Note 6 - Shareholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

Note 6—Shareholders’ Equity

Pursuant to ASC Topics 505, Equity and 718, Stock Compensation, the cost resulting from all share-based payment transactions must be recognized in the Company’s consolidated financial statements.  For 2011, the Company recognizes compensation expense related to stock options granted to employees based on compensation cost for all share-based payments granted prior to September 30, 2011, based on the grant date fair value estimated in accordance with ASC Topics 505, Equity and 718, Stock Compensation.  For the three and nine months ended September 30, 2011, the Company recognized $18,000 and $68,000 in share-based compensation costs, respectively, including $7,000 and $24,000 of share-based compensation for non-employee director options. For the three and nine months ended September 30, 2010 the Company recognized $29,000 and $113,000 in share-based compensation costs, including $16,000 and $52,000 of share-based compensation for non-employee director options. See Note 1 of Notes to Consolidated Financial Statements.

The following summarizes the activity of the Company’s stock options for the nine months ended September 30, 2011:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Number of shares under option:
Outstanding at January 1, 2011		1,569,000		$	1.05			$	1,770
Granted		440,000			0.29				1,250
Exercised		-			-
Cancelled or expired		(124,000	)		1.41				( 20	)
Forfeited		(63,000	)		0.50				(80	)
Outstanding at September 30, 2011		1,822,000		$	0.86		6.3	$	2,920
Exercisable at September 30, 2011		1,272,500		$	1.07		5.1	$	1,550

The following summarizes the activity of the Company’s stock options that have not yet vested as of September 30, 2011:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		317,000		$	0.53
Granted		440,000			0.25
Vested		(144,500	)		0.40
Forfeited		(63,000	)		0.46
Nonvested at September 30, 2011		549,500		$	0.34

As of September 30, 2011, there was $119,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under existing share-based payments. This cost is expected to be recognized over a weighted-average period of 3.1 years. The total measurement fair value of shares vested during the three and nine months ended September 30, 2011 was $24,000 and $58,000.

The Black-Scholes option pricing model is used by the Company to determine the weighted average fairvalue of share-based payments. The fair value at date of grant and the assumptions utilized to determine such values are indicated in the following table:

	Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
Weighted average fair value for options exercised During the period		N/A			N/A
Weighted average fair value at date of grant for share-based payments vested during the period	$	0.39		$	0.40
Risk-free interest rates		3.1	%		2.8	%
Expected stock price volatility		135.7	%		130.3	%
Expected dividend yield	$	0		$	0
Expected forfeitures		29.57	%		29.57	%

The Company does not assume a forfeiture rate when assessing value for options held by independent members of the Board of Directors.  Since options issued to independent board members are not forfeited upon separation from the Company, management has determined it is inappropriate to assign a forfeiture rate to these options.

The Company uses the 2006 Plan to encourage ownership in the Company by key personnel whose long-term service is considered essential to the Company’s continued progress, thereby linking these employees directly to stockholder interests through increased stock ownership.  A total of 2,200,000 shares of the Company’s common stock have been reserved for issuance under the 2006 Plan. As of September 30, 2011, the Company had utilized 1,514,835 of the shares reserved under the 2006 Plan, and 685,165 shares remain available.  Awards may be granted to any employee, director or consultant, or those of the Company’s affiliates.

Prior to the 2006 Plan, the Company utilized the 1996 Stock Incentive Plan (“1996 Plan”).  The 1996 Plan expired on July 19, 2006, although options remain outstanding that were originally issued under this plan.

Employee Stock Purchase Plan

The Company maintains the 2004 Stock Purchase Plan (the “ESPP”).  On August 19, 2011, the Board of Directors of the Company increased the number of shares which may be issued and sold under the ESPP from 2,000,000 to 3,000,000 (subject to adjustment), and on September 9, 2011, the Company registered with the SEC the 1,000,000 additional shares of the Company's Common Stock for issuance pursuant to the ESPP.

Seven purchases were made from the ESPP during the third quarter of 2011, for an aggregate of 618,571 shares of common stock at $0.28 per share, for aggregate proceeds to the Company of $173,000.  As of September 30, 2011, there were 800,520 remaining shares in the ESPP.