STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 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.

2013 Omnibus Incentive Plan

In June 2013, the Company’s stockholders and Board approved the 2013 Omnibus Incentive Plan (“2013 OIP”) that governs all future share-based awards. A total of approximately 1 million shares are available to be issued under the 2013 OIP.

Stock Compensation Expense

Stock compensation expense for the nine months ended September 30, 2013 and 2012 was $299,000 and $374,000, 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, the Company granted to a newly appointed non-employee director stock options to purchase 5,000 common shares of the Company. The fair value for this issuance was $3.30.

On March 12, 2013, the Company granted 25,000 restricted shares of the Company’s common stock to the new President and Chief Executive Officer, subject to service and performance vesting criteria over a three-year period. The fair value for this issuance was $2.73.

On March 12, 2013, the Company also granted to the new President and Chief Executive Officer stock options to purchase 55,000 common shares of the Company, subject to service and performance vesting criteria over a three-year period. The fair value for this issuance was $1.98.

On March 12, 2013, the Company granted 25,000 restricted shares of the Company’s common stock 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 half of 2013 in connection with this issuance. In addition, the Company 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 half of 2013.

On June 4, 2013, the Compensation Committee approved a grant of 100,000 shares of restricted stock units under the 2013 OIP to the President and Chief Executive Officer, subject to specific vesting criteria over a three-year period. The fair value for this issuance was $2.83.

On June 4, 2013, the Board also approved a grant of a total of 100,000 restricted stock units under the 2013 OIP to the Company’s non-employee Directors, subject to specific vesting criteria over a three-year period. The fair value for this issuance was $2.83.

On July 30, 2013, the Compensation Committee approved a grant of 80,000 shares of restricted stock units under the 2013 OIP to the Vice President-Finance and Chief Financial Officer, subject to specific vesting criteria over a three-year period. The fair value for this issuance was $4.50.

The fair value of stock options granted to employees and directors was estimated on the dates of the grants using the Black-Sholes option pricing model with the following assumptions used for the grants made during the period:

Risk free rate	1.40% - 2.16%
Expected life	5.7 — 7.8 years
Expected volatility	84% - 89%
Expected dividend yield	0.0%

The total estimated unrecognized compensation cost from the unvested stock options and restricted grants at September 30, 2013 was approximately $1,058,000, 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 Nine Months Ended September 30, 2013

The following table summarizes stock options outstanding and changes during the nine-month period ended September 30, 2013:

	Outstanding Options
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2013	317,270		$	24.62
Granted	60,000		2.85
Exercised	—		—
Canceled or forfeited	(72,791	)	25.90
Options outstanding at September 30,2013	304,479		$	20.02	4.1	$	—
Options exercisable at September 30, 2013	226,980		$	25.57	2.3	$	—

Shares available for grant under the Company’s stock option plans as of September 30, 2013 were 907,914.

Stock options outstanding and currently exercisable at September 30, 2013 are as follows:

	Outstanding Options				Options Exercisable
Stock Option Plan	Number of Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number of Options Exercisable	Weighted Average Exercise Price
1995 Stock Incentive Plan	145,906	0.9	$	13.46	145,906	$	13.46
2004 Stock Incentive Plan	85,241	7.8	13.92		29,408	34.74
2004 Director’s Plan	73,332	6.1	40.19		51,666	54.57
	304,479	4.1	$	20.02	226,980	$	25.57