0001014041 2011-03-31 0001014041 2010-12-31 0001014041 2012-03-31 0001014041 2011-12-31 0001014041 2011-01-01 2011-03-31 0001014041 2012-05-01 0001014041 2012-01-01 2012-03-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares false --12-31 Q1 2012 2012-03-31 10-Q 0001014041 6503128 Smaller Reporting Company SRI SURGICAL EXPRESS INC <div> NOTE E – BONDS PAYABLE In 1999, the Company issued public bonds to fund the construction of two of its reusable processing facilities. Interest rates on the bonds adjusted based upon rates that approximate LIBOR. In October 2008, $6.0 million of the Company's bonds were tendered. The holders of the tendered bonds were paid from draws against the letters of credit under the Company's credit facility. Under the terms of the indentures relating to the bonds, the tendered bonds could be remarketed at any time prior to their maturity in 2014. On March 10, 2011, the $6.0 million of tendered bonds were reissued and, as a result, the Company received approximately $6.0 million of proceeds. The proceeds were used to pay down the Company's outstanding notes payable. On July 1, 2011, the Company redeemed all of its public bonds with a principal amount of $6.6 million. The bonds were redeemed with funds available under the Company's credit facility. The bonds were redeemed at par value, therefore no gain or loss was recognized as a result of the redemption of the bonds. </div> 551000 368000 18619000 18421000

9156000

9052000

13569000

13635000

34298000

34424000

64241000

63834000

1327000

584000

1862000

1228000

-743000

-634000

0.001

30000000

6503128

7000

21421000

20801000

<div> NOTE D – NOTES PAYABLE On August 4, 2011, the Company entered into a $28.7 million Credit Facility with its existing lender, which amended its $24.3 million credit facility that was set to mature on August 7, 2011. The Credit Facility includes a $3.7 million term loan on its Tampa headquarters, and a revolving loan of up to $25.0 million for working capital, letters of credit, capital expenditures and other purposes. Actual amounts available under the revolving loan are determined by a defined borrowing base calculation. As a result of the borrowing base calculation as of March 31, 2012, the Company had $17.8 million available for advances, of which the Company had used $13.5 million of the revolving loan. The Company had $9.5 million and $9.3 million of outstanding advances from the revolving loan, $3.8 million and $3.8 million of availability for letters of credit to support the Company's future raw materials purchases and self-insurance policies, and $0.2 million and $0.1 million maintained as a required reserve as of March 31, 2012 and December 31, 2011, respectively. As a result, at March 31, 2012, the Company had excess availability of $4.3 million. As of March 31, 2012 and December 31, 2011, the Company had $3.5 million and $3.6 million, respectively, outstanding on the term loan, which is classified as a mortgage payable, and amortizes based on a 20-year schedule. The Credit Facility matures on August 4, 2016.   The Credit Facility requires the Company to comply with (a) a fixed charge coverage ratio of 1.0 to 1.0 through March 31, 2012 and 1.1 to 1.0 thereafter; (b) a funded debt to EBITDA ratio not to exceed 2.0 to 1.0; (c) a limit on annual capital expenditures of $2.0 million each year through December 31, 2013 increasing to $2.5 million annually for 2014 and 2015; and (d) a limit on annual reusable surgical product capital expenditures of $9.0 million each year through December 31, 2013, increasing to $10.0 million annually in 2014 and $11.0 million annually in 2015. As of December 31, 2011, the Company did not comply with the required fixed charge coverage ratio under the Credit Facility. On February 28, 2012, the Company entered into an amendment to the Credit Facility with its lender, under which the Company's lender waived this default. Prior to the default, the interest rate on the revolving and term loans varied between 50 and 250 basis points over the Base Rate (as defined in the Credit Facility) or LIBOR depending on the level of the fixed charge coverage ratio. The type of interest rate is an election the Company periodically makes. Under the amendment to the Credit Facility, the interest rate on the revolving and term loans increased to between 250 and 450 basis points over the Base Rate or LIBOR depending on the level of the fixed charge coverage ratio, which represents a 200 basis point increase. As of March 31, 2012, $7.5 million of the outstanding revolving loan was based on LIBOR plus 4.50% (4.75% as of March 31, 2012) and the remaining outstanding revolving loan balance of approximately $2.0 million was at the Prime Rate plus 3.00% (6.25% at March 31, 2012). As of March 31, 2012, $3.5 million of the outstanding term loan was based on LIBOR plus 4.50% (4.75% as of March 31, 2012) and the remaining outstanding term loan balance of approximately $12,000 was at the Prime Rate plus 3.00% (6.25% at March 31, 2012). As part of the amendment to the Credit Facility, the Company's fixed charge coverage ratio was not tested on January 31, 2012 or February 29, 2012 and the Company was required to maintain a minimum excess availability of not less than $2.5 million during the period February 1, 2012 through and including five business days following the Company's lender's receipt of required monthly compliance information from the Company for the period ending March 31, 2012. On May 4, 2012, the Company's lender amended the Credit Facility whereby, the Company's fixed charge coverage ratio will not be tested on March 31, 2012, April 30, 2012 or May 31, 2012 and the Company is required to maintain a minimum excess availability of not less than $2.5 million through and including five business days following the Company's lender's receipt of the required monthly compliance information for the period ending June 30, 2012. The Credit Facility includes typical provisions restricting the Company from paying dividends, incurring additional debt, making loans and investments, encumbering its assets, entering into a new business, or entering into certain merger, consolidation, or liquidation transactions. </div>

800000

776000

-0.08

<div> NOTE F – LOSS PER SHARE The following table sets forth the Company's computation of basic and diluted income (loss) per share:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr><td width="70%"> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">Three Months Ended</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">March 31, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">March 31, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center"> (In thousands, except per share data) (unaudited)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Basic</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Numerator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net Loss</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(502</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(490</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Denominator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted average shares outstanding</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,488</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,460</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Loss per basic common share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Diluted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Numerator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net Loss</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(502</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(490</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Denominator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted average shares outstanding</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,488</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,460</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Effect of dilutive securities – employee stock options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,488</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,460</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Loss per diluted common share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.08</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Options to purchase 859,940 and 276,963 shares of common stock outstanding during the three months ended March 31, 2012 and 2011, respectively, were not included in the computation of diluted earnings per common share, because the assumed proceeds per share were greater than the average market price, and therefore, were anti-dilutive. The dilutive effect of 185,334 and 1,149,547 options with assumed proceeds per share less than the average market price were not included for the three months ended March 31, 2012 and 2011 respectively, because the effect would be anti-dilutive to the Company's loss per share for the periods. </div>

1558000

1280000

5909000

6264000

-471000

-481000

<div> NOTE C – INCOME TAX ASC Topic 740, Income Taxes, requires a valuation allowance to reduce reported deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, allowances of $3.9 million and $2.8 million, were recorded as of March 31, 2012 and December 31, 2011, respectively, to reduce the deferred tax assets to the amount that will more likely than not be realized. </div>

38000

18000

19000

21000

-405000

-104000

1479000

75000

-65000

-80000

-61000

751000

-335000

103000

165000

182000

117000

173000

4357000

5087000

44000

21000

26239000

26208000

64241000

63834000

1061000

153000

-2824000

-1805000

1020000

1018000

-490000

-502000

9320000

9526000

-397000

-389000

<div> NOTE A – BASIS OF PRESENTATION The accompanying unaudited financial statements of SRI/Surgical Express, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the Securities and Exchange Commission's (the "SEC") instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they omit or condense footnotes and certain other information normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments of a normal recurring nature necessary to present fairly the financial information for the interim periods reported have been made. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company's Form 10-K for the year ended December 31, 2011, filed with the SEC. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results that can be expected for the entire year ending December 31, 2012. The Company presents an unclassified balance sheet as a result of the extended amortization period (predominantly three to six years) of its reusable surgical products. The Company provides reusable surgical products to its customers on a per use basis similar to a rental arrangement. The Company operates on a 52-53 week fiscal year ending the Sunday nearest December 31. The unaudited financial statements are reflected as of March 31, 2012 and 2011 for presentation purposes only. The actual end of each period was April 1, 2012 and April 3, 2011, respectively. There are 13 weeks included for each of the three month periods ended March 31, 2012 and 2011. </div>

2640000

2838000

1492000

1333000

91000

90000

2327000

1503000

497000

302000

0.001

5000000

1781000

1884000

29796000

30281000

6045000

1000

24053000

23579000

9000

53000

34728000

30075000

3697000

3195000

27330000

27065000

3565000

3512000

4170000

4290000

167000

126000

2136000

2363000

<div> NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates Management is required to make estimates and assumptions during the preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions. Accounts Receivable, net The Company has accounts receivable from hospitals and surgery centers. The Company does not believe that there is sufficient credit risk associated with those receivables to require a form of collateral from its customers. The allowance for doubtful accounts at March 31, 2012 and December 31, 2011, was $124,000 and $128,000, respectively. The allowance for doubtful accounts relates to accounts receivable not expected to be collected and is based on management's assessment of specific customer balances, the overall aging of the balances, and the financial stability of the customers. Inventories, net Inventories consist of raw materials, principally consumables, supplies, and disposable surgical products and finished goods consisting of assembled packs of various combinations of raw materials and disposable accessory packs purchased from third parties. Inventories are valued at the lower of cost or market, with cost being determined on the first-in, first-out method.   As of March 31, 2012 and December 31, 2011, inventory consists of the following:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr><td width="76%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">March 31, 2012</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="6" align="center">(in 000's)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Raw materials</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,557</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,710</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Finished goods</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,662</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,758</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,219</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,468</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Less: Inventory reserve</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(132</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(111</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,087</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,357</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Reusable Surgical Products, net The Company's reusable surgical products, consisting principally of linens (gowns, towels, drapes), basins (stainless steel medicine cups, carafes, trays, basins), and owned surgical instruments, are stated at cost. Amortization of linens is computed on a basis similar to the units of production method. Estimated useful lives for each product are based on the estimated total number of available uses for each product. The expected total available usage for its linen products using the three principal fabrics (accounting for approximately 76% of the reusable surgical products) is 75, 100, and 125 uses, based on several factors, including the Company's actual historical experience with these products. The Company believes radio frequency identification ("RFID") technology enables it to evaluate the useful lives of linen products more efficiently. Basins are amortized on a straight-line basis over their estimated useful life, up to 20 years. Owned surgical instruments are amortized straight-line over a period of four years. Accumulated amortization as of March 31, 2012 and December 31, 2011, was approximately $17.9 million and $16.9 million, respectively. As of March 31, 2012, and December 31, 2011, the Company had reserves for shrinkage, obsolescence, and scrap related to reusable surgical products of approximately $1.3 million at the end of each period. Revenue Recognition Revenues are recognized as products and services are delivered, generally daily. Packing slips signed and dated by the customer evidence delivery of product. The Company's contractual relationships with its customers are primarily evidenced by purchase orders or service agreements with terms varying from one to five years, which are generally cancelable by either party. The Company owns substantially all of the reusable surgical products provided to customers except the surgical instruments. A third party provides most of the surgical instruments that are included in the Company's comprehensive surgical procedure-based delivery and retrieval service. The Company pays a fee to the third party for the use of the surgical instruments. In accordance with ASC Topic 605, Revenue Recognition ("ASC 605"), the Company acts as a principal in this arrangement and has reported the revenue gross for the comprehensive surgical procedure-based delivery and retrieval service. The third party agent fee charged to the Company is included in cost of revenues in the statements of operations.   Stock-Based Compensation The Company accounts for its stock-based compensation plans in accordance with the provisions of ASC Topic 718, Share-Based Payments ("ASC 718"). Under ASC 718, all stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. On July 1, 2011, as part of the Company's conversion to a new equity compensation administration and reporting platform, the Company converted to the Black-Scholes valuation model from a binomial (Lattice) model. The cost for all stock-based awards granted between December 31, 2005 and June 30, 2011, represents the grant-date fair value that was estimated in accordance with the provisions of ASC 718, utilizing a binomial (Lattice) model. The cost of all stock-based awards granted subsequent to June 30, 2011, represents the grant-date fair value that is estimated in accordance with the provisions of ASC 718, utilizing the Black-Scholes valuation model. Because the Company does not accrue dividends, the fair value, when using the Black-Scholes valuation model, is essentially the same as the binomial (Lattice) model, when valuing a stock option grant. Compensation for restricted stock awards is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company's common stock. Stock-based compensation expense was $126,000 for the three months ended March 31, 2012, which contributed a $0.02 increase in basic and diluted loss per share. Stock-based compensation expense was $167,000, for the three months ended March 31, 2011, which contributed a $0.03 increase in basic and diluted loss per share. The Company did not receive any proceeds from stock option exercises under any share-based payment arrangements for the three months ended March 31, 2012, because there were no exercises during that period. The proceeds from stock option exercises under all stock-based payment arrangements for the three months ended March 31, 2011 were less than $1,000. There were no stock-based compensation costs capitalized at March 31, 2012 or 2011. Stock Compensation Plans The 1995 Stock Option Plan The 1995 Stock Option Plan was designed to provide employees with incentive or non-qualified options to purchase up to 700,000 shares of common stock. The options vest ratably over four to five years from the date of grant. All outstanding options vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement or termination of employment. As of March 31, 2012 and December 31, 2011, options to purchase 10,500 shares of Company stock were outstanding under this Plan. The 1995 Stock Option Plan terminated on December 21, 2005, although that termination does not adversely affect any options outstanding under the Plan. The 1996 Non-Employee Director Plan As amended on May 16, 2001, the Non-Employee Director Plan was designed to provide for the grant of non-qualified stock options to purchase up to 200,000 shares of common stock to members of the Board of Directors who are not employees of the Company. At the completion of the Company's initial public offering, each non-employee director was granted options to purchase 4,000 shares of common stock for each full remaining year of the director's term.   As of March 2006, the equity component of the director compensation plan was restructured, so that each non-employee director receives an annual grant of options, from the 2004 Stock Compensation Plan described below, to purchase 7,500 shares of common stock as of the date of each annual shareholder meeting. As of March 31, 2012 and December 31, 2011, options to purchase 60,000 shares of Company stock were outstanding under the 1996 Non-Employee Director Plan. The 1996 Non-Employee Director Plan terminated on July 14, 2006, although that termination does not adversely affect any options outstanding under the Plan. The 1998 Stock Option Plan As amended on May 16, 2001, the 1998 Stock Option Plan was designed to provide employees with incentive or non-qualified options to purchase up to 600,000 shares of common stock. The options vest ratably over four to five years from the date of the grant. All outstanding options vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment. As of March 31, 2012 and December 31, 2011, options to purchase 222,000 and 242,000 shares, respectively, were outstanding under the 1998 Stock Option Plan. The 1998 Stock Option Plan terminated on February 17, 2008, although that termination does not adversely affect any options outstanding under the Plan. The 2004 Stock Compensation Plan The 2004 Stock Compensation Plan is designed to further the interests of the Company and its shareholders by providing incentives in the form of incentive or non-qualified stock options or restricted stock grants to key employees and non-employee directors who contribute materially to the success and profitability of the Company. Under this Plan, restricted stock grants are not considered outstanding options upon grant but are considered issued and outstanding stock. Any forfeited restricted stock awards are considered available for grant. Except for annual grants to non-employee directors described below, the equity awards typically vest ratably over five years from the date of grant. Each non-employee director of the Company receives an annual award of options to purchase 7,500 shares of common stock as of the date of the annual shareholder meeting. Under each grant agreement, the options vest ratably over a three-year period and have an exercise price equal to the fair market value of the common stock on the date of grant. All outstanding grants vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment. At the Company's annual meeting of shareholders on May 24, 2007, the shareholders approved an amendment to the 2004 stock compensation plan to authorize an additional 500,000 shares under the Plan. As of March 31, 2012 and December 31, 2011, options to purchase 914,900 and 917,950 shares, respectively, were outstanding, and 7,150 and 4,100 shares, respectively, were available for grant as options or restricted stock under this Plan. The 2009 Stock Compensation Plan The 2009 Stock Compensation Plan is designed to further the interests of the Company and its shareholders by providing incentives in the form of incentive or non-qualified stock options or restricted stock grants to key employees and non-employee directors who contribute materially to the success and profitability of the Company. Under this Plan, restricted stock grants are not considered outstanding options upon grant but are considered issued and outstanding stock. Any forfeited restricted stock awards are considered available for grant. Except for annual grants to non-employee directors described above, the equity awards typically vest ratably over five years from the date of the grant. All outstanding grants vest upon a change in control of the Company. Options granted under this Plan expire no later than ten years after the date granted or sooner in the event of death, disability, retirement, or termination of employment. At the Company's annual meeting of shareholders on May 21, 2009, the shareholders approved the 2009 Stock Compensation Plan and authorized 600,000 shares available for grant under the Plan. As of March 31, 2012 and December 31, 2011, options to purchase 81,000 shares were outstanding and 519,000 shares were available for grant as options or restricted stock under the Plan. In February 2008, the Company granted 25,000 shares of restricted stock and options to purchase 150,000 shares of common stock to the Company's Chief Executive Officer. The option award vested evenly over a three-year period. The 25,000 shares of restricted stock vested entirely on the third anniversary date of the date of grant or upon involuntary termination. These grants were inducement grants made outside of the Company's equity compensation plans. The following table summarizes stock option and restricted stock grant activity from January 1, 2012 through March 31, 2012:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Shares Available for Grant</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Options Outstanding</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Exercise Price</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Remaining Contractual Life</td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">523,100</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,461,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.87</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.46</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Options expired *</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(20,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">16.23</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options forfeited *</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,050</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,050</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.63</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Balance at March 31, 2012</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">526,150</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,438,400</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.70</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.30</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options exercisable at March 31, 2012</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">973,623</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.00</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.55</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="2%" align="left">*</td> <td valign="top" align="left">Options expired and forfeited are included in the shares available for grant, but do not include options that had expired or were forfeited during 2012 under terminated plans. </td></tr></table> There were no options granted during the three months ended March 31, 2012. The weighted-average grant date fair value of options granted during the three months ended March 31, 2011 was $4.82. There were no options exercised in the three month period ended March 31, 2012. The total intrinsic value of options exercised in the three months ended March 31, 2011 was less than $1,200. The aggregate intrinsic value of options fully vested at March 31, 2012 was $571,000. The aggregate intrinsic value of options outstanding at March 31, 2012 and expected to vest was $1.0 million. As of March 31, 2012, there was $497,000 of unrecognized compensation cost related to non-vested options that is expected to be recognized over a weighted average period of 2.0 years. The total fair value of options and restricted stock vested during the three months ended March 31, 2012 and 2011 was $126,000 and $167,000. The Company consistently used a binomial model for estimating the fair value of options granted prior to July 1, 2011. As noted above, as of July 1, 2011, the Company converted to a new equity compensation administration and reporting software platform and converted to the Black-Scholes valuation model from a binomial (Lattice) model. The Company used historical data to estimate the option exercise and employee departure behavior used in the valuation models. The expected term of options granted is derived from the output of the option pricing model used and represents the period of time that options granted are expected to be outstanding. The risk-free rates are based on the U.S. Treasury stripped coupon interest in effect at the date of grant based on the expected term of the option granted.   Following are the weighted-average and range assumptions, where applicable, used for options granted during each respective period:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr><td width="60%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td></tr> <tr><td valign="bottom" rowspan="2"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="3" align="center">Three Months Ended</td></tr> <tr><td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">March 31, 2012</td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">March 31, 2011</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="3" align="center">(Binomial/Black-Scholes)</td></tr> <tr><td height="8"> </td> <td height="8" colspan="2"> </td> <td height="8" colspan="2"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected dividend yield</td> <td valign="bottom">  </td> <td valign="bottom" align="center">0.0%</td> <td valign="bottom"> </td> <td valign="bottom" align="center">0.0%</td></tr> <tr><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom" align="center">0.48 to 1.67%</td> <td valign="bottom"> </td> <td valign="bottom" align="center">1.10 to 3.55%</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Weighted-average expected volatility</td> <td valign="bottom">  </td> <td valign="bottom" align="center">98.0%</td> <td valign="bottom"> </td> <td valign="bottom" align="center">102.2%</td></tr> <tr><td valign="top"> Expected term</td> <td valign="bottom">  </td> <td valign="bottom" align="center">2.84 to 7.32 years</td> <td valign="bottom"> </td> <td valign="bottom" align="center">2.47 to 9.00 years</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Respective service period</td> <td valign="bottom">  </td> <td valign="bottom" align="center">3-5 years</td> <td valign="bottom"> </td> <td valign="bottom" align="center">3-5 years</td></tr></table> Restricted Stock Awards In February 2011, the Company granted 17,000 shares of restricted stock to a key employee pursuant to the 2004 Stock Compensation Plan. The shares vest ratably over five years. There were no shares of restricted stock granted during the three months ended March 31, 2012. The Company recorded $5,000 and $7,000, in compensation expense related to the restricted stock that vested during the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012 and December 31, 2011, there was $78,000 and $83,000, respectively, of total unrecognized compensation cost related to restricted stock awards granted under the 2004 Stock Compensation Plan, which is expected to be recognized over a period of 3.83 years and 4.08 years, respectively. </div>

38002000

37626000

6460000

6488000

6460000

6488000