STOCK OPTIONS

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 3. STOCK OPTIONS

Effective July 1, 2003, the shareholders of the Company adopted the 2003 Stock Incentive Plan (the “Plan”). The Plan includes incentive and non-qualified stock options and restricted stock grants. The initial maximum number of shares of common stock available for grants under the Plan was 800,000 shares. The Plan provides that with respect to incentive stock options (“ISO”) the option price per share must be at least the fair market value (as determined by the Compensation Committee or, in lieu thereof, the Board of Directors) of the common stock on the date the stock option is granted or based on daily quotes from an exchange or quotation system designated by the Compensation Committee as the primary market for the shares. Under the Plan, if an ISO is granted to an employee who owns more than 10% of the total combined voting power of all classes of stock of the Company or any of its subsidiaries, then the option price must be at least 110% of the fair market value of the stock subject to the option, and the term of the option must not exceed 5 years from the date of grant. Under the Plan, if for any reason, a change in control of the Company occurred, all shares subject to the Plan immediately become vested and exercisable. On October 15, 2004, the shareholders approved an amendment to the Plan to increase the number of shares available under the Plan to 1,000,000 shares of common stock.

On July 22, 2005, the shareholders approved an amendment to the Plan to increase the number of shares available under the Plan to 1,800,000 shares of common stock, and again on March 7, 2007 and on November 12, 2007 the shareholders approved an increase in the Plan bringing the total shares available under the Plan to 3,000,000.

A summary of the status of the Plan for the years ended December 31, 2011 and 2010, together with changes during each of the years then ended, is presented in the following table:

2003 Stock Incentive Plan

															Weighted
	Qualified			Non-qualified						Exercise					Average Exercise
	Options			Options			Total			Price Range					Price
Balances, January 1, 2010		1,180,000			1,830,642			3,010,642		$	0.17	to	$	5.00	$	1.26
Granted		1,285,000			1,030,607			2,315,607		$	0.15	to	$	0.26	$	0.19
Forfeited		(889,000	)		(637,876	)		(1,526,876	)	$	0.18	to	$	5.00	$	1.24
Balances, December 31, 2010		1,576,000			2,223,373			3,799,373		$	0.15	to	$	5.00	$	0.63
Granted		550,000			50,200			600,200		$	0.17	to	$	0.25	$	0.18
Forfeited		(885,000	)		(205,000	)		(1,090,000	)	$	0.17	to	$	5.00	$	0.45
Balances, December 31, 2011		1,241,000			2,068,573			3,309,573			0.15	to	$	5.00		0.60
Number of options exercisable
At December 31, 2011		315,671			2,015,251			2,330,922			0.15	to	$	5.00	$	0.77

The weighted average fair value per share of the grants of qualified options for the years ended December 31, 2011 and 2010, were $0.23 and $0.20, respectively. The weighted average fair value per share of the grants of Non-qualified options for the years ended December 31, 2011 and 2010, were $0.83 and $0.17, respectively.

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives at December 31, 2011:

		Outstanding				Exercisable
					Weighted
			Weighted		Average	Number of	Weighted
Exercise		Number of	Average		Contractual	Shares	Average
Prices		Outstanding	Exercise Price		Life (Yrs)	Exercisable	Exercise Price
$	5.00	120,000	$	5.00	1.50	120,000	$	5.00
	2.19	240,000	$	2.19	0.39	240,000	$	2.19
1.00 to 1.15		337,875	$	1.01	1.04	337,272	$	1.01
0.40		100,000	$	.40	2.44	64,110	$	.40
0.22 to 0.28		692,200	$	0.24	2.75	422,679	$	0.24
0.15 to 0.20		1,819,498	$	0.18	3.43	1,146,861	$	0.18
		3,309,573				2,330,922

At December 31, 2011, no options were available for future grants under the Plan.

Effective March 7, 2007, the shareholders of the Company adopted the 2006 Distributor Stock Incentive Plan (the “Plan”). Options granted under the 2006 Distributor Stock Incentive Plan will be nonqualified options, as defined under the Internal Revenue Code. The expiration date, maximum number of shares purchasable, vesting provisions and any other provisions of options granted under the 2006 Distributor Stock Incentive Plan will be established at the time of grant. The 2006 Distributor Stock Incentive Plan will be administrated by the Board of the Company. The term of the option will be three years unless that administrator designates a different term for a specific award, but no options may be granted for terms of greater than ten years. Options will vest and become exercisable in whole or in one or more installments at such time as may be determined by the plan administrator. The exercise price may not be less than the fair market value of the common stock on the date of grant. The initial maximum number of shares of common stock available for grants under the Plan was 500,000 shares, and on November 12, 2007, this was increased to 1,500,000.

A summary of the status of the Plan for the year ended December 31, 2011, together with changes during each of the years then ended, is presented in the following table:

2006 Distributor Option Plan

							Weighted
	Non-qualified				Exercise		Average Exercise
	Options		Total		Price Range		Price
Balances, January 1, 2010	601,000		601,000		$         0.16 to $1.90		$	0.59
Granted	305,000		305,000		$	0.15 to $0.26	$	0.18
Forfeited	(63,000	)	(63,000	)	$	1.08 to $1.90	$	1.30
Balances, December 31, 2010	843,000		843,000		$	0.15 to $1.18	$	0.39
Granted	10,000		10,000			0.30		0.30
Forfeited	(104,000	)	(104,000	)		0.38 to 1.18		0.84
Balances, December 31, 2011	749,000		749,000		$	0.15 to 1.18	$	0.32
Number of options exercisable
At December 31, 2011	699,000		699,000		$	0.15 to 1.18	$	.033

The weighted average fair value per share of the grants of distributor options for the years ended December 31, 2011 and 2010, were, $0.32 and $0.18, respectively.

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives at December 31, 2011:

		Outstanding				Exercisable
			Weighted		Weighted		Weighted
			Average		Average	Number of	Average
Exercise		Number of	Exercise		Contractual	Shares	Exercise
Prices		Outstanding	Price		Life (months)	Exercisable	Price
$	1.18	100,000	$	1.18	1.27	100,000	$	1.18
$	0.15 to 0.42	649,000	$	0.19	2.93	599,000	$	0.14
		749,000				699,000

At December 31, 2011, 751,000 options were available for future grants under the Plan.