Note 3 - Stock Based Compensation

3 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3. Stock Based Compensation

The Company maintains a stock option plan under which the Company may grant incentive stock options and non-qualified stock options to key employees and non-employee directors.  Stock options have been granted with exercise prices at or above the current market price of the underlying shares of common stock on the date of grant.  Options vest and expire according to terms established at the grant date.

The Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “FASB ASC”, the “ASC” or the “Codification”) 718, Stock Compensation (“ASC 718”), effective January 1, 2006, using the modified prospective application method.  ASC 718 requires companies to record compensation expense for the value of all outstanding and unvested share-based payments, including employee stock options and similar awards.  During the first six months of 2011, there were no stock options granted under the stock option plan.  During the first six months of 2010, there were no stock options granted under the stock option plan.  The Company recognized $146,000 and $68,000 in share-based compensation expense in its consolidated financial statements for the six months ended June 30, 2011 and 2010, respectively, related to previously issued options.

Stock options to purchase 2,511,000 and 1,567,000 shares of common stock were outstanding at June 30, 2011 and 2010, respectively.  As of June 30, 2011, no incremental shares were included in the computation of diluted earnings per share because the exercise prices of these stock options were greater than the average share price of the Company’s common stock for the six months ended at June 30, 2011 and, therefore, there was no dilutive effect. As of June 30, 2010, 444,752 incremental shares were included in the computation of diluted earnings per share because the exercise prices of those stock options were less than the average share price of the Company’s common stock for the quarter and, therefore, the effect was dilutive. The remaining 1,122,248 were not included in the computation of the diluted earnings per share because the exercise prices of these stock options were greater than the average share price of the Company’s common stock for the six months ended June 30, 2010 and, therefore, there was no dilutive effect.

The Company used the Black-Scholes-Merton option pricing model to value the options.  Prior to 2008, the Company used the simplified method as discussed in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, for estimating the expected life of the options.  For options granted during a quarter or fiscal period, the Company uses historical data to estimate the expected life of the options.  The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on historical volatility of the expected life in years.  The Company uses an estimated dividend payout ratio of zero, as the Company has not paid dividends in the past and, at this time, does not expect to do so in the future.

The following table summarizes stock option activity during the six months ended June 30, 2011:

	Options			Weighted-Average Exercise Price		Weighted-Average  Remaining Contractual Life (in years)
Options outstanding at December 31, 2010		2,542,000		$	1.57		3.17
Exercised		(13,000	)	$	1.23		-
Granted		-			-		-
Forfeited or expired		(18,000	)	$	1.53		-
Options outstanding at June 30, 2011		2,511,000		$	1.58		2.64
Options exercisable at June 30, 2011		1,377,000		$	1.60		1.63

As of June 30, 2011, $487,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 2.07 years.