Stock Options and Warrants

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 10 - Stock Options and Warrants

The Company granted stock options to certain of our employees under two plans. The 1996 Stock Option Plan was adopted in 1996 (“1996 Plan”) and had options granted under it through May 29, 2006. In 2006, the Board of Directors approved and the shareholders ratified the 2006 Stock Incentive Plan (“2006 Plan”).

As determined by the members of the Compensation Committee, the Company generally grants options under the 2006 Plan at the estimated fair value at the date of grant, based upon all information available to it at the time.

The Company recognizes compensation costs only for those shares expected to vest on a straight-line basis over the requisite service period of the awards. Generally such options vest over periods  of six months to two years.  The fair values of option awards granted in 2011 and 2010 were estimated using the Black-Sholes option pricing model under the following assumptions:

	2011			2010
Risk free interest rate		1.65% – 2.30	%		1.17% – 3.66	%
Dividend yield		0	%		0	%
Expected term	5 years			5-10 years
Expected volatility		61.7 – 61.9	%		60.1 – 97.6	%

2006 Stock Incentive Plan

The Company has a stock incentive plan, which became effective May 18, 2006, and expires May 17, 2016 (the “2006 Plan”). The 2006 Plan provides for the granting of equity awards to key employees, including officers and directors. The maximum number of shares for which equity awards may be granted under the 2006 Plan is 950,000. Options under the 2006 Plan expire no later than ten years from the date of grant or when employment ceases, whichever comes first, and vest over periods determined by the Board of Directors. The average vesting period for options granted to employees under the 2006 Plan in the years ended December 31, 2011 and 2010, were nineteen months and eleven months, respectively. The exercise price of each option equals the quoted market price of the Company’s stock on the date of grant.

1996 Stock Option Plan

The 1996 Plan provided for the granting of options to purchase shares of our common stock to key employees, including officers and directors. The maximum number of shares for which options could be granted under the 1996 Plan was 3,075,000. Options expire no later than ten years from the date of grant or when employment ceases, whichever comes first, and vest over periods determined by the Board of Directors. There were 411,000 and 565,500 unexpired exercisable options remaining from the 1996 Plan at December 31, 2011 and 2010, respectively.

The status of the options issued under the foregoing option plans as of December 31, 2011, and changes during the years ended December 31, 2011 and 2010, were as follows:

	Options outstanding
	Number of shares		Weighted average price per share
Balance at December 31, 2009		1,019,000	$	0.33
Options granted		158,000		0.18
Options exercised, expired or forfeited		58,000		0.42
Balance at December 31, 2010		1,119,000		0.30
Options granted		45,500		0.17
Options exercised, expired or forfeited		161,500		0.20
Balance at December 31, 2011		1,003,000	$	0.31

The following table summarizes information about options at December 31, 2011:

Options outstanding								Options exercisable
Total shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value		Total shares		Weighted average exercise price		Weighted average remaining contractual life in years		Aggregate intrinsic value
	1,003,000	$	0.31		4.64	$	3,465		943,000	$	0.32		4.36	$	3,275

Nonvested stock awards as of December 31, 2011 and changes during the year ended December 31, 2011, were as follows:

	Nonvested
	Number of shares		Weighted average grant date fair value
Balance at December 31, 2010		140,250	$	0.09
Granted		45,500		0.09
Vested		125,750		0.09
Balance at December 31, 2011		60,000		0.09

As of December 31, 2011 and 2010, unrecognized compensation cost associated with non-vested share based employee and non-employee compensation totaled $2,225 and $4,915, respectively, which is expected to be recognized over a weighted average period of 7 months and 3 months, respectively.

Warrants

The Board of Directors may also grant warrants to directors, employees and others.  There were no warrants issued nor exercised during the years ended December 31, 2011 and 2010.  As of December 31, 2011 and 2010, there were no outstanding warrants.