CAPITAL TRANSACTIONS

6 Months Ended

Jun. 30, 2012

CAPITAL TRANSACTIONS [Abstract]

CAPITAL TRANSACTIONS

NOTE F - CAPITAL TRANSACTIONS

Common stock

On January 1, 2012, the Company issued an aggregate of 100,000 shares of common stock to a consultant in consideration of services to be provided for 18 months with a fair value of $10,000. The expense will be amortized over the life of the agreement. The securities were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act. The securities may not be transferred absent registration or applicable exemption.

On January 1, 2012, the Company issued 250,000 shares of common stock to a consultant in consideration for consulting services with a fair value of $25,000. The expense will be amortized over six month life of the agreement. The shares of common stock were issued under the exemption from registration provided by Section 4(2) of the Securities Act. The shares issued contain a legend restricting their transferability absent registration or applicable exemption.

Effective April 30, 2010, the Company issued restricted stock grants to acquire an aggregate of 1,400,000 shares of restricted common stock to John DiBella. The shares subject to the grant are subject to forfeiture as follows: 200,000 shares on April 30, 2012, 300,000 shares on April 30, 2013, 400,000 shares on April 30, 2014 and 200,000 shares on April 30, 2015, in the event John DiBella is no longer a full time employee on such dates. The remaining 300,000 stock grants are subject to forfeiture as follows: 100,000 shares on April 30, 2012, 100,000 shares on April 30, 2013, 100,000 shares on April 30, 2014. The stock grants were valued at $.38 per share and are amortized over the term of the stock grant. The securities were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act. The securities may not be transferred absent registration or applicable exemption. On January 1, 2012, the Company vested 100% of the remaining unvested shares to John DiBella.

Warrants

In September 2011 the Company issued 400,000 warrants to investors to purchase an aggregate of 400,000 shares of common stock for a period of one year. The warrants expire in September 2012. The purchase price of these warrants is $0.60 per share. The Company calculated the fair value of the extended warrants by using the Black-Scholes option-pricing model with the following weighted average assumptions: no dividend yield for all the years; expected volatility of 55%; risk-free interest rate of 5% and an expected life of one year.

Information with respect to warrants outstanding and exercisable at June 30, 2012 is as follows:

	Number Outstanding	Range of Exercise Price	Number Exercisable
Balance, December 31, 2011	400,000	$0.60	400,000
Issued	-	-	-
Expired	-	-	-
Forfeited	-	-	-
Balance, June 30, 2012	400,000	$0.60	400,000

Stock Options

The Company follows the provisions of ASC Topic 718, "Compensation - Stock Compensation." ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.

On January 10, 2012, the Company granted 950,000 stock options with a total fair value of $69,549 to an employee and a consultant. The shares vested immediately and were valued using the Black-Scholes option pricing model. We used the following assumptions for options granted during the six months ended June 30, 2012:

Expected volatility 115.31%

Expected lives 5 Years

Risk-free interest rate 0.86%

Expected dividend yield None

In January 2012, the Company modified the terms of 8,050,000 previously issued stock options to officers and employees. Per ASC Topic 718, this exchange of stock options was treated as a modification. The incremental value of $475,019, measured as the excess of the fair value of the modified award over the fair value of the original award immediately before the modification, and using the Black-Scholes option pricing model, was expensed immediately as all the options vested on the date of the exchange. We used the following assumptions for options for the six months ended June 30, 2012:

Expected volatility 115.31%

Expected lives 3.5 -5 Years

Risk-free interest rate 0.4%-0.89%

Expected dividend yield None

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company's history of having never issued a dividend and management's current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method for employees and officers.

Information with respect to options outstanding and exercisable at June 30, 2012 is as follows:

	Number Outstanding	Range of Exercise Price	Number Exercisable
Balance, December 31, 2011	12,850,000	-	12,850,000
Issued	950,000	$0.20	950,000
Expired	(1,000,000)	$(0.40)	(1,000,000)
Forfeited	-	-	-
Balance, June 30, 2012	12,800,000	$0.17	12,800,000

The following table summarizes information about the stock options outstanding at June 30, 2012:

Exercise Price	Number Outstanding at June 30, 2012	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable at June 30, 2012	Weighted Average Exercise Price
0.15	5,800,000	6.63	0.15	5,800,000	0.15
0.18	6,050,000	4.73	0.18	6,050,000	0.18
0.20	950,000	4.78	0.20	950,000	0.20
Total	12,800,000	-	-	12,800,000	-