STOCK OPTIONS AND WARRANTS

9 Months Ended

Sep. 30, 2012

The following table summarizes all stock option and warrant activity for the nine months ended September 30, 2012:

	Shares			Weighted average exercise Price Per Share
Outstanding, December 31, 2011		19,648,462		$	0.34
Granted		15,247,333			0.33
Exercised		-			-
Forfeited		(7,053,846	)		0.33
Expired		-			-

Outstanding, September 30, 2012		27,841,949		$	0.33

Exercisable at September 30, 2012		25,111,949		$	0.34

The following table discloses information regarding outstanding and exercisable options and warrants at September 30, 2012:

	Outstanding						Exercisable
Range of Exercise Prices	Number of Option Shares		Weighted- Average Exercise Price		Remaining Weighted- Average Contractual Term (Years)		Number of Option Shares		Weighted-average Exercise Price
$0.20 – $0.25		4,730,000	$	0.23		4.3		2,000,000	$	0.20
$0.26 – $0.30		8,473,333		0.30		2.1		8,473,333		0.30
$0.31 – $0.35		2,024,616		0.33		4.2		2,024,616		0.33
$0.36 – $0.40		10,814,000		0.38		3.7		10,814,000		0.38
$0.41 – $0.50		1,800,000		0.50		0.6		1,800,000		0.50
		27,81,949	$	0.33		3.1		25,111,949	$	0.36

In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:

	September 30, 2012
Expected term of options granted		5 years
Expected volatility range		211 – 229	%
Range of risk-free interest rates		0.81 – 1.80	%
Expected dividend yield		0	%

Stock-based compensation expense associated with stock options issued during the nine months ended September 30, 2012, and 2011 was $925,685 and $5,298,046, respectively.

In accordance with ASC 855-10, the Company’s management has reviewed all material events and there are no other material subsequent events to report.