Note 3 - Share Based Compensation

9 Months Ended

Sep. 30, 2011

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

3. Share 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.

During the first nine months of 2011, there were 60,000 stock options granted under the stock option plan and 970,000 stock options granted during the same period of 2010.  The Company recognized $218,000 and $114,000 in share-based compensation expense in its consolidated financial statements for the nine months ended September 30, 2011 and 2010, respectively, related to previously issued options.

Stock options to purchase 2,200,000 and 2,567,000 shares of common stock were outstanding as of September 30, 2011 and 2010, respectively.  There were 587,748 incremental shares included in the computation of diluted earnings per common share for the nine months ended September 30, 2011 based upon the Company’s use of the treasury stock method when calculating the number of incremental dilutive shares. There were 1,678,334 stock options excluded from the computation of the number of dilutive common shares for the nine months ended September 30, 2011 because their effect would have been anti-dilutive. There were 300,317 incremental shares included in diluted earnings per common share for the nine months ended September 30, 2010.  No stock options were excluded from the computation of the number of dilutive common shares for the nine months ended September 30, 2010 since all of the stock options had a 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 nine months ended September 30, 2011:

	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)
Options outstanding as of December 31, 2010		2,542,000			$1.57		3.17
Exercised		(13,000	)		$1.23		-
Granted		60,000			$1.15		-
Forfeited or expired		(389,000	)		$1.96		-
Options outstanding as of September 30, 2011		2,200,000			$1.50		2.88
Options exercisable as of September 30, 2011		1,488,000			$1.47		2.35

As of September 30, 2011, $446,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 2.40 years.