options.

The 1999 and 2010 Plans provide for the granting of both incentive and non-qualified stock options to key personnel, including officers, directors, consultants and advisors to the Company, at the discretion of the Board of Directors. Each plan limits the exercise price of the options at no less than the quoted market price of the common stock on the date of grant. The option term is determined by the Board of the Directors or the Compensation Committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an Incentive Option granted to an eligible employee owning more than 10% of the Company's common stock, no more than five years after the date of the grant. Generally, under both plans, options to employees vest over four years at 25% per annum, except for certain grants to employees that vest 25% upon grant with remaining amounts over two years at 50% and 25% per annum, respectively.

The Directors' Plan provides for the granting of non-qualified options to members of the Board of Directors at exercise prices not less than the quoted market price of the common stock on the date of grant and options expire five years from the date of grant. In the event a person ceases to serve on the Board of Directors, the outstanding options expire one year from the date of cessation of service. Such options may be exercised commencing two years from the date of grant.

On February 4, 2011, the Company granted employees options to purchase 800,000 shares of the Company's common stock, at an exercise price of $0.28 per share. The options vest over a three year period and expire February 4, 2021. The quoted market price of the common stock at the time of issuance of the options was $0.28 per share. The fair value of the options totaled $224,024 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 3.68%, ii) expected life of 10 years, iii) dividend yield of 0%, iv) expected volatility of 138.0%.

On August 26, 2011, the Company granted two directors options to purchase 15,000 shares of the Company's common stock, at an exercise price of $0.18 per share. The options vest over a three year period and expire August 26, 2016. The quoted market price of the common stock at the time of issuance of the options was $0.18 per share. The fair value of the options totaled $2,602 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.94%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 139.8%.

On November 10, 2011, the Company granted one director options to purchase 10,000 shares of the Company's common stock, at an exercise price of $0.18 per share. The options vest over a three year period and expire November 10, 2016. The quoted market price of the common stock at the time of issuance of the options was $0.18 per share. The fair value of the options totaled $1,621 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.9%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 146.3%.

On December 19, 2011, the Company granted one director options to purchase 5,000 shares of the Company's common stock, at an exercise price of $0.11 per share. The options vest over a three year period and expire December 19, 2016. The quoted market price of the common stock at the time of issuance of the options was $0.11 per share. The fair value of the options totaled $514 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.82%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 163.4%.

On March 30, 2012, the Company granted employees options to purchase 905,000 shares of the Company's common stock, at an exercise price of $0.14 per share. The options vest over a three year period and expire March 30, 2022. The quoted market price of the common stock at the time of issuance of the options was $0.14 per share. The fair value of the options totaled $126,700 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.23%, ii) expected life of 10 years, iii) dividend yield of 0%, iv) expected volatility of 243.1%.

On August 27, 2012, the Company granted two directors options to purchase 15,000 shares of the Company's common stock, at an exercise price of $0.145 per share. The options vest over a three year period and expire August 27, 2017. The quoted market price of the common stock at the time of issuance of the options was $0.145 per share. The fair value of the options totaled $2,175 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.07%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 259.16%.

On November 9, 2012, the Company granted one director options to purchase 10,000 shares of the Company's common stock, at an exercise price of $0.145 per share. The options vest over a three year period and expire November 9, 2017. The quoted market price of the common stock at the time of issuance of the options was $0.12 per share. The fair value of the options totaled $1,200 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.65%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 244.97%.

On December 19, 2012, the Company granted one director options to purchase 5,000 shares of the Company's common stock, at an exercise price of $0.13 per share. The options vest over a three year period and expire December 19, 2017. The quoted market price of the common stock at the time of issuance of the options was $0.13 per share. The fair value of the options totaled $647 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.77%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 255.0%.

At December 31, 2012 there was $193,806 of unrecognized compensation cost related to nonvested share-based payments which is expected to be recognized over a weighted-average period of .93 years.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock for those awards that have an exercise price currently below the closing price. As of December 31, 2012 and 2011, the Company had options outstanding to purchase an aggregate of 3,863,972 and 2,993,972 shares respectively, with an exercise price above the quoted price of the Company's stock, resulting in no intrinsic value.

Additional information concerning the activity in the three option plans is as follows:


	2012					2011
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding, beginning of year		2,993,972		$	.37		2,161,583		$	.66
Granted		935,000			.14		896,389			.27
Exercised		-			-		-			-
Cancelled		(25,000	)		.14		(40,000	)		.25
Expired		(40,000	)		.39		(24,000	)		.78
Outstanding, end of year		3,863,972			.32		2,993,972			.37
Exercisable, end of year		2,176,972			.41		1,432,273			.51
Options available for future grant, end of year		1,703,611					2,647,103

Additional information concerning the unvested options is as follows:


	2012					2011
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Non-Vested options at beginning of year		1,561,699		$	.25		1,240,795		$	.23
Granted		935,000			.14		850,000			.27
Vested		(784,699	)		.24		(403,309	)		.27
Cancelled		(25,000	)		.14		(125,787	)		.25
Non- Vested options end of year		1,687,000			.13		1,561,699			.25

Summarized information with respect to options outstanding under the three option plans at December 31, 2012 is as follows:


	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
0 - 1.70		3,819,972		6.49	$	.30		2,132,972	$	.37
1.71 - 2.60		44,000		.32		2.31		44,000		2.31
		3,863,972		6.42		.32		2,176,972		.41

The estimated fair value of each stock option grant on the date of grant was computed using the following weighted-average assumptions:


	December 31,
	2012		2011
Risk-free interest rate	2.18	%	3.68	%
Expected term (life) of options (in years)	9.84		10.0
Expected dividends	-		-
Expected volatility	243.44	%	138.0	%