NOTE F - STOCK OPTIONS AND WARRANTS

6 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE F - STOCK OPTIONS AND WARRANTS

On March 1, 2007, our stockholders approved the 2007 Omnibus Equity Compensation Plan (the “2007 Plan”) which combined shares that were issued and outstanding under the Company’s 2004 Stock Option Plan with shares to be made available for issuance under the 2007 Plan. At each of the Company’s Annual Meetings held on May 8, 2008, June 17, 2010, and May 25, 2011, the Company’s stockholders voted to amend the 2007 Plan by increasing the number of authorized shares available for issuance by 1,000,000 shares, 9,790,150 shares and 7,000,000 shares, respectively, thus providing a total of 20,800,000 shares for issuance under the 2007 Plan.  As of June 30, 2011, we had approximately 19,331,408 total options outstanding under the 2007 Plan, consisting of 19,231,408 options issued to employees and non-employee directors and 100,000 options issued to a consultant and 1,468,592 shares available for future option grants. Such outstanding options vest over various periods up to three years and expire on various dates through 2021.

The fair value of each option grant is estimated at the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for the 1st Half 2011 and 1st Half 2010:

	1st Half 2011			1st Half 2010
Expected term in years		5			5
Expected stock price volatility		295	%		168	%
Risk free interest rate		2.24	%		2.70	%
Dividend yield		0	%		0	%

Stock options totaling 6,850,000 were granted by the Board in January 2011 which was approved by the stockholders at the Annual Meeting held on May 25, 2011. Expected stock price volatility is determined using historical volatility of the Company's stock.  The average expected life was estimated based on historical employee exercise behavior.

The following table summarizes our stock option activity during the 1st Half 2011:

	Number of Options			Weighted average exercise price per share (price at date of grant)
Outstanding at January 1, 2011		12,474,605		$	0.77
Granted		7,934,000		$	0.50
Cancelled		(1,077,197	)	$	3.04
Outstanding at June 30, 2011		19,331,408		$	0.52
Options granted at or above market value 1st Half 2011		7,934,000

The following table summarizes information regarding options that are outstanding at June 30, 2011:

	Options outstanding				Options exercisable
Range of exercise prices	Number Outstanding	Weighted average remaining contractual life in years		Weighted average exercise price	Number Exercisable		Weighted average exercise price per share
$0.25-$0.50	19,120,678	8.6	$	0.50	7,647,362	$	0.50
$0.75-$2.20	145,230	4.5	$	1.36	141,230	$	1.37
$3.20-$9.40	65,500	5.9	$	4.63	65,500	$	4.63
	19,331,408	8.6	$	0.52	7,854,092	$	0.55

The grant-date fair value of options granted during 1st Half 2011 and 1st Half 2010 was approximately $710,000 and $857,000, respectively.  The total fair value of shares vested during the 1st Half 2011 was approximately $440,000.  At June 30, 2011, we estimate the aggregate stock-based compensation attributable to unvested options was approximately $900,000, which amount is expected to be recognized over a period of approximately three years.

Officer Stock Options

On January 27, 2011, the Board awarded a total of 6,850,000 stock options to six officers at an exercise price of $0.50 per share, which were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $614,000.  These grants were approved by stockholders at the Company’s Annual Meeting held on May 25, 2011.The options vest ratably over ten calendar quarters beginning April 27, 2011. The fair value of these options is being recognized as stock-based compensation expense over the vesting period of the options.

On January 4, 2010, the Board approved the repricing of all existing officer options, 2,003,615 in the aggregate, to $0.50.  The options were originally issued at exercise prices ranging from $0.75 to $11.00.  The cost of the repricing of these options was valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $9,729.This repricing was approved by stockholders at the Company’s Annual Meeting held on June 17, 2010.

On January 28, 2010, the Board awarded a total of 8,796,385 stock options to eight officers at an exercise price of $0.50 per share, which were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $804,893.  The options vest ratably over ten calendar quarters beginning January 2010. These grants were approved by stockholders at the Company’s Annual Meeting held on June 17, 2010.  The fair value of these options is being recognized as stock-based compensation expense over the vesting period of the options.

Non-Employee Director Options

In February 2010, 40,000 options were granted to the non-employee members of our Board. The options, which were 100% vested on the date of grant with an exercise price of $0.75, were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $4,000. This amount was included in employee and director stock-based compensation in the statement of operations for the 1stHalf2010.

In May 2010, 222,282 options were issued to each of Mr. Harris and Mr. Terker in lieu of cash payments for their compensation as members of the Board.   The options, which were 100% vested on the date of grant with an exercise price of $0.50, were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $17,500. This amount was included in board of director compensation expense in the statement of operations for the year ended January 1, 2011.

In July 2010, 180,000 options were granted to the non-employee members of our Board. The options, which were 100% vested on the date of grant with an exercise price of $0.50, were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $16,300. This amount was included in employee and director stock-based compensation in the statement of operations for the year ended January 1, 2011.

Outstanding Warrants

The following table summarizes our warrant activity during the 1st Half 2011:

	Number of Warrants			Weighted average  exercise price per share (price at date of grant)
Outstanding at January 1, 2011		44,746,931		$	0.08
Exercised		(1,900,000	)	$	0.01
Expired		(22,500	)	$	5.00
Outstanding at June 30, 2011		42,824,431		$	0.08

Summary of Warrants outstanding by Exercise Price:

Exercise Price per Share	Number of Warrants Outstanding	Expiration Date
$    0.01	41,505,131	Various dates from December 28, 2011 through November 30, 2014
$    0.30	256,250	June 29, 2012 and June 12, 2013
$    1.20	5,000	November 22, 2011
$    2.30	883,475	June 29, 2012 and June 12, 2013
$    2.53	54,575	June 12, 2013
$    5.00	120,000	Various dates from September 30, 2011 and June 29, 2012
$   0.09	42,824,431