Stock-Based Compensation Arrangements

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation Arrangements

Note 10—Stock-Based Compensation Arrangements

Total compensation cost that has been recorded for stock-based compensation arrangements is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Stock options outstanding beginning of year	$	33,315	$	19,490	$	106,915	$	40,630
Stock-based arrangements during the period:
Stock option grants		13,879		6,936		68,390		91,258
Restricted stock issued:
Employee Stock Purchase Plan		1,519		2,019		4,375		5,850
Total	$	48,713	$	28,445	$	179,680	$	137,738

Stock option grants

The following table details stock option activity for the Nine months ended September 30, 2011 and 2010:

	Nine Months Ended September 30,  2011					Nine Months Ended September 30,  2010
	Shares			Weighted Avg Exercise Price		Shares			Weighted Avg Exercise Price
Outstanding, beginning of period		1,611,267		$	1.54		1,591,417		$	2.06
Granted		781,000			0.35		323,500			0.77
Exercised		(2,500	)		0.00		(13,800	)		0.02
Canceled/Expired		(183,000	)		1.23		(242,650	)		4.11
Outstanding, end of period		2,206,767		$	1.15		1,658,467		$	1.52
Exercisable, end of period		1,081,117		$	1.75		921,067		$	2.04

At the Company’s 2011 annual meeting held on June 16, 2011, stockholders approved an amendment to the 2004 Employee, Director and Consultant Stock Plan increasing the aggregate number of shares of common stock which may be offered under the plan by an additional 2,000,000 shares. At September 30, 2011, the Company had an aggregate of 2,235,613 shares of common stock available for grant under this plan.

 It is the Company’s policy to grant stock options with an exercise price equal to the fair market value of the Company’s common stock at the grant date. Stock options to employees generally vest over four years based upon continuous service. Historically, the majority of the Company’s stock options have been granted in connection with the employee’s start date with the Company. In addition, the Company may grant stock options in recognition of promotion and/or performance.

For purposes of determining the stock-based compensation expense for stock option awards in 2011, the Black-Scholes option-pricing model was used with the following weighted-average assumptions:

Risk-free interest rate		2.08	%
Expected life	5.73 years
Expected volatility		123.33	%
Dividend yield		0	%

Using these assumptions, the weighted average grant date fair value of options granted in 2011 was $0.30.

Employee Stock Purchase Plan

Purchases made under the Company’s Employee Stock Purchase Plan are deemed to be compensatory because employees may purchase stock at a price equal to 85% of the fair market value of the Company’s common stock on either the first day or the last day of a calendar quarter, whichever is lower. During the nine months ended September 30, 2011 and 2010, employees purchased 89,457 and 72,278 shares, respectively, of common stock at a weighted-average purchase price of $0.29 and $0.47, respectively, while the weighted-average fair value was $0.34 and $0.55 per share, respectively, resulting in compensation expense of $4,375 and $5,850, respectively.

Restricted Stock Awards

Holders of restricted stock awards, which vest over a period of four years, participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. Recipients of restricted stock awards are generally not required to pay any consideration to the Company for these restricted stock awards. The Company measures the fair value of the shares based on the last reported price at which the Company’s common stock traded on the date of the grant and compensation cost is recognized over the remaining service period. During each of the three months ended September 30, 2011 and 2010, the Company did not grant restricted stock awards. During the nine months ended September 30, 2011 and 2010, the Company granted restricted stock awards of 0 and 10,000 shares, respectively.

At September 30, 2011, there was approximately $372,689 of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company’s stock plans.