(4) Options

The Equity Plan effective May 1, 2004, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of 8,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the Equity Plan of 2004. Unless sooner terminated, the Equity Plan of 2004 will continue in effect for a period of 10 years from its effective date.

The Equity Incentive Plan of 2007, effective June 20, 2007, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of 9,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2007. Unless sooner terminated, the Equity Incentive Plan of 2007 will continue in effect for a period of 10 years from its effective date.

The Equity Incentive Plan of 2009, effective June 24, 2009, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of 15,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2009. Unless sooner terminated, the Equity Incentive Plan of 2009 will continue in effect for a period of 10 years from its effective date.

The Equity Plan of 2004 and the Equity Incentive Plans of 2007 and 2009 are administered by the Board of Directors. The Plans provide for awards to be made to such Officers, other key employees, non-employee Directors, consultants and advisors of the Company and its subsidiaries as the Board may select.

Stock options awarded under the Plans may be exercisable at such times (not later than 10 years after the date of grant) and at such exercise prices (not less than fair market value at the date of grant) as the Board may determine. The Board may provide for options to become immediately exercisable upon a "change in control", which is defined in the Plans to occur upon any of the following events: (a) the acquisition by any person or group, as beneficial owner, of 20% or more of the outstanding shares or the voting power of the outstanding securities of the Company; (b) either a majority of the Directors of the Company at the annual stockholders meeting has been nominated other than by or at the direction of the incumbent Directors of the Board, or the incumbent Directors cease to constitute a majority of the Company's Board; (c) the Company's stockholders approve a merger or other business combination pursuant to which the outstanding common stock of the Company no longer represents more than 50% of the combined entity after the transaction; (d) the Company's stockholders approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of the Company's assets; or (e) any other event or circumstance determined by the Company's Board to affect control of the Company and designated by resolution of the Board as a change in control.

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option valuation model. Expected volatility is based on the historical volatility of the price of the Company's stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, life and forfeiture rates. The expected life of the options was estimated based on historical option holder's behavior and represents the period of time that options are expected to be outstanding. The fair values of the options granted, were estimated based on the following weighted average assumptions:

	December 31,
	2011		2010		2009
Risk-free interest rate		0.83 - 2.24%		1.02 - 2.06%		1.76 - 2.69%
Expected dividend yield		0		0		0
Expected life		5 yrs.		5 yrs.		2 - 5 yrs.
Expected volatility		104.29%-105.91%		106.28%-110.01%		86.78-137.47%

Weighted average grant date fair value of options and warrants issued		$0.26 per option for 1,310,000 options		$0.42 per option for 1,618,428 options		$1.09 per option for 491,250 options

For stock options or warrants granted to employees and non-employees, the Company measures fair value of the equity instruments utilizing the Black-Scholes-Merton method if that value is more reliably measurable than the fair value of the consideration or service received. The Company amortizes such cost over the related period of service.

The exercise price of all stock options and warrants granted was equal to or greater than the fair market value of the underlying common stock on the date of the grant.

Stock option activity during the years ended December 31, 2009, 2010 and 2011 is as follows:

Stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2009		6,258,608		$	2.60		7.92		0
Granted		0			0		0		0
Forfeited		(29,856	)		2.24		5.75		0
Outstanding December 31, 2009		6,228,752		$	2.60		6.95		0
Granted		993,728			.80		9.42		0
Forfeited		0			0		0		0
Outstanding December 31, 2010		7,222,480		$	2.35		6.21		0
Granted		1,030,000			.41		9.51		0
Forfeited		0			0		0		0
Outstanding December 31, 2011		8,252,480		$	2.11		5.75		0
Vested and expected to vest at December 31, 2011		8,252,480		$	2.11		5.75		0
Exercisable at December 31, 2011		8,104,147		$	2.13		5.70		0

The weighted-average grant-date fair value of employee options granted during the year 2011 was $293,000 for 1,030,000 options at $0.28 per option, during the year 2010 was $441,000 for 993,728 options at $.44 per options and during 2009 no options were granted.

Unvested stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2009		76,944		$	1.41		3.89		0
Granted		0			0		0		0
Vested		(38,611	)		1.28		7.92		0
Forfeited		0			0		0		0
Outstanding December 31, 2009		38,333		$	1.54		8.00		0
Granted		20,000			0.66		9.50		0
Vested		(7,778	)		0.66		9.50		0
Forfeited		0			0		0		0
Outstanding December 31, 2010		50,555		$	1.33		7.60		0
Granted		140,000			0.33		9,93		0
Vested		(42,222	)		0.95		7.38		0
Forfeited		0			0		0		0
Outstanding December 31, 2011		148,333		$	0.49		9.52		0

The weighted-average grant-date fair value of employee unvested stock options granted during the year 2011 was $24,000 for 140,000 options at $0.17 per option, during the year 2010 was $9,000 for 20,000 options at $.45 per option and during 2009 no options were granted.

Stock option activity for non-employees during the year:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2009		2,417,482		$	2.35		6.98		0
Granted		361,250			2.12		7.00		0
Exercised		(293,831	)		1.56		7.93		0
Forfeited		(251,469	)		2.14		7.43		0

Outstanding December 31, 2009		2,233,432		$	2.44		5.73		0

Granted		625,000			0.55		9.52		0
Exercised		0			0				0
Forfeited		(10,000	)		2.46		0		0

Outstanding December 31, 2010		2,848,432		$	2.03		5.80		0
Granted		280,000			0.27		9.88		0
Exercised		0			0		0		0
Forfeited		0			0		0		0
Outstanding December 31, 2011		3,128,432		$	1.87		5.25		0
Vested and expected to vest at December 31, 2011		3,128,432		$	1.87		5.25		0
Exercisable at December 31, 2011		2,872,182		$	1.97		5.12		0

The weighted-average grant-date fair value of non-employee options granted during the year 2011 was $51,000 for 280,000 options at $0.18 per option, during the year 2010 was $233,000 for 625,000 options at $.37 per options and during the year 2009 was $458,788 for 361,250 options at $1.27 per option.

Unvested stock option activity for non-employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value

Outstanding January 1, 2009		26,667		$	1.43		9.00		0
Granted		131,250			2.81		3.42		0
Vested		(18,333	)		1.79		7.45		0
Forfeited		0			0		0		0

Outstanding December 31, 2009		139,584		$	2.68		3.76		0
Granted		0			0		0		0
Vested		(37,500	)		2.81		2.50		0
Forfeited		0			0		0		0
Outstanding December 31, 2010		102,084		$	2.63		3.54		0
Granted		200,000			0.21		10.00		0
Vested		(45,834	)		2.81		1.50		0
Forfeited		0			0		0		0
Outstanding December 31, 2011		256,250		$	0.71		8.55		0

The impact on the Company's results of operations of recording stock-based compensation for the year ended December 31, 2011 was to increase general and administrative expenses by approximately $377,000 and reduce earnings per share by $0.00 per basic and fully diluted share, for year ended December 31, 2010 was to increase general and administrative expenses by approximately $741,000 and reduce earnings per share by $.01 per basic and fully diluted share and for year ended December 31, 2009 was to increase general and administrative expenses by $353,000 and reduce earnings per share by $.01 per basic and fully diluted share.

As of December 31, 2011, there was $147,000 of unrecognized stock-based compensation cost related to options granted under the Equity Incentive Plans.