NOTE 8 – OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK

Outstanding Stock Warrants

The fair value of each of the Company's stock warrant awards is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatility is based on an average of historical volatility of the Company's common stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. The Company uses historical data to estimate forfeitures within its valuation model. The significant assumptions relating to the valuation of the Company's warrants for the six months ended June 30, 2011 were as follows:

	2011

Dividend Yield	0%
Expected Life	5 – 10 years
Expected Volatility	100%
Risk Free Interest Rate	2.96%

A summary of the status and changes of the warrants are as follows:

	June 30, 2011
	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2010		580,187		$	0.84
Issued		727,379		$	1.02
Exercised		(10,000	)	$	( 0.35	)
Forfeited		- 0 -			- 0 -
Expired		- 0 -			- 0 -
Outstanding at June 30, 2011		1,297,566		$	0.93
Exercisable at June 30, 2011		898,921

During the six months ended June 30, 2011, the Company granted 727,379 warrants to purchase the Company's common stock with an average exercise price of $1.02. Of the 727,379 warrants granted, 204,253 vested during the six months ended June 30, 2011, and the remaining 523,126 warrants will vest over nine months, or through March 31, 2012. The intrinsic value of the outstanding warrants at June 30, 2011 was $1,085,975.

Outstanding Stock Warrants (continued)

A summary of the status of the warrants outstanding at June 30, 2011 is presented below:

		Warrants Outstanding					Warrants Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.35		90,000	3.75 years	$	0.35		90,000	$	0.35
$	0.78		213,402	4.58 years	$	0.78		88,918	$	0.78
$	0.80		264,668	4.50 years	$	0.80		264,668	$	0.80
$	1.00		340,000	4.25 years	$	1.00		340,000	$	1.00
$	1.15		461,340	9.75 years	$	1.15		115,335	$	1.15
			1,369,410					898,921

At June 30, 2011, the total compensation of $500,864 for unvested shares is to be recognized over the next 9 months on a weighted average basis. Compensation expense of $364,381 has been recognized for the vesting of warrants to non-related parties in the accompanying statements of operations for the six months ended June 30, 2011.

Outstanding Stock Options

The Company is authorized to issue stock options under the existing stock option plan approved by stockholders.

The fair value of each of the Company's stock option awards is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatility is based on an average of historical volatility of the Company's common stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. The Company uses historical data to estimate forfeitures within its valuation model.

The expected term of awards granted is derived from historical experience under the Company's stock-based compensation plans and represents the period of time that awards granted are expected to be outstanding.

The significant assumptions relating to the valuation of the Company's options for the six months ended June 30, 2011 and 2010 were as follows:

	2011	2010

Dividend Yield	0%	0%
Expected Life	5 – 10 years	1.5 years
Expected Volatility	101 – 105%	120%
Risk Free Interest Rate	2.02 – 3.75%	0.4%

A summary of the status and changes of the options granted under stock option plans and other agreements for the period ended June 30, 2011 is as follows:

	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2010		7,593,277	$	0.70
Granted		3,205,134	$	0.83
Exercised		- 0 -		- 0 -
Forfeited		- 0 -		- 0 -
Expired		- 0 -		- 0 -
Outstanding at June 30, 2011		10,798,411	$	0.74
Exercisable at June 30, 2011		6,631,303

During the six months ended June 30, 2011, the Company issued 3,205,134 options to purchase the Company's common stock with an average exercise price of $0.83. Of the 3,205,134 options granted, 300,481 options will vest in four equal tranches, quarterly, and vesting began March 1, 2011. The remaining 2,904,653 options granted will begin vesting January 1, 2012, and shall vest equally over twelve months.

Outstanding Stock Options (continued)

A summary of the status of the options outstanding at June 30, 2011 is presented below:

		Options Outstanding					Options Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.65-$0.71		75,000	3.00 years	$	0.69		75,000	$	0.69
$	0.70		7,358,277	8.25 years	$	0.70		6,261,063	$	0.70
$	0.83		3,205,134	4.75 years	$	0.83		150,240	$	0.83
$	0.90		100,000	4.25 years	$	0.90		100,000	$	0.90
$	1.00		60,000	5.00 years	$	1.00		45,000	$	1.00
			10,798,411					6,631,303

At June 30, 2011, the total compensation of $1,776,711 for unvested shares is to be recognized over the next 1.50 years on a weighted average basis.

Compensation expense of $508,446 and $39,343 has been recognized for vesting of options for the three months ended June 30, 2011 and 2010, respectively. Compensation expense of $937,474 and $96,893 has been recognized for vesting of options for the six months ended June 30, 2011 and 2010, respectively. The intrinsic value of the outstanding warrants at June 30, 2011 was $11,209,866.