NOTE 12 - SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

NOTE 12 - SHARE-BASED COMPENSATION

For share-based awards granted, we have recognized compensation expense based on the estimated grant date fair value method. For these awards we have recognized compensation expense using a straight-line amortization method and reduced for estimated forfeitures.  

The impact on our results of operations of recording share-based compensation for the year ended December 31, 2012 and 2011 was as follows:

	Year Ended December 31,
	2012			2011
(in thousands)
Cost of goods sold	$	49		$	45
Research and development		112			84
Selling, general and administrative		364			348
Total share-based compensation	$	525		$	477
Impact on net income per share:
Basic and diluted	$	(0.07	)	$	(0.05	)

Approximately $15,000 and $10,000 of share-based compensation was capitalized into inventory for the years ended December 31, 2012 and 2011, respectively.

The fair values of share-based awards for employee stock option awards were estimated at the date of grant using the Black-Scholes valuation model.  The volatility and expected life of the options used in calculating the fair value of share-based awards may exclude certain periods of historical data that we considered atypical and not likely to occur in future periods. The following weighted average assumptions were used to calculate the fair value of options granted during the years ended December 31:

	Employee Stock
	Options
	2012			2011
Risk-free interest rates		0.64	%		1.39	%
Volatility factors		0.53			0.55
Expected life of the option in years		4.00			4.00
Expected dividend yield	None			None

The risk-free interest rate used in the Black-Scholes valuation method is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term.  We have not recently declared or paid any dividends and do not currently expect to do so in the future.  The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised shares.  Consideration was given to the contractual terms of our stock-based awards, vesting schedules and expectations of future employee behavior.  Expected volatility is based on the annualized daily historical volatility of our stock over a representative period.

The weighted average grant date fair value of options granted under our stock option plans for the twelve month period ending December 31, 2012 and 2011 was $.91 and $2.61, respectively.  The following table summarizes stock option activity under our stock option plans for the twelve months ended December 31:

	2012							2011
	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years		Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years
Outstanding at beginning of year		1,038,011		$	4.74				833,841		$	3.94
Granted		390,000			2.37				324,500			6.02
Exercised		(29,844	)		3.82				(111,893	)		2.55
Cancelled, Expired or
Forfeited		(239,762	)		4.62				(8,437	)		4.62
Outstanding at end of year		1,158,405		$	4.00		3.43		1,038,011		$	4.74		3.64
Vested or expected to vest at the end of the period		1,046,028		$	4.51		1.98		948,096		$	4.68		2.65
Exercisable at end of year		609,812		$	4.10		1.98		551,000		$	4.36		2.65

The aggregate intrinsic value of outstanding options is $0.  This represents the total pretax intrinsic value, based on the our closing stock price of 1.65 at December 31, 2012, which would have been received by award holders had all award holders exercised their stock options that were in-the-money as of that date.  The aggregate intrinsic value of awards exercised during the twelve month period ended December 31, 2012 was $4,709.

Restricted stock award including performance-based stock award activity under our share-based compensation plan was as follows:

	2012					2011
	Awards			Weighted - Average Grant Date Fair Value		Awards			Weighted - Average Grant Date Fair Value
Outstanding at beginning of year		30,378		$	5.10		25,235		$	4.27
Granted		112,500			2.19		15,200			6.02
Vested		(11,353	)		5.00		(9,485	)		4.35
Cancelled		(1,525	)		4.11		(572	)		5.16
Outstanding at end of year		130,000		$	2.60		30,378		$	5.10

The remaining unamortized expected future compensation expense and remaining amortization period associated with unvested option grants and restricted stock awards are:

	December 31, 2012		December 31, 2011
Unamortized future compensation expense	$	1,040,385	$	1,181,876
Remaining weighted average amortization period in years		2.65		2.65