Note 8 - Equity Transactions

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

8. Equity Transactions

Common Stock

In March, 2011, our Board of Directors issued a retention bonus in the form of common stock to our CEO in the amount of 518,033 shares.  The fair value of this stock award was determined by the closing market price on the date of grant.  The company recorded $62,164 in expense of which $35,137 had been accrued at December 31, 2010.

In April, 2011, the Company issued 36,674 shares of common stock upon the exercise of a stock option at an exercise price of $0.09.

There were 73,505,890 shares of common stock of the Company outstanding at September 30, 2011.

Warrant Activity

A summary of warrant activity is as follows:

	Number of Shares			Weighted Average Exercise Price
Warrants outstanding at December 31, 2010		10,175,994		$	0.93
Warrants expired		-			-
Warrants outstanding at March 31, 2011		10,175,994			0.93
Warrants expired		(10,072,848	)		(0.94	)
Warrants outstanding at June 30, 2011		103,146			0.11
Warrants expired		-			-
Warrants outstanding at September 30, 2011		103,146		$	0.11

Stock Based Compensation

Ironclad California reserved 3,020,187 shares of its common stock for issuance to employees, directors and consultants under the 2000 Stock Incentive Plan, which the Company assumed in the merger (the “2000 Plan”). Under the 2000 Plan, options may be granted at prices not less than the fair market value of the Company’s common stock at the grant date. Options generally have a ten-year term and shall be exercisable as determined by the Board of Directors.

Effective May 18, 2006, the Company reserved 4,250,000 shares of its common stock for issuance to employees, directors and consultants under its 2006 Stock Incentive Plan (the “2006 Plan”). In June, 2009, the shareholders of the Company approved an increase in the number of shares of common stock reserved under the 2006 Plan to 11,000,000 shares.  In May, 2011, the shareholders of the Company approved a further increase in the number of shares of common stock reserved under the 2006 Plan to 13,000,000 shares. Under the 2006 Plan, options may be granted at prices not less than the fair market value of the Company’s common stock at the grant date. Options generally have a ten-year term and shall be exercisable as determined by the Board of Directors.

The fair value of each stock option granted under either the 2000 Plan or 2006 Plan is estimated on the date of the grant using the Black-Scholes Model.  The Black-Scholes Model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based on the U.S. Treasury Bill rate with a maturity based on the expected life of the options and on the closest day to an individual stock option grant. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on historical market prices of the Company’s common stock. The expected life of an option grant is based on management’s estimate. The fair value of each option grant is recognized as compensation expense over the vesting period of the option on a straight line basis.

For stock options issued during the quarters ended September 30, 2011 and 2010, the fair value of these options was estimated at the date of the grant using a Black-Scholes option pricing model with the following range of assumptions:

	September 30, 2011	September 30, 2010
Risk free interest rate	1.62%	2.09%
Dividends	-	-
Volatility factor	90.7%	120.7%
Expected life	6.25 years	6.25 years

A summary of stock option activity is as follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2010		9,610,488		$	0.095
Granted		-		$	-
Exercised		-		$	-
Cancelled/Expired		(136,312	)	$	0.095
Outstanding at March 31, 2011		9,474,176		$	0.095
Granted		-		$	-
Exercised		(36,674	)	$	0.090
Cancelled/Expired		(254,528	)	$	0.094
Outstanding at June 30, 2011		9,182,974		$	0.095
Granted		2,685,000		$	0.095
Cancelled/Expired		(406,576	)	$	0.092
Outstanding at September 30, 2011		11,461,398		$	0.095
Exercisable at September 30, 2011		7,102,337		$	0.094

The following tables summarize information about stock options outstanding at September 30, 2011:

Range of Exercise  Price	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value Outstanding Shares
$0.09 - $0.15		11,461,398		6.93	$	0.095	$	76,589

The following tables summarize information about stock options exercisable at September 30, 2011:

Range of Exercise Price	Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Intrinsic Value Exercisable Shares
$0.09 - $0.15		7,102,337		5.43	$	0.094	$	70,440

The Company recorded $99,564 and $291,050 of compensation expense for employee stock options during the nine months ended September 30, 2011 and 2010. These compensation expense charges were recorded in the following operating expense categories for 2011 and 2010, respectively; general and administrative - $30,955 and $194,291; sales and marketing - $45,563 and $60,287; research and development - $10,185 and $19,057; and purchasing, warehousing and distribution - $12,861 and $17,415. There was a total of $343,638 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the Plan outstanding at September 30, 2011. This cost is expected to be recognized over a weighted average period of 3.2 years. The total fair value of shares vested during the nine months ended September 30, 2011 was $68,320.