STOCK OPTION PLAN AND WARRANTS

3 Months Ended

Mar. 31, 2012

STOCK OPTION PLAN AND WARRANTS [Abstract]

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 under the Plan as of March 31, 2012 and December 31, 2011 is as follows:

	3/31/2012		12/31/2011
		Weighted		Weighted
	Number	Average	Number	Average
	of	Exercise	of	Exercise
	Shares	Price	Shares	Price
Outstanding at beginning of year	5,645,202	$          1.10	3,484,833	$          0.66
Granted	2,009,275	$          0.65	2,298,702	$          1.21
Exercised	-	$               -	-	$              -
Expired and Cancelled	-	$               -	(138,333)	$          2.18
Outstanding at end of period	7,654,477	$          0.98	5,645,202	$          1.10
Exercisable at end of period	5,485,202	$          1.09	5,317,003	$          1.13

During the three months ended March 31, 2012, the Company granted 2,009,275 options.  Stock based compensation for the three months ended March 31, 2012 was $190,112.  As of March 31, 2012, the unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan was $665,063, of which $618,630 will be recognized in each of the remaining FY 2012 quarters.

During the three months ended March 31, 2011, the Company granted 1,918,702 options.  The total fair value of options vested during the first quarter of 2011 was $715,410.

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.

		Three months ended March 31, 2012
Weighted average fair value per option granted	$                       0.37
Risk-free interest rate0		0.34- 1.04%
Expected dividend yield		0.00%
Expected lives		2.59 – 4.96
Expected volatility		98-103%

As of March 31, 2012, the Company had reserved 20.0 million shares for issuance under the Plan.  As of March 31, 2012, the Company had 12,202,190 million options available for grant under the Plan. (20,000,000 less 7,414,477 options less 383,333 director shares =12,202,190).

Stock options outstanding at March 31, 2012 are as follows:

			Weighted
			Average			Weighted
Range of			Remaining			Average
Exercise	Options		Contractual			Exercise	Options
Prices	Outstanding		Life			Price	Exercisable
$0.01-$1.50		7,444,477		3.6	$       1.18			5,275,202
$1.51-$3.00		210,000		2.6	$       1.49			210,000
		7,654,477		3.7	0.98			5,485,202

Warrants

As of March 31, 2012, the Company has warrants outstanding to purchase 23,836,108, 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 February 2017.   There were 100,000 warrants issued in the three month period ended March 31, 2012.  The summary of the status of the warrants issued by the Company as of March 31, 2012 and December 31, 2011 are as follows:

	Year  Ended		Year  Ended
	3/31/2012		12/31/2011
	Number of Shares	Weighted Average Exercise Price	Number of Shares	Weighted Average Exercise Price
Outstanding at beginning of year	23,736,108	$        1.55	18,779,753	$1.59
Granted	100,000	$        0.71	5,130,046	$1.66
Exercised	-		(56,489)	$0.06
Cashless	-		-
Expired and Cancelled	-		(117,202)	$13.72
	23,836,108		23,736,108
Outstanding, end of period	23,836,108	$        1.55	23,736,108	$1.55
Unexercisable at end of period
Exercisable at end of period	23,836,108	$        1.55	23,736,108	$1.55

During the first quarter of fiscal 2012, investors did not exercise any warrants.  During the first quarter of fiscal 2011, investors exercised 49,358 warrants.