7. Stock Based Compensation

The Company has a 2000 Long-Term Incentive Plan under which 10.0 million shares of common stock were originally reserved for issuance. As of March 31, 2012, there were approximately 7.2 million shares subject to outstanding stock options. This plan expired on August 6, 2010, and thus no further shares are available for future grant under this plan.

The Company also has a 2008 Stock Incentive Plan under which 10.0 million shares of common stock were originally reserved for issuance. As of March 31, 2012, there were 6.1 million shares subject to outstanding stock options and 3.9 million shares available for future grant under this plan.

The Company has adopted the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees.

For stock options and stock warrants paid in consideration of services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of ASC 505-50.

Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period, the value of these options, as calculated using the Black-Scholes option-pricing model, is determined, and compensation expense recognized or recovered during the period is adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested.

The following table sets forth the total stock-based compensation expense resulting from stock options and warrants included in the Company's unaudited interim statements of operations:

	Three Months Ended March 31,
	2012		2011
Research and development - employee	$	95,124	$	83,431
General and administrative - employee		174,072		197,592
Total employee stock-based compensation	$	269,196	$	281,023

Research and development - non-employee	$	-	$	21,908
General and administrative - non-employee		52,418		45,397
Total non-employee stock-based compensation	$	52,418	$	67,305

During the three-month period ended March 31, 2012, the Company issued stock options to purchase 30,000 shares of its common stock. The fair value of the stock options granted in the current three-month period was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	Three Months Ended March 31, 2012
Risk-free interest rate		1.17	%
Expected volatility		90.0	%
Expected lives (years)		6
Expected dividend yield		0.00	%

The Company's computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For option grants issued during the three-month period ended March 31, 2012, the Company used a calculated volatility for each grant. The Company uses historical information to compute expected lives. In the three-month period ended March 31, 2012, the contractual term of the options granted was ten years and the Company used six years as the expected life. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on historical experience, for the three-month period ended March 31, 2012, the Company has estimated an annualized forfeiture rate of 14% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors and non-employees. Compensation costs will be adjusted for future changes in estimated forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. No amounts relating to employee stock-based compensation have been capitalized.

As of March 31, 2012, there remained approximately $1.5 million of unrecognized compensation expense related to unvested stock options granted to current and former employees, directors and consultants, to be recognized as expense over a weighted-average period of 1.18 years. Presented below is the Company's stock option activity:

	Three Months Ended March 31, 2012
	Number of Options(Employees)			Number of Options (Non-Employees)		Total Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2012		12,347,460			1,005,000		13,352,460		$	0.86
Granted		30,000			-		30,000			0.31
Exercised		-			-		-			-
Forfeited or expired		(110,833	)		-		(110,833	)	$	0.51
Outstanding at March 31, 2012		12,266,627			1,005,000		13,271,627		$	0.87
Options exercisable at March 31, 2012		8,004,601			880,000		8,884,601		$	1.03

A summary of the unvested stock options as of March 31, 2012, and changes during the three-month period then ended, is presented below:

	Number of Options (Employees)			Number of Options (Non-Employees)		Total Number of Options			Weighted-Average Grant Date Fair Value per Share
Non-vested at January 1, 2012		4,854,527			125,000		4,979,527		$	0.47
Granted		30,000			-		30,000		$	0.23
Forfeited or expired		(110,833	)		-		(110,833	)	$	0.38
Vested		(511,668	)		-		(511,668	)	$	0.71
Non-vested at March 31, 2012		4,262,026			125,000		4,387,026		$	0.46

The following table summarizes significant ranges of outstanding stock options under the Company's plans at March 31, 2012:

Range of Exercise Prices		Number of Options		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price		Number of Options Exercisable		Weighted-Average Contractual Life		Weighted-Average Exercise Price
$	0.30 - 1.00		5,656,477		8.25	$	0.44		2,616,757		8.25	$	0.57
$	1.01 -1.50		7,440,150		5.53	$	1.14		6,092,844		5.53	$	1.16
$	1.51 - 3.33		175,000		4.21	$	3.05		175,000		4.21	$	3.05
			13,271,627		6.66	$	0.87		8,884,601		6.66	$	1.03

The aggregate intrinsic value of outstanding options as of March 31, 2012 was $6.3 million, which represents the difference between the fair market value of the underlying shares based on the closing price of the Company's common stock on March 30, 2012 of $0.40 and the aggregate exercise price of the options.