Stock Based Compensation

6 Months Ended

Jun. 30, 2011

Stock Based Compensation

Stock Based Compensation

9. Stock-Based Compensation.

In August 2008, our shareholders approved the 2008 Equity Incentive Plan (the "2008 Plan"), which provides for the grant of equity incentives, consisting of options, stock appreciation rights, restricted stock and restricted stock units to officers, other key employees, directors and consultants. The 2008 Plan initially set aside, for the grant of equity incentives, 300,000 shares of the Company's common stock, plus an additional 41,500 shares which was equal to the total of the shares that were then available for the grant of new options under our existing stockholder approved stock incentive plans (the "Previously Approved Plans"). At the same time, those 41,500 shares ceased to be issuable under the Previously Approved Plans. At June 30, 2011, options to purchase a total of 197,334 shares of our common stock and a total of 232,501 of unvested restricted shares were outstanding and 10,666 shares remained available for future grants of equity incentives under the 2008 Plan. On that same date, options to purchase a total of 392,667 shares of our common stock were outstanding under our Previously Approved Plans.

The Previously Approved Plans had provided that, if any options outstanding under any of those Plans were to expire or otherwise terminate, rather than being exercised, the shares that had been subject to those options would become available for the grant of new options or other equity incentives under those Plans. However, the 2008 Plan provides, instead, that if any of those options expire or terminate for any reason, then, the number of shares that will become available for grants or awards of equity incentives under the 2008 Plan will be increased by an equivalent number of shares, instead of becoming available for new equity incentive grants under the Previously Approved Plans.

The fair value of each outstanding option is estimated as of the date of grant using a binomial model. This model incorporates certain assumptions including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock.

Expected volatilities are based on the historical volatility of the Company's common stock. The risk free interest rate is based upon market yields for United States Treasury debt securities. The expected dividend yield is based upon the Company's dividend policy and the fair market value of the Company's shares at the time of grant. Expected lives are based on several factors including the average holding period of outstanding options, their remaining terms and the cycle of our long range business plan.

The Company did not grant any stock options in the six months ended June 30, 2011 or 2010. As a result, no estimates of the fair market value of options were made during either of those periods.

The following table summarizes stock option activity during the six month periods ended June 30, 2011 and 2010:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2011		652,001		$	5.01
Granted		—			—
Exercised		(5,000	)		0.90
Forfeited		(57,000	)		7.15
Outstanding at June 30, 2011		590,001		$	4.84		2.5 years	$	325,998
Exercisable at June 30, 2011		528,801		$	5.28		2.4 years	$	214,478
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2010		707,667		$	4.99
Granted		—			—
Exercised		(29,666	)		2.00
Forfeited		(30,000	)		7.78
Outstanding at June 30, 2010		648,001		$	5.00		3.1 years
Exercisable at June 30, 2010		453,401		$	5.75		3.1 years

The aggregate intrinsic values set forth in the above table represents the total pre-tax intrinsic values (the aggregate differences between the closing stock price of the Company's common stock on June 30, 2011, and the exercise prices for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on June 30, 2011. The total pre-tax intrinsic value of options exercised during the six months ended June 30, 2011 and 2010 was $16,267 and $61,942, respectively.

A summary of the status of the Company's nonvested options as of June 30, 2011 and 2010, and changes during the six month periods ended June 30, 2011 and 2010, is presented below:

	Shares			Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2011		190,100		$	1.11
Granted		—			—
Vested		(128,900	)		1.37
Forfeited		—			—
Nonvested at June 30, 2011		61,200		$	0.57
	Shares			Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2010		368,500		$	1.20
Granted		—			—
Vested		(170,150	)		1.63
Forfeited		(3,750	)		2.60
Nonvested at June 30, 2010		194,600		$	1.14

We recognized stock-based compensation expense of $102,000 and $110,000 for the quarters ended June 30, 2011 and 2010, respectively, and $225,000 and $190,000 for the six months ended June 30, 2011 and 2010, respectively, as a component of selling, general and administrative expenses in our condensed consolidated statements of operations.

Unrecognized compensation cost related to nonvested options granted under the Company's 2008 Plan and Previously Approved Plans totaled $20,023 and $178,453 as of June 30, 2011 and 2010, respectively. That cost is expected to be recognized over a weighted average period of 0.6 years in 2011 and 1.5 years in 2010. At June 30, 2011, a total of 586,835 shares of our common stock were subject to outstanding stock options that were exercisable or were expected to become exercisable in the future.

Restricted Shares of Common Stock. During the first three months of 2010, we began granting awards of restricted shares of common stock under the 2008 Plan to some of our officers and other key management employees. Restricted shares generally vest in equal annual increments over a three or four year service period. Compensation expense for such awards, which is based on the fair market value of the awards on their respective dates of grant, is recorded over those service periods.

A summary of the status of the Company's restricted stock activity follows:

	Shares			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2011		177,000		$	4.15
Granted		114,500			4.47
Vested		(58,999	)		4.15
Forfeited		—			—
Nonvested at June 30, 2011		232,501		$	4.31
	Shares			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2010		—		$	—
Granted		177,000			4.15
Vested		—			—
Forfeited		—			—
Nonvested at June 30, 2010		177,000		$	4.15

Unrecognized compensation cost related to the nonvested service-condition restricted shares granted under the 2008 Plan totaled approximately $887,158 and $659,238 at June 30, 2011 and 2010, respectively. The cost is expected to be recognized generally over a weighted average period of 2.4 years measured from June 30, 2011 and 2.3 years measured from June 30, 2010. No restricted shares are outstanding under any of our Previously Approved Plans. All 232,501 restricted shares outstanding on June 30, 2011 are expected to vest. The aggregate intrinsic value of these shares of restricted stock, at June 30, 2011 was $674,250.