6.	Stock-Based Compensation.

In August 2012, our stockholders approved the 2012 Equity Incentive Plan (the “2012 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 2012 Plan initially set aside, for the grant of equity incentives, 300,000 shares of the Company’s common stock, plus an additional 17,666 shares which was equal to the total number of shares that were then available for grants of new equity incentives under our existing stockholder approved stock incentive plans (the “Previously Approved Plans”). At the same time, those 17,666 shares ceased to be issuable under the Previously Approved Plans. At June 30, 2013, options to purchase a total of 328,000 shares of our common stock and a total of 374,497 of unvested restricted shares were outstanding under the 2012 Plan and the Previously Approved Plans. As of that same date, 276,030 shares remained available for future equity incentive grants under the 2012 Plan, whereas no shares remained available for future equity incentive grants under the 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 unexercised, or if any restricted shares outstanding under any of those Plans were to be forfeited or reacquired by the Company, the shares that had been subject to those equity incentives would become available for the grant of new options or other equity incentives under those Plans. However, the 2012 Plan provides that those shares will, instead, cease to be available for the grant of new equity incentives under the Previously Approved Plans and the number of shares that will be available for future equity incentives under the 2012 Plan will be increased by an equal number of shares.

The fair value of each outstanding option is estimated as of its 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.

We did not grant any stock options in the six months ended June 30, 2013 or 2012. As a result, no estimates of the fair market values of options were made during either of those periods.

The following tables summarize stock option activity during the six month period ended June 30, 2013:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Average Intrisic Value
Outstanding at January 1, 2013		433,000		$	3.60
Granted		—			—
Exercised		(5,000	)		0.90
Forfeited		(100,000	)		5.20

Outstanding and exercisable at June 30, 2013		328,000		$	3.16		2.9 years	$	428,320

The average intrinsic value set forth in the above table represents the total pre-tax intrinsic value (the average of the differences between the closing stock price of the Company’s common stock on June 30, 2013 and the exercise prices of the then outstanding in-the-money options) that would have been received by the option holders if all of the in-the-money options had been exercised on June 30, 2013.

A summary of the status of the Company’s unvested options as of June 30, 2013 and changes during the six month period ended June 30, 2013 is presented below:


	Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2013		8,000		$	1.28
Granted		—			—
Vested		(8,000	)		1.28
Forfeited		—			—

Unvested at June 30, 2013		—		$	—

There were no unvested options at June 30, 2013 and, therefore, no unrecognized compensation cost related to unvested options at that time.

Restricted Shares of Common Stock. During the first three months of 2010, we began granting awards of restricted shares of common stock 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.

During the quarter ended June 30, 2013, the Compensation Committee granted, under our 2012 Equity Incentive Plan, a total of 167,500 performance contingent restricted shares to our officers and other key management employees. One third of these performance contingent shares will vest, in each of 2013, 2014 and 2015, only if the Company achieves a specified annual financial performance goal for such year. Stock based compensation expense with respect to each one-third of these shares will be recognized only if, and when, a determination is made that the Company’s achievement of the performance goal for any of those years has become probable. However, if the financial goal is not ultimately achieved (due, for example, to the occurrence of changes in market or economic conditions or other circumstances that adversely affect the Company’s financial performance during the remainder of the year), then, the previously recognized stock based compensation with respect to those shares would be reversed.

Under our Equity Incentive Plans, employees who hold restricted shares may, with the approval of the Compensation Committee, elect to satisfy their tax withholding obligations which arise upon the vesting of restricted shares, by instructing the Company to cancel a number of those shares with a fair market value, measured as of the vesting date, equal to the amount of the withholding obligations.

A summary of the status of the Company’s restricted share activity follows:


	Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013		312,501		$	3.39
Granted		167,500			2.96
Vested		(105,504	)		(3.29	)
Forfeited		—			—

Nonvested at June 30, 2013		374,497		$	3.23

Unrecognized compensation cost related to the unvested service-conditioned restricted shares totaled approximately $908,319 and $821,210 at June 30, 2013 and 2012, respectively. The cost is expected to be recognized generally over a weighted average period of 2.1 and 2.1 years measured, respectively, from June 30, 2013 and June 30, 2012. A total of 206,997 unvested shares of restricted stock outstanding at June 30, 2013 are expected to vest. The aggregate intrinsic value of these shares was $724,490 as of June 30, 2013.

We recognized stock-based compensation expense of $59,000 and $120,000 for the quarters ended June 30, 2013 and 2012, respectively, and $164,000 and $219,000 for the six months ended June 30, 2013 and 2012, respectively, as a component of selling, general and administrative expenses in our condensed consolidated statements of operations.