STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCK- BASED COMPENSATION [Abstract]

STOCK- BASED COMPENSATION

9. STOCK-BASED COMPENSATION

The following table summarizes the components of the Company's stock-based compensation included in net income:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Employee stock options	$	92,821		$	16,164		$	255,769		$	63,519
Consultant stock options		23,083			-			79,635			-
Restricted stock awards		92,686			64,100			351,541			209,838
Income tax benefit		(41,973	)		(23,168	)		(156,327	)		(75,842	)
Totals	$	166,617		$	57,096		$	530,618		$	197,515

Due to the Company's valuation allowance against deferred tax assets, all of the above income tax benefit was reserved as of September 30, 2011. No stock-based compensation was capitalized as a cost of inventory during the three and nine months ended September 30, 2011 and 2010.

Stock Options - The following is a summary of the stock option activity for the nine months ended September 30, 2011:

	Shares			Weighted Average Exercise Price
Outstanding, December 31, 2010		660,450		$	1.97
Granted		278,440		$	2.96
Exercised		(32,585	)	$	1.44
Forfeited		(15,310	)	$	1.61
Expired		(19,968	)	$	10.62
Outstanding, September 30, 2011		871,027		$	2.12

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2011 was $2.07. The total fair value of stock options that vested during the nine months ended September 30, 2011 was approximately $239,000. The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the nine months ended September 30, 2011:

Dividend yield	0.0	%
Expected volatility	90.7	%
Risk-free interest rate	1.80	%
Expected lives (years)	5.0

Although the Company issued dividends in prior years, a dividend yield of zero was used due to the uncertainty of future dividend payments. Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company estimates expected volatility giving primary consideration to the historical volatility of its common stock. The risk-free interest rate is based on the published yield available on U.S. Treasury issues with an equivalent term remaining equal to the expected life of the stock option. The expected lives of the stock options represent the estimated period of time until exercise or forfeiture and are based on historical experience of similar awards.

The following table summarizes information about stock options outstanding at September 30, 2011:

Options Outstanding						Options Exercisable						Options Vested or Expected to Vest
Balance as of 9/30/2011		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 9/30/2011		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 9/30/2011		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	871,027		8.29	$	2.12		409,818		7.52	$	2.26		819,545		8.23	$	2.11

As of September 30, 2011, the unrecognized stock-based compensation expense related to unvested stock options was approximately $522,000, which is expected to be recognized over a weighted average period of approximately 27 months.

The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at September 30, 2011 was approximately $579,000, $316,000, and $561,000, respectively. This amount is before applicable income taxes and represents the closing market price of the Company's common stock at September 30, 2011 less the grant price, multiplied by the number of stock options that have a grant price that is less than the closing market price. This amount represents the amount that would have been received by the optionees had these stock options been exercised on that date. During the three and nine months ended September 30, 2011, the aggregate intrinsic value of options exercised was approximately $26,000 and $46,000, respectively.

Restricted Stock - The following is a summary of the restricted stock activity for the nine months ended September 30, 2011:

	Shares			Weighted Average Grant Date Fair Value
Unvested, December 31, 2010		108,512		$	2.35
Granted		278,866		$	2.91
Vested		(147,989	)	$	2.49
Canceled		-		$	-
Unvested, September 30, 2011		239,389		$	2.92

As of September 30, 2011, the unrecognized stock-based compensation expense related to unvested restricted stock was approximately $545,000, which is expected to be recognized over a weighted average period of approximately 31 months.

Dividends - The Company has not paid any cash dividends in the current year through September 30, 2011.