STOCK BASED COMPENSATION

3 Months Ended

Mar. 31, 2013

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

7. STOCK BASED COMPENSATION

Our stock based compensation programs consist of stock option and restricted stock grants made to employees and directors.

Stock Compensation Expense

Stock compensation expense for the three months March 31, 2013 and 2012 was $245,000 and $193,000, respectively. Stock compensation expense is recorded as a component of general and administrative expenses for each period. The Company did not recognize a tax benefit from the stock compensation expense because the Company considers it is more likely than not that the related deferred tax assets, which have been reduced by a full valuation allowance, will not be realized.

On January 16, 2013 a stock option grant to purchase 5,000 shares of the Company’s common stock was made to a newly appointed non-employee director of the Company.  On March 12, 2013 a total of 25,000 restricted shares of the Company’s common stock and a stock option for the purchase of 55,000 of the Company’s common stock were granted to the President/CEO in connection with his employment with the Company.  Using the Black-Scholes option pricing model, the assumptions for the stock option grants made in the first quarter of 2013: fair market value: $3.30 and $1.98; expected volatility of 84% and 89%; and risk-free interest rate of 2.6% and 1.4%. An expected life of 7.8 years and 5.7 years was used for the options granted. The weighted average fair value of the options granted in the first quarter of 2013 was $2.09.

On March 12, 2013 a total of 25,000 restricted shares of the Company’s common stock were granted to a former executive of the Company in connection with a separation agreement signed with the executive. The Company recognized stock compensation expense for the restricted share grants of $43,000 in the first quarter of 2013 in connection with this issuance.  The Company also extended the exercise period for certain previously issued stock options for this former executive and recognized stock compensation expense for this modification of $134,000 in the first quarter of 2013.

The total estimated unrecognized compensation cost from the unvested stock options and restricted grants at March 31, 2013 was approximately $527,000, which is expected to be recognized over the weighted average vesting period of the individual grants which range from 1-3 years.

Stock Options for the Three Months Ended March 31, 2013

The following table summarizes stock options outstanding and changes during the three month period ended March 31, 2013:

	Outstanding Options
	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term —in years	Aggregate Intrinsic Value
Options outstanding at January 1, 2013	317,270	$	24.62
Granted	60,000	2.85
Exercised	—	—
Canceled or forfeited	—	—
Options outstanding at March 31, 2013	377,270	$	21.16	4.2	$	—
Options exercisable at March 31, 2013	293,186	$	25.96	2.7	$	—

Shares available for grant under the Stock Option Plans as of March 31, 2013 were 156,434.

Stock options outstanding and currently exercisable at March 31, 2013 are as follows:

	Options Outstanding				Options Exercisable
Stock Option Plan	Number of Options Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise price		Number of Options Exercisable	Weighted Average Exercise Price
		(in years)
1995 Stock Incentive Plan	183,406	1.4	$	13.08	183,406	$	13.08
2004 Stock Incentive Plan	95,741	8.0	16.26		36,657	37.21
2004 Directors’ Plan	98,123	5.9	41.05		73,123	52.62
	377,270	4.2	$	21.16	293,186	$	25.96