STOCK OPTION PLAN AND WARRANTS

6 Months Ended

Jun. 30, 2011

STOCK OPTION PLAN AND WARRANTS [Abstract]

STOCK OPTION PLAN AND WARRANTS

NOTE 11 – STOCK OPTION PLAN AND WARRANTS

The Company has a Stock Option Plan (the Plan) effective January 2, 1999 and amended in 2002 and 2004, which provides for the issuance of qualified options to all employees and non-qualified options to directors, consultants and other service providers.

A summary of the status of stock options as of June 30, 2011 and December 31, 2010 is as follows:

	6/30/2011		12/31/2010
		Weighted		Weighted
	Number	Average	Number	Average
	of	Exercise	of	Exercise
	Shares	Price	Shares	Price
Outstanding at beginning of year	3,484,833	$              1.26	1,405,062	$              0.66
Granted	2,058,702	$              1.05	3,767,500	$              1.21
Exercised	-	$                  -	-	$                  -
Expired and Cancelled	(138,333)	$              3.69	(1,687,729)	$              2.18
Outstanding at end of period	5,405,202	$              1.12	3,484,833	$              0.52
Exercisable at end of period	4,525,208	$              1.16	3,401,333	$              1.29

During the six months ended June 30, 2011, the company granted 2,058,702 options.  Stock based compensation for the three and six months ended June 30, 2011 was $651,754 and $1,367,164, respectively.

During the six months ended June 30, 2010, the company granted 3,504,500 options which included 1,882,500 options that were re-issued from 2009 after 1,255,000 options were cancelled.  The total fair value of options vested during the second quarter of 2010 was $1,807,631 less the fair value of the cancelled options of $1,163,698 which was included in stock based compensation of $1,796,633. Of the 1,622,000 options granted during the six months ended June 30, 2010, the total fair value of options vested during the period was $1,152,700.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model.  This model uses the assumptions listed in the table below.  Expected volatilities are based on the historical volatility of the Company’s stock.  The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	6/30/2011
Weighted average fair value per option granted	$                       0.95
Risk-free interest rate	0.57%
Expected dividend yield	0.00%
Expected lives	1 - 2.5
Expected volatility	230.81%

As of June 30, 2011, the unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan was $679,722 which had an average expense recognition period of 211 days.

As of June 30, 2011, the Company had reserved 20.0 million shares for issuance under the Plan.  As of June 30, 2011, the Company had 14,211,465 million options available for grant under the Plan. (20,000,000 less 5,405,202 options less 383,333 director shares =14,211,465).

Stock options outstanding at June 30, 2011 are as follows:

		Weighted
		Average	Weighted
Range of		Remaining	Average
Exercise	Options	Contractual	Exercise	Options
Prices	Outstanding	Life	Price	Exercisable
$0.01-$1.50	5,195,202	4.1	$       1.13	4,175,208
$1.51-$3.00	210,000	3.3	$       1.49	210,000
	5,405,202	4.0	1.13	4,385,208

Warrants

As of June 30, 2011, the Company has warrants outstanding to purchase 23,693,239, shares of the Company’s common stock, at prices ranging from $0.01 to $36.00 per share.  These warrants expire at various dates through June 2015.   There were 5,080,046 warrants issued in the six month period ending June 30, 2011.  The fair value of the warrants granted during the three and six months ended June 30, 2011 is included in the calculation of the derivative liability as the warrants associated with the convertible note payable also contain certain ratchet provisions.  The summary of the status of the warrants issued by the Company as of June 30, 2011 and December 31, 2010 are as follows:

	Year  Ended		Year  Ended
	6/30/2011		12/31/2010
	Number of Shares	Weighted Average Exercise Price	Number of Shares	Weighted Average Exercise Price
Outstanding at beginning of year	18,779,753	$1.59	9,682,380	$1.61
Granted	5,080,046	$1.66	9,900,437	$1.50
Exercised	(49,358)	$0.06	(108,172)	$0.16
Cashless	-		(344,892)	$0.19
Expired and Cancelled	(117,202)	$13.72	(350,000)	$1.10
	23,693,239		18,779,753
Outstanding, end of period	23,693,239	$1.55	18,779,753	$1.59
Unexercisable at end of period
Exercisable at end of period	23,693,239	$1.55	18,779,753	$1.59

During the first six months of 2011, investors exercised 49,358 warrants and none on a cashless basis.  During the first six months of 2010, investors exercised 280,663 warrants, of these 207,586 warrants were on a cashless basis.