Equity Instruments

9 Months Ended

Sep. 30, 2011

Equity Instruments [Abstract]

Equity Instruments

NOTE 6 – EQUITY INSTRUMENTS

Our Series C preferred stock is currently convertible into common stock at the rate of approximately 316.28 common shares for each share of Series C preferred, adjustable for any dilutive issuances of common occurring in the future. Series C preferred shares vote with the common stockholders on an as-converted basis. Other significant rights and preferences of the Series C preferred include:

• the right to vote as a separate class to appoint five directors of the Company,

• liquidation preferences, whereby the Series C holders have a claim against our assets senior to the claim of the holders of our common stock in the event of our liquidation, dissolution or winding-up, and

• the right to receive dividends when declared by our Board of Directors before dividends are paid on our common stock.

Of a total of 7,000 shares of authorized of Series D convertible preferred stock, 390 are presently available upon the exercise of outstanding warrants discussed below. Once issued, a Series D preferred share will be convertible at any time into 100,000 shares of common without additional consideration, subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization. Each holder of Series D Convertible Preferred Shares will be entitled to the number of votes that the holder of 500,000 shares of common stock would be entitled to by virtue of holding such shares. Series D Convertible preferred will also enjoy liquidation and dividend preferences.

Stock Incentive Compensation Plans

From time-to-time, we grant stock options as compensation for services to our employees, non-employee directors and certain consultants ("grantees") allowing grantees to purchase our common stock pursuant to stockholder-approved stock option plans. We currently have three active incentive qualified option plans, the 1995 Incentive Plan, the 2002 Incentive Plan and the 2009 Equity Compensation Plan (collectively, the "Plans"), that provide for the granting of stock options, stock appreciation rights, limited stock appreciation rights, restricted preferred stock, and common stock grants to grantees. Grants issued under the Plans may qualify as incentive stock options ("ISOs") under Section 422A of the Internal Revenue Code of 1986, as amended. Options for ISOs may be granted for terms of up to ten years. The vesting of options issued under the 1995 and 2002 plans generally occurs after six months for one-half of the options and after 12 months for the remaining options. For the 2009 Equity Compensation Plan, the vesting period is determined by the Compensation Committee. The exercise price for ISOs must equal or exceed the fair market value of the shares on the date of grant. The Plans also provide for the full vesting of all outstanding options under certain change of control events. The maximum number of common shares authorized for issuance of options totals 12,000,000 under the Plans. As of September 30, 2011, there were a total of 9,175,100 options available for grant and 1,803,400 options outstanding, 979,300 of which were exercisable, under the Plans.

In addition, under our Non-employee Directors' Stock Option Plan, we are authorized to issue non-qualified stock options to our non-employee directors for up to 1,000,000 common shares. Each non-qualified stock option is exercisable at a price equal to the average of the closing bid and asked prices of the common stock in the over-the-counter market for the most recent preceding day there was a sale of the stock prior to the grant date. Grants of options vest in accordance with vesting schedules established by our Board of Directors' Compensation and Stock Option Committee. Upon joining our Board of Directors, directors receive an initial grant of 25,000 options. Annually, directors are granted 15,000 options on the date of our annual meeting. As of September 30, 2011, there were 776,668 shares available for option grants and 125,000 options outstanding under the non-qualified directors' plan, 40,000 of which were exercisable.

A summary of our option activity for the three months ended September 30, 2011, follows:

Options	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at June 30, 2011		2,054,850		$	0.55	7.47 years
Forfeited or expired		(126,450	)	$	0.55
Outstanding at September 30, 2011		1,928,400		$	0.55	7.22 years
Exercisable at September 30, 2011		1,019,300		$	0.69	6.40 years		—

Warrants:

We periodically issue warrants to purchase shares of our common and preferred stock for the services of employees and non-employee directors.

To Purchase Common Stock:

As of September 30, 2011, there were warrants outstanding for the purchase of 31,157,583 common shares at a weighted average exercise price of $0.38 per share of which 29,357,583 are exercisable with a weighted average remaining life of 3.56 years at a weighted average exercise price of $0.35. During the quarter ended September 30, 2011, we issued 3,373,333 immediately exercisable, five-year warrants to purchase our common stock at a price of $0.44. No warrants were exercised and none were forfeited or expired during the quarter then ended.

To Purchase Series D Convertible Preferred Stock:

As of September 30, 2011, there were warrants outstanding to purchase up to 390 shares of our Series D Convertible preferred stock. Of the 390 outstanding warrants, 190 expire March 31, 2012 and 200 expire May 13, 2012.