11.

Stock Options and Award Programs

The Company’s stock incentive plan is administered by the Compensation Committee and authorizes the grant or award of incentive stock options, non-qualified stock options, restricted stock awards, stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company has issued restricted stock awards and non-qualified stock option awards as described below.

Restricted Stock Awards

On November 18, 2010, the Company’s Compensation Committee granted Steve L. Komar and James T. McCubbin each an award of 250,000 shares of restricted stock of the Company, the vesting of which is based on achievement of future performance goals of the Company. There were no changes in vesting requirements or activity related to restricted stock awards (RSA) during the three or six month periods ended June 30, 2014. At June 30, 2014, the Company had approximately $294,800 of total unamortized RSA compensation expense.

Stock Option Awards

For each of the three and six month periods ended June 30, 2014, the Company granted stock options of 310,000 and 360,000 (of which 50,000 was granted to a non-employee consultant), respectively. The fair value of each this option award was estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”), which uses the assumptions of no dividend yield, risk free interest rate of 0.35% to 2.21% and expected life in years of approximately 7 years (or 2 years for non-employee consultants). Expected volatilities used in determining the fair value of options granted based on historical volatility of our common stock of approximately 73.7% to 85.9%. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Stock option awards reflected in the tables below cover the period from 1999 through June 30, 2014. A summary of the stock option award activity under our plans during the six months ended June 30, 2014 is set forth below (unaudited):

			Weighted		Weighted
			Average Grant		Average
	# of		Date Fair Value		Remaining
NON-VESTED OPTIONS	Shares		per Share		Option Life
	(Unaudited)
Non-vested balances, January 1, 2014		1,900,000	$	0.36
Granted		360,000	$	1.03
Vested		(594,162)	$	0.30
Non-vested balances, June 30, 2014		1,665,838	$	0.53		2.3

			Weighted		Weighted
			Average		Average
	# of		Exercise Price		Remaining
OUTSTANDING AND EXERCISABLE	Shares		per Share		Option Life
	(Unaudited)
Options outstanding, January 1, 2014		3,336,500	$	0.72
Granted		360,000	$	1.45
Exercised		(75,000)	$	0.45
Options outstanding, June 30, 2014		3,621,500	$	0.79		3.7

Options outstanding and exercisable, June 30, 2014		1,955,662	$	0.73		2.5

Aggregate intrinsic value represents total pretax intrinsic value (the difference between the Company’s closing stock price on June 30, 2014, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2014. The intrinsic value will change based on the fair market value of the Company’s stock. The total intrinsic values of all options that were outstanding and the portion of those outstanding that were exercisable as of June 30, 2014, were $3.5 million and $2.0 million, respectively.

Share-based compensation (including restricted stock awards) represents both stock options based expense and stock grant expense. For the three and six month periods ended June 30, 2014 and 2013, the Company recognized share-based compensation expense of approximately $84,000, $58,300, $166,700 and $112,300, respectively. During the six month period ended June 30, 2014 there were no fully vested stock options that expired unexercised and/or were cancelled as a result of employment terminations.

At June 30, 2014, the Company had approximately $604,300 of total unamortized compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over the weighted average remaining period of 2.3 years.

See Note 9 for discussion about the tax benefit associated with the exercise of stock options.