Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Note H: Stock-Based Compensation

We compensate officers, directors and key employees with stock-based compensation under stock plans approved by our shareholders and administered under the supervision of our Board of Directors. Stock option awards are granted at exercise prices equal to the closing price of our stock on the day before the date of grant. Generally, options vest proportionally over periods of three to five years from the dates of the grant, beginning one year from the date of grant, and have a contractual term of six to ten years.

Performance stock options are time based;however, the final number of awards earned and the related compensation expense is adjusted up or down as of the last day of the performance period to the extent the performance target is met. The actual number of shares that will ultimately vest ranges from 90% to 100% of the targeted amount if the minimum performance target is achieved. For performance stock awards granted in 2014, the performance target is revenue. We evaluate the likelihood of meeting the performance target at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each performance target.

Compensation expense, net of estimated forfeitures, is recognized ratably over the vesting period. Stock-based compensation expense included in general and administrative expense for the three-month periods ended June 30, 2014 and 2013 was $99,000 and $31,000, respectively. Stock-based compensation expense included in general and administrative expense for the six-month periods ended June 30, 2014 and 2013 was $186,000 and $86,000, respectively. At June 30, 2014, a total of 443,113 shares were available for grant under these plans.

Stock Options

A summary of the option activity for the first six months of 2014 is as follows:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2013		339,750		$	6.73		6.9	$	9,000
Granted		167,500		$	4.92		9.7	$	4,650
Exercised		—		$	—		—	$	—
Expired		—		$	—		—	$	—
Forfeited		(27,562	)	$	5.66		—	$	325
Options outstanding at June 30, 2014		479,688		$	6.16		7.6	$	—
Options exercisable at June 30, 2014		144,938		$	7.61		4.9	$	—

There were no options exercised during the three and six month periods ended June 30, 2014. The total intrinsic value of options exercised was $8,632 during the three and six month periods ended June 30, 2013. As of June 30, 2014, there was $655,000 of total unrecognized compensation cost related to non-vested stock options. The weighted average period over which the compensation cost is expected to be recognized is 2.8 years.

Stock Awards

We issue stock awards as a portion of the annual retainer for each director on a quarterly basis. The stock awards are fully vested at the time of issuance. Compensation expense related to stock awards is determined on the grant date based on the publicly quoted fair market value of our common stock and is charged to earnings on the grant date. During the quarter ended June 30, 2014, there were stock awards issued for 5,593 shares with a weighted-average grant date fair value of $3.91. For the six months ended June 30, 2014, there were stock awards issued for 9,304 shares with a weighted-average grant date fair value of $4.36.