Stock Options

6 Months Ended

Jun. 30, 2011

Note 4 - Stock Options

We periodically grant stock options to employees and directors in accordance with the provisions of our stock option plans, with the exercise price of the stock options being set at the closing market price of the common stock on the date of grant. The intrinsic value of options outstanding and exercisable at June 30, 2011 and 2010 was $108,000 and $165,000, respectively.  Options exercised during the six and three months ended June 30, 2011 were 124,000 and 64,000, respectively.  Options exercised during the six and three months ended June 30, 2010 were 5,000 and 0, respectively.

The weighted average fair value of each option granted is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions during the six and three months ended June 30, 2011 and 2010 (options granted in thousands):

	Six Months Ended June 30,						Three Months Ended June 30,
	2011			2010			2011		2010
Risk free interest rate		2.1	%		2.6	%		N/A		2.6	%
Expected option lives	5 Years			5 Years				N/A	5 Years
Expected volatility		117.4	%		113.9	%		N/A		114.0	%
Estimated forfeiture rate		10	%		10	%		N/A		10	%
Expected dividend yields	None			None			None		None
Weighted average grant date fair value of options	$	1.87		$	2.04			N/A	$	2.00

The Company calculates expected volatility for a stock-based grant based on historic daily stock price observations of its common stock during the period immediately preceding the grant that is equal in length to the expected term of the grant. The expected term of the options and forfeiture rates are estimated based on the Company’s exercise and employment termination experience. The risk free interest rate is based on U.S. Treasury yields for securities in effect at the time of grants with terms approximating the expected life of the grants. The assumptions used in the Black-Scholes option valuation model are highly subjective and can materially affect the resulting valuations.

A summary of options granted, exercised, expired and forfeited under our plans and options outstanding as of, and changes made during, the six months ended June 30, 2011 (in thousands):

	Outstanding
	Number of Options			Exercisable Weighted Average Exercise Price	Number of Options		Weighted Average Exercise Price
Options outstanding, January 1, 2011	1,260		$	3.19	848	$	3.72
Granted	12			2.27
Exercised (1)	(124	)		1.61
Expired	(26	)		15.96
Forfeited	(196	)		3.11
Options outstanding, June 30, 2011	926		$	3.05	619	$	3.49

(1) 31 common shares were issued in cashless exercises of 124 options.

Stock option compensation expense is allocated as follows for the six and three months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30,				Three Months Ended June 30,
	2011		2010		2011		2010
Global managed services	$	38	$	66	$	19	$	33
Sales and marketing		10		21		4		11
General and administrative		16		39		8		20
	$	64	$	126	$	31	$	64

The remaining unrecognized stock-based compensation expense for options at June 30, 2011 was $348,000, of which $268,000, representing 130,000 options, will only be expensed upon a “change in control” and the remaining $80,000 will be amortized over a weighted average period of approximately 10 months.

There was no income tax benefit recognized for stock-based compensation for the six and three months ended June 30, 2011 and 2010.  No compensation costs were capitalized as part of the cost of an asset.