STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2011

Stockholders Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

5. STOCKHOLDERS’ EQUITY

The number of common shares reserved for issuance under the OrthoLogic 1987 option plan was 4,160,000 shares. This plan expired during October 1997. In May 1997, our stockholders adopted a new stock option plan (the “1997 Plan”). The 1997 Plan reserved for issuance 1,040,000 shares of Common Stock. Subsequent to its original adoption, the Board of Directors and stockholders approved amendments to the 1997 Plan that increased the number of shares of common stock reserved for issuance to 4,190,000. The 1997 Plan expired in March 2007. In May 2006, our stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”) and reserved 2,000,000 shares of our common stock for issuance. In May 2009, our stockholders approved the reservation of an additional 1,250,000 shares of common stock for issuance under the 2005 Plan, which increased the total shares available for grant under the 2005 Plan to 3,250,000 shares. At December 31, 2011, 258,024 shares remained available to grant under the 2005 Plan (the 1997 plan and the 2005 plan are collectively referred to as “The Plans”). Two types of options may be granted under the Plans: options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code (the “Code”) and other options not specifically authorized or qualified for favorable income tax treatment by the Code. All eligible employees may receive more than one type of option. Any director or consultant who is not an employee of the Company shall be eligible to receive only nonqualified stock options under the Plans.

The Plans provide that in the event of a takeover or merger of the Company in which 100% of the equity of the Company is purchased or a sale of all or substantially all of the Company’s assets, 75% of all unvested employee options will vest immediately and the remaining 25% will vest over the following twelve month period. If an employee or holder of stock options is terminated as a result of or subsequent to the acquisition, 100% of that individual’s stock option will vest immediately upon employment termination.

2011 Stock Options

On January 1, 2011, the Company granted each director a fully vested option to purchase 10,000 shares of the Company’s common stock with the exercise price determined by the closing market price on the date of grant ($0.58). The options have a ten-year term.

On January 17, 2011, the Company granted options to employees to purchase 150,000 shares of the Company’s common stock with the exercise price determined by the closing market price on the date of grant ($0.67). The options have a ten-year term and vest monthly over a two-year period.

We used the Black-Scholes model with the following assumptions to determine the total fair value of $75,000 for options to purchase 210,000 shares of our common stock granted during the three months ended March 31, 2011.

	Three months ended
	March 31, 2011
Risk free interest rate		2.0%
Volatility		70%
Expected term from vesting		4.0 Years
Dividend yield		0%

2010 Stock Options

On January 1, 2010, the Company granted each director a fully vested option to purchase 10,000 shares of the Company’s common stock with the exercise price determined by the closing market price on the date of grant ($0.72). The options have a ten-year term.

On February 4, 2010, the Company granted options to employees to purchase 324,000 shares of the Company’s common stock with the exercise price determined by the closing market price on the date of grant ($0.82). The options have a ten-year term and vest monthly over a two-year period.

On May 21, 2010, the Company granted two directors fully vested options to purchase shares (Dr. Spiegel 50,000 shares and Dr. Wardell 15,000 shares) of the Company’s common stock with the exercise price determined by the closing market price on the date of grant ($0.82). These options have a ten-year term.

 On December 14, 2010, the Company granted options to an employee to purchase 25,000 shares of the Company’s common stock with the exercise price determined by the closing market price on the date of grant ($0.52). The options have a ten-year term and vest monthly over a four year period.

We used the Black-Scholes model with the following assumptions to determine the total fair value of $168,000 for options to purchase 374,000 shares of our common stock issued during the three months ended March 31, 2010 and the fair value of $27,000 for options to purchase 65,000 shares of our common stock issued during the three months ended June 30, 2010.

	Three months ended
	March 31, 2010		June 30, 2010
Risk free interest rate		2.3 - 2.7%		2.0%
Volatility		66%		66%
Expected term from vesting		3.9 Years		3.9 Years
Dividend yield		0%		0%

As noted previously, all outstanding share-based payment awards became liability awards on May 21, 2010. The fair value of these liability awards was estimated using the Black-Scholes option pricing model as probability weighted for potential put right outcomes at December 31, 2010. The assumption used to value the liability awards included risk free interest rates of 0%-3.3%, volatility of 70%, expected terms of 1-10 years, a dividend yield of 0% and a probability weighting based on potential put right outcomes.

Summary

Non-cash stock compensation cost for the year ended December 31, 2011, totaled $159,000. In the Statements of Operations for the year ended December 31, 2011, non-cash stock compensation expense of $138,000 was recorded as general and administrative expense and $21,000 was recorded as research and development expense.

Non-cash stock compensation cost for the year ended December 31, 2010, totaled $275,000. In the Statements of Operations for the year ended December 31, 2010, non-cash stock compensation expense of $228,000 was recorded as a general and administrative expense and $47,000 was recorded as a research and development expense.

No options were exercised in the years ended December 31, 2011 and 2010.

At December 31, 2011, the remaining unamortized non-cash stock compensation costs totaled approximately $10,000, which will be recognized ratably over the period ending December 31, 2015, with an estimated weighted average period of one year.

A summary of option activity under our stock option plans for the years ended December 31, 2011 and 2010 is as follows:

	2011							2010
						Weighted
				Weighted		average					Weighted
				average		remaining					average
	Number of			exercise		contractual term		Number of			exercise
	Options			price		(years)		Options			price
Options outstanding at the beginning of the year:		3,610,173		$	2.32				3,342,523		$	2.52
Granted		210,000		$	0.64				464,000		$	0.79
Exercised		-							-
Expired / Forfeited		(447,672	)	$	3.33				(196,350	)	$	2.08
Outstanding at end of year		3,372,501		$	2.08		4.99		3,610,173		$	2.32
Options exercisable at year-end		3,284,426		$	2.12		4.97		3,277,541		$	2.48
Options vested and expected to vest at year end		3,352,886		$	2.09		4.90		3,610,173		$	2.32

On January 17, 2011, the Board of Directors of the Company granted John M. Holliman 50,000 shares of restricted common stock which vest January 17, 2012. The Company had no unvested common stock share awards as of December 31, 2010, and no common stock share award activity during the year ended December 31, 2010.

It is the Company’s policy to issue options from stockholder approved incentive plans. However, if the options are issued as an inducement for an individual to join the Company, the Company may issue stock options outside of stockholder approved plans. The options granted to employees under stockholder approved incentive plans have a ten-year term and vest over a two to four-year period of service. All stock options are granted with an exercise price equal to the current market value on the date of grant and, accordingly, stock options have no intrinsic value on the date of grant. Based on the closing market price of the Company’s common stock at December 31, 2011 of $0.26, stock options exercisable or expected to vest at December 31, 2011, have no intrinsic value.

Warrants

At December 31, 2011 and 2010, the Company has fully vested warrants outstanding to purchase 46,706 shares of the Company’s common stock with an exercise price of $6.39 per share which expire in February 2016, and fully vested warrants outstanding to purchase 117,423 shares of the Company’s common stock with an exercise price of $1.91 per share which expire in July 2016. . The Company’s outstanding warrants were accounted for as liabilities until June 30, 2012 (date Put Rights expired – See Note 10) as they are indexed to the Company’s common stock, the redemption for which is outside the control of the Company as a result of the issuance of the put rights.   No warrants were exercised during the years ended December 31, 2011 or 2010.