SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

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

5.  SHARE-BASED COMPENSATION

The Company has stockholder-approved stock incentive plans for employees, directors, officers and consultants.  Prior to January 1, 2006, the Company accounted for the employee, director and officer plans using the intrinsic value method. On January 1, 2006, the Company adopted the share-based payment method for employee options using the modified prospective transition method. 

The Company recognizes compensation expense related to stock option grants on a straight-line basis over the vesting period.    The Company recognized share-based compensation cost of $19,210 and $211,771 for the nine months ended September 30, 2011 and 2010, respectively.The Company recognized share-based compensation cost of $5,597 and $5,630 for the three months ended September 20, 2011 and 2010, respectively. The Company did not capitalize any share-based compensation cost.

Options granted to consultants and other non-employees are recorded at fair value at the date of grant and subsequently adjusted to fair value at the end of each reporting period until such options vest, and the fair value of the options, as adjusted, is amortized to consulting expense over the related vesting period.  As a result of adjusting consultant and other non-employee options to fair value, the Company recognized share-based compensation cost of $0 and $107, respectively, for the three and nine month periods ended September 30, 2011 and 2010.  The Company has allocated share-based compensation costs to general and administrative and research and development expenses as follows:

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
General and administrative expense:
Share-based employee compensation cost	$	5,597	$	5,597	$	19,210	$	211,664
Share-based consultant and non-employee cost		-		3		-		11
Total general and administrative expense		5,597		5,600		19,210		211,675
Research and development expense:
Share-based employee compensation cost		-		-		-		-
Share-based consultant and non-employee cost		-		30		-		96
Total research and development expense		-		30		-		96
Total share-based cost	$	5,597	$	5,630	$	19,210	$	211,771

To compute compensation charges in 2011 and 2010 the Company estimated the fair value of each option award on the date of grant using the Black-Scholes model. The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have a sufficient number of years of historical volatility of its common stock.  The expected term of options granted represents the period of time that options are expected to be outstanding.  The Company estimated the expected term of stock options by the simplified method.  The expected forfeiture rates are based on the historical employee forfeiture experiences. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards.  The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

The following table shows the weighted average assumptions the Company used to develop the fair value estimates for the stock options granted in the nine month period ended September 30, 2010 (there were no options granted in the nine month period ended September 30, 2011):

	Nine months ended September 30,
	2011		2010
Expected volatility		-		88	%
Dividend yield		-		-
Expected term (in years)		-		5.7
Risk-free interest rate		-		2.46	%

The Company has shareholder-approved incentive stock option plans for employees under which it has granted non-qualified and incentive stock options.  In December 2003, the Company established the 2003 Stock Option Plan (the “2003 Plan”), which provided for the granting of up to 108,000 options to officers, directors, employees and consultants for the purchase of stock.  Subsequently, the Company increased the number of shares of common stock reserved for issuance under the 2003 Plan by 192,000.  At September 30, 2011, 300,000 shares were authorized for issuance.  The options have a maximum term of 10 years and vest over a period determined by the Company’s Board of Directors (generally 3 years) and are issued at an exercise price equal to or greater than the fair market value of the shares at the date of grant.  The 2003 Plan expires on December 10, 2013 or when all options have been granted, whichever is sooner. At September 30, 2011 options to purchase 208,754 shares were outstanding, 556 shares of common stock were issued and there were 90,690 shares reserved for future grants under the 2003 Plan.

In July 1995, the Company established the 1995 Stock Option Plan (the”1995 Plan”), which provided for the granting of options to purchase up to 2,600 shares of the Company’s common stock to officers, directors, employees and consultants.  The 1995 Plan was amended several times to increase the number of shares reserved for stock option grants.  In June 2005, the 1995 Plan expired and no further options can be granted.   At September 30, 2011 options to purchase 22,545 shares were outstanding and no shares were reserved for future stock option grants under the 1995 Plan.

A summary of the status of the Company’s stock options as of September 30, 2011 and changes during the period then ended is presented below:

	Shares			Weighted average exercise price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		231,499		$	24.37		6.72
Granted		-
Exercised		-
Cancelled		(200	)	$	14.00
Outstanding at September 30, 2011		231,299		$	24.37		5.19	$	-
Exercisable at September 30, 2011		210,303		$	26.45		4.86	$	-
Vested and expected to vest at September 30, 2011		229,404		$	24.54		5.16	$	-

As of September 30, 2011, the total compensation cost related to nonvested option awards not yet recognized is $36,904.  The weighted average period over which it is expected to be recognized is approximately 1.43 years.