Stock Options

We periodically grant stock options to employees and directors in accordance with the provisions of our stock option plans, with the exercise price of the stock options being set at or above the closing market price of the common stock on the date of grant. The intrinsic value of options outstanding and exercisable at March 31, 2012 and 2011 was $369,000 and $141,000, respectively. Options exercised during the three months ended March 31, 2012 and 2011 were 5,000 and 60,000, respectively.

The weighted average fair value of each option granted is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions during the three months ended March 31, 2012 and 2011:



	Three Months Ended March 31,
	2012	2011
Risk free interest rate	0.9%	2.1%
Expected option lives	5 Years	5 Years
Expected volatility	111.3%	117.4%
Estimated forfeiture rate	10%	10%
Expected dividend yields	None	None
Weighted average grant date fair value of options	$2.37	$1.87

The Company calculates expected volatility for a stock-based grant based on historic daily stock price observations of its common stock during the period immediately preceding the grant that is equal in length to the expected term of the grant. The expected term of the options and forfeiture rates are estimated based on the Company’s exercise and employment termination experience. The risk free interest rate is based on U.S. Treasury yields for securities in effect at the time of grants with terms approximating the expected life of the grants. The assumptions used in the Black-Scholes option valuation model are highly subjective and can materially affect the resulting valuations.

A summary of options granted, exercised, expired and forfeited under our plans and options outstanding as of, and changes made during, the three months ended March 31, 2012 (in thousands):



	Outstanding				Exercisable
	Number of Options		Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
Options outstanding, January 1, 2012	750		$	2.90	570	$	3.12
Granted	1,105		3.20
Exercised	(5	)	1.70
Expired	(3	)	17.60
Forfeited	(15	)	1.97
Options outstanding, March 31, 2012	1,832		$	3.07	598	$	2.98

Stock option compensation expense is allocated as follows for the three months ended March 31, 2012 and 2011 (in thousands):



	Three Months Ended March 31,
	2012		2011
Global managed services	$	3	$	19
Sales and marketing	1		6
General and administrative	18		8
	$	22	$	33

The remaining unrecognized stock-based compensation expense for options at March 31, 2012 was $2,814,000, of which $2,339,000, representing 1,000,000 options, will only be expensed upon a “change in control” and the remaining $475,000 will be amortized over a weighted average period of approximately 2.2 years.

The tax benefit recognized for stock-based compensation for the three months ended March 31, 2012 was diminimus. There was no tax benefit recognized for stock-based compensation for the three months ended March 31, 2011. No compensation costs were capitalized as part of the cost of an asset.