STOCK OPTION PLAN AND WARRANTS

12 Months Ended

Dec. 31, 2011

STOCK OPTION PLAN AND WARRANTS [Abstract]

STOCK OPTION PLAN AND WARRANTS

EXERCISING OPTIONS AND WARRANTS

During 2011, 56,489 stock warrants were exercised, and no options were exercised.  In 2010, 108,172 stock warrants were exercised and no options were exercised.  During 2011, the company did not issue shares of common stock on the cashless exercise of warrants. During 2010, the company issued 293,742 shares of common stock on the cashless exercise of warrants.

A summary of the status of the warrants issued by the Company as of December 31, 2011 and 2010 are as follows:

	Year  Ended		Year  Ended
	12/31/2011		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	5,130,046	$1.66	9,900,437	$1.50
Exercised	(56,489)	$0.06	(108,172)	$0.16
Cashless	-		(344,892)	$0.19
Expired and Cancelled	(117,202)	$13.72	(350,000)	$1.10
	23,736,108		18,779,753
Outstanding, end of period	23,736,108	$1.55	18,779,753	$1.59
Unexercisable at end of period
Exercisable at end of period	23,736,108	$1.55	18,779,753	$1.59

As of December 31, 2011 and 2010, the Company has warrants outstanding to purchase 23,736,108 and 18,779,754 shares of the Company’s common stock, respectively, at prices ranging from $0.01 to $36.00 per share.  These warrants expire at various dates through September of 2016.   There were 5,130,046 and 9,900,437 warrants issued in 2011 and 2010 respectively.  The fair value of the option granted are included in the derivative liability calculation as the warrant agreements contain reset provisions to the exercise price.

STOCK OPTION PLAN

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 issued by the Company as of December 31, 2011 and 2010 are as follows:

	12/31/2011		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	2,298,702	$1.02	3,767,500	$1.21
Exercised	-	$     -	-	$      -
Expired and Cancelled	(138,333)	$3.69	(1,687,729)	$2.18
Outstanding at end of period	5,645,202	$1.10	3,484,833	$0.52
Exercisable at end of period	5,317,003	$1.13	3,401,333	$1.29

At December 31, 2011, the aggregate intrinsic value of all outstanding options was $0 of which 5,317,003 outstanding options are currently exercisable at a weighted average exercise price of $1.13 and a weighted average remaining contractual term of 1.2 years.

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.

	2011	2010
Weighted average fair value per option granted	$                   0.97	$                   0.93
Risk-free interest rate	0.6 - 0.9%	0.87%
Expected dividend yield	0.00%	0.00%
Expected lives	2.875 - 5	1 - 2.5
Expected volatility	101 - 245%	185.39 - 191.63%

During 2011, the Company granted 2,058,702 options to employees.  39% of the options were fully vested at the grant date.  The remaining 61% vested every three months with the options becoming fully vested October 7, 2011.  At December 31, 2011, the Company recognized a total of $2,032,800 in stock based compensation related to the options granted above.

Also during 2011, the board of directors initiated an Advisory Committee to consult and advise the Company on matters relating to the marketing and development of the Company’s products.  The Company granted 30,000 options to each of the eight Advisory Committee members.  Total options granted were 240,000 and vest one third at the grant date, one third on the first anniversary of the grant date and one third on the second anniversary of the grant date.  The Company recognized an expense relating to these options of $44,318 during 2011.

As of December 31, 2011, the Company had reserved 14,073,132 shares of Common Stock to be issued upon the exercise of qualified options issued under the Plan.  As of December 31, 2010 the Company had 16,271,834 shares available for grant under the Plan.

Stock options outstanding at December 31, 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	5,435,202	3.9	$     1.18	5,107,003
$1.51-$3.00	210,000	2.9	$     1.49	210,000
	5,645,202	4.0	$     1.13	5,317,003