Note 9 - Shareholders' Equity

12 Months Ended

Dec. 31, 2011

Notes To Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note 9- Shareholders' Equity

Stock Options

On May 24, 2006, the shareholders approved the 2006 Equity Incentive Plan (“2006 Plan”) since the 1996 Plan expired in July 2006.  The following is a summary of the 2006 Plan:

Background and Purpose.   The primary purpose of the 2006 Plan is 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.

Eligible Participants.   Awards may be granted under the 2006 Plan to any of the Company’s officers, directors, or consultants or Company affiliates. An incentive stock option may be granted under the 2006 Plan only to a person who, at the time of the grant, is an employee of the Company or a related corporation.

Number of Shares of Common Stock Available.   A total of 1,200,000 shares of common stock had been reserved for issuance under the 2006 Plan upon inception, and an amendment to the 2006 Equity Incentive Plan, to increase the maximum number of shares of common stock that may be issued pursuant to all types of awards granted under the Plan from 1,200,000 to 2,200,000 shares, was approved at the May 21, 2010 annual shareholder’s meeting.  If an award is cancelled, terminates, expires, or lapses for any reason without having been fully exercised or vested, or is settled for less than the full number of shares of common stock represented by such award actually being issued, the unvested, cancelled, or unissued shares of common stock generally will be returned to the available pool of shares reserved for issuance under the 2006 Plan. In addition, if the Company experiences a stock dividend, reorganization, or other change in capital structure, the administrator may, in its discretion, adjust the number of shares available for issuance under the 2006 Plan and any outstanding awards as appropriate to reflect the stock dividend or other change. The share number limitations included in the 2006 Plan will also adjust appropriately upon such event.

As of December 31, 2011, the Company had utilized 1,542,835 of the shares reserved under the 2006 Plan, and 657,165 shares remain available

At the March 9, 2011 meeting of the Board of Directors, the non-employee directors were awarded, pursuant to the Company’s director compensation policy, their 2011 annual stock option grants utilizing the closing stock price on March 9, 2011, the date of the meeting, and the Black-Scholes valuation model. Since this grant was intended as compensation for annual service, the Company recorded $29,000 of share-based compensation for the year ended December 31, 2011.The recorded share based-compensation for the annual stock option grants awarded to non-employee directors as compensation for annual service for the year ended December 31, 2010 was $64,000.

Total share-based compensation expense for award grants issued to employees for the years ended December 31, 2011 and 2010 was $53,000 and $76,000 respectively.

The table below summarizes stock option activity for 2011:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate  Intrinsic  Value
Outstanding at January 1, 2011		1,569,000		$	1.05			$	200,000
Granted		440,000		$	0.29			$	6,000
Exercised		-		$	-				-
Forfeited		(63,000	)	$	0.50
Expired		(156,000	)	$	1.39
Outstanding at December 31, 2011		1,790,000		$	0.86		6.14	$	12,000
Vested at December 31, 2011		1,288,250		$	1.04		5.09	$	7,000
Expected to Vest		324,000		$	0.33			$	4,000

The table below summarizes stock option activity for 2010:

	Shares			Weighted Average  Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate  Intrinsic Value
Outstanding at January 1, 2010		1,815,000		$	1.14			$	130,000
Granted		290,000		$	0.61				27,000
Exercised		(22,500	)	$	0.49
Forfeited		(155,750	)	$	0.63
Expired		(357,750	)	$	1.34
Outstanding at December 31, 2010		1,569,000		$	1.14		5.34	$	200,000
Vested at December 31, 2010		1,252,000		$	1.25		4.91	$	149,000
Expected to vest		317,000		$	0.53			$	51,000

The following table summarizes the range of exercise price, weighted average remaining contractual life (“Life”) and weighted average exercise price (“Price”) for all stock options outstanding as of December 31, 2011:

	Options Outstanding					Options Exercisable
Range of Exercise Price	Shares		Life	Price		Shares		Price
$0.18 to $0.75		1,250,000	7.3 years	$	0.41		750,250	$	0 .43
$0.76 to $1.50		265,000	2.1 years	$	1.21		265,000	$	1.21
$1.51 to $2.50		125,000	4.3 years	$	2.36		123,000	$	2.37
$2.51 to $2.71		150,000	5.1 years	$	2.68		150,000	$	2.68
		1,790,000	6.1 years	$	0.86		1,288,250	$	1.04

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

	Years Ended December 31,
	2011			2010
Weighted average fair value at date of grant for options granted during the period	$	0.25		$	0.53
Weighted average fair value for options exercised during the period		n/a		$	0.45
Weighted average fair value for options vested during the period	$	0.40		$	0.67
Risk-free interest rates		2.8	%		2.8	%
Expected stock price volatility		130.3	%		157.0	%
Expected dividend yield		0.0	%		0.0	%
Expected forfeitures		29.5	%		29.5	%
Expected option Term	5.7 years			6.5 years

For the year ended December 31, 2011 and 2010, the Company recognized non-cash share-based compensation costs of $82,000 and $140,000, respectively,  in accordance with ASC Topics 505 and 718, reducing the income before taxes and net income by this amount.

The following summarizes the activity of the Company’s stock options that have not vested for the year ended December 31, 2011:

	Shares			Weighted average fair value at grant date
Nonvested at January 1, 2011		317,000		$	0.53
Granted		440,000		$	0.25
Vested		(192,250	)	$	0.40
Cancelled		(63,000	)	$	0.47
Nonvested at December 31, 2011		501,750		$	0.35

As of December 31, 2011, the unrecognized compensation cost related to nonvested awards was $104,000 with a weighted-average period over which such unrecognized compensation is expected to be recognized of 3.0 years.

As of December 31, 2011, there were 1,288,250 fully vested stock options outstanding with a weighted average fair value of $0.40 and an average contractual term of 4.9 years.

Stock Repurchase Plan

The Board of Directors of the Company approved a plan on February 26, 2010 to purchase and retire up to 1,000,000 shares of the Company's common stock, or approximately 10% of the then current shares outstanding, over a twelve month period. Subsequently, on November 10, 2010, the Board of Directors approved the expansion of the plan to 2,000,000 shares and extension of the plan for an additional twelve months ending December 31, 2011.

Pursuant to the stock repurchase program, the Company purchased 0 and 510,000 shares for the years ended December 31, 2011 and 2010 respectively.  These shares have all been retired.

Employee Stock Purchase Plan

On May 25, 2004, the Board of Directors of the Company approved the Company’s 2004 Stock Purchase Plan, (the “ESPP”), which initially provided for the issuance of up to 1,000,000 shares of the Company's Common Stock (subject to adjustment).  The Company registered 1,000,000 such shares on a Registration Statement on Form S-8 (File No. 333-116405) filed with the Commission on June 10, 2004.  On August 6, 2009, the Board of Directors of the Company increased the number of shares which may be issued and sold under the ESPP from 1,000,000 to 2,000,000 (subject to adjustment).  On August 19, 2009, the Company filed a Registration Statement on Form S-8 with the SEC to register these shares. On August 19 th, 2011, the Board of Directors voted to increase 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 these additional 1,000,000 shares.

Seven purchases were made from the ESPP during the 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 December 31, 2011, there were 800,520 remaining shares in the ESPP.