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The following security ownership information is set forth as of June 30, 2008, with respect to certain persons or groups known to the Company to be beneficial owners of more than 5% of Series AA Preferred Stock.
Name and Address
of Beneficial Owner
Amount and Nature of
Beneficial Ownership(1)
Percent
of Class
Title
of Class
Robert Putnam
10,000
(2)
13.3
Series AA
16770 West Bernardo Drive
Preferred Stock
San Diego, CA 92127
James A. Barnes
15,000
(3)
20.0
Series AA
8617 Canyon View Dr.
Preferred Stock
Las Vegas, NV 89117
Norris Family 1997 Trust
10,000
(4)
13.3%
Series AA
16101 Blue Crystal Trail
Preferred Stock
Poway, CA 92064
James C. Zolin & Josephine Zolin
5,000
(5)
6.7%
Series AA
17108 Via De La Valle
Preferred Stock
Rancho Santa Fe, CA 92067
Victor Gabourel
5,000
(6)
6.7%
Series AA
11404 Cypress Woods Dr.
Preferred Stock
San Diego, CA 92131
Wayne Opperman and Barbara Opperman
10,000
(5)
13.3%
 Series AA
36837 Wax Myrtle Place
 Preferred Stock
Murieta, CA 92562
Edward J. Kashou & Steven C. Kashou
10,000
(5)
13.3%
 Series AA
10321 Hitching Post Way
 Preferred Stock
Santee, CA 92071
5,000
(6)
6.7%
 Series AA
Robert M. Kaplan
 Preferred Stock
P.O. Box 2600
Sun Valley, ID 83353
(1)
Represents the number of shares of Series AA Preferred Stock held as of June 30, 2008. At such date an aggregate of 75,000 shares of Series AA Preferred Stock were issued and outstanding with each share having 100 votes per share.
(2)
Mr. Putnam is an officer and director of the Company and has sole voting and investment power with respect to the Series AA Preferred Stock.
(3)
Includes 5,000 shares held by Sunrise Capital, Inc., 5,000 shares held by Sunrise Management, Inc. Profit Sharing Plan and 5,000 shares held by Palermo Trust. Mr. Barnes is President of Sunrise Capital, Inc. and Trustee of Sunrise Management, Inc. Profit Sharing Plan and the Palermo Trust. Mr. Barnes shares investment and voting power with respect to the Series AA Preferred Stock with his spouse.
(4)
Voting and investment power with respect to the Series AA Preferred Stock is shared by Elwood G. Norris and Stephanie Norris.
(5)
The named owners are believed by the Company to share investment and voting power over the Series AA Preferred Stock.
(6)
The named owner is believed by the Company to have sole investment and voting power over the Series AA Preferred Stock.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information as of March 31, 2008, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated as follows:
Plan Category
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average exercise
price of outstanding
options, warrants and
rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plan
(excluding securities
reflected in column (a))
(c)
Equity
compensation
plans approved
by security
holders
9,147,167
$0.16
3,630,833
Equity
compensation
plans not
approved by
security holders
(1)
1,750,000
$0.12
-0
Total
10,897,167
$0.16
3,630,833
(1)
Includes (a) 1,000,000 shares of common stock subject to inducement stock options granted to an executive officer in connection with employment and 250,000 shares granted subsequently with an aggregate weighted average exercise price of $0.10 per share, (b) 250,000 shares of common stock subject to inducement stock options granted to an employee with an exercise price of $0.145 per share, and (c) 250,000 shares of common stock granted to a consultant vesting on a performance basis with an exercise price of $0.16 per share.

11
EXECUTIVE COMPENSATION
Executive Officers

Our current executive officers are as follows:
Name
Age
Position*
William Blakeley
50
President and Chief Technical Officer
Robert Putnam
49
Senior Vice President, Interim Chief Accounting
Officer and Secretary
*Alex Diaz, as Chairman of our Board of Directors, is technically considered as an executive officer under our bylaws. However, we do not believe that he meets the definition of an “executive officer” under Rule 16a-1(f) of the Securities Exchange Act of 1934 in that he does not perform any policy-making functions for our Company, nor is he compensated for this position.

For additional information with respect to Messrs. Diaz, Blakeley and Putnam who are also nominees as directors, see “Election of Directors.”

Compensation Discussion and Analysis

Overview - Because we have a limited number of employees and are incurring operating losses introducing new products and exploiting our patent portfolio, we are not a heavily executive laden company. We had no change in executive officers during fiscal 2008 and there were no changes in executive officer pay rates nor any stock options granted to executive officers nor any cash bonuses paid or accrued during the year. Accordingly this year the members of the Compensation Committee (Alex Diaz and Allen Cocumelli) concluded, without a formal meeting, that no additional base salary was to be paid and that no bonus or equity award needed to be made to any executive officer.

The future of our company requires that a plan and compensation philosophy be in place to hire and maintain talented executives in the future. For this reason, the Committee plans to adopt a charter as soon as growth dictates the need for an expanded executive team. In developing our guidelines and ultimately our charter, the following principles are likely to figure greatly in them:

·
To pay salaries that are competitive in our industry and our geographical market.
·
To use, assuming that it makes sense for our company, executive pay practices that are commonly found in companies engaged in a similar industry.
·
To maintain a ‘pay for performance’ outlook, particularly in our incentive programs.
·
To pay salaries, and award merit increases, on the basis of the individual executive’s performance and contributions to our organization.

To attain these goals, we have created an executive compensation program which consists of base pay, a stock option program and employee benefits.

Our executive compensation program rewards executives for company and individual performance. Company and individual performance are strongly considered when we grant base pay increases and equity awards. For all management and supervising employees of our company, other than the PEO (Principal Executive Officer) and PFO (Principal Financial Officer), the PEO and management team decide cash compensation subject to review by the Compensation Committee or the Board. The Board determines and approves all equity awards after input from management. Our company has no bonus plan and due to losses no bonus was accrued or paid for fiscal 2007. We may grant bonuses to executive and non-executive personnel in the future.
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