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STOCK OPTION PLAN

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements

STOCK OPTION PLAN

NOTE 6. STOCK OPTION PLAN

On September 17, 2007, the Company’s Board of Directors and stockholders adopted the 2007 Incentive Stock and Awards Plan (the “Plan”), which provides for the issuance of a maximum of an aggregate of 3,000,000 (as amended on November 5, 2008) shares of Common Stock. The purpose of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into the Company’s development and financial success. Under the Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options and restricted stock. The Plan will be administered by the Company’s Board of Directors until such time as such authority has been delegated to a committee of the board of directors.

A summary of the Plan for the six months ended June 30, 2011 is as follows:

		Number of shares				Weighted Avg. Exercise Price				Weighted Avg. Remaining Contractual Life				Aggregate Intrinsic Value
Outstanding - January 1, 2011			2,506,217			$	1.37
Granted			—				—				—
Exercised			—
Cancelled/Forfeited			(865,000	)			1.16
Outstanding - June 30, 2011			1,641,217			$	1.48				5.63			$	—
Exercisable - June 30, 2011			1,491,217			$	1.54				5.44			$	—
Vested and expected to vest - June 30, 2011			1,626,217			$	1.49				5.61			$	—

The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on June 30, 2011, based on the closing price of the Company’s common stock of $0.03 on that date.

The options were granted to the employees, directors and consultants at exercise prices that ranged from $0.70 to $2.62, the estimated fair market value of the common stock on the dates of issuance. All options granted to date expire on the ten year anniversary of the issuance date and were vested immediately or on a quarterly basis up to five years. The Company uses the Black-Scholes option pricing model to estimate the grant-date fair value of share-based awards. The Black-Scholes model requires subjective assumptions regarding future stock price volatility and expected time to exercise, along with assumptions about the risk-free interest rate and expected dividends, which affect the estimated fair values of the Company’s stock-based awards. The expected term of options granted was determined in accordance with the “simplified approach” as the Company has very limited historical data on employee exercises and post-vesting employment termination behavior. The expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies based on the Company’s belief that it currently has limited historical data regarding the volatility of its stock price on which to base a meaningful estimate of expected volatility. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected term of the grant effective as of the date of the grant. The Company used 0% as an expected dividend yield assumption. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant. The Company did not issue any options during the six months ended June 30, 2011, but cancelled 865,000 stock options during the six months ended June 30, 2011. These options were cancelled due to the resignation of the optionees during the six months ended June 30, 2011, the Company recorded stock-based compensation related to stock options for employees and directors of $109,032, which is included in selling, general and administrative expenses and research and development expenses in the amount of $71,238 and $37,794, respectively.

As of June 30, 2011, there was approximately $180,727 of total unrecognized compensation expense related to unvested stock options under the Plan. That expense is expected to be recognized over the weighted-average period of 1.47 years.