SHAREHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2014

Stockholders' Equity Note [Abstract]

SHAREHOLDERS' EQUITY

11. SHAREHOLDERS’ EQUITY

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 nine 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 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 was 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 years ended December 31, 2014, 2013 and 2012 was $271,000, $213,000 and $244,000, respectively. At December 31, 2014, a total of 556,989 shares were available for grant under these plans.

The following table summarizes stock option activity for 2014, 2013 and 2012:

	2014					2013					2012
	Shares			WAEP*		Shares			WAEP*		Shares			WAEP*
Options outstanding at beginning of year		339,750		$	6.73		398,893		$	7.95		535,333		$	9.58
Granted		167,500		$	4.92		86,000		$	6.82		159,750		$	5.12
Exercised		—		$	—		(2,333	)	$	3.65		(56,000	)	$	2.17
Expired		—		$	—		(4,000	)	$	9.00		(16,000	)	$	15.00
Forfeited		(153,250	)	$	5.74		(138,810	)	$	10.28		(224,190	)	$	10.74
Options outstanding at end of year		354,000		$	6.30		339,750		$	6.73		398,893		$	7.95
Options eligible for exercise at year-end		174,000		$	7.16		130,688		$	7.71		160,143		$	9.84

*Weighted Average Exercise Price

Options outstanding at December 31, 2014 had a weighted average remaining contractual term of 7.0 years and had no aggregate intrinsic value. Options eligible for exercise at December 31, 2014 had a weighted average remaining contractual term of 5.4 years and had no aggregate intrinsic value.

There were no stock options exercised during the fiscal year ended December 31, 2014. The total intrinsic value of stock options exercised during the fiscal years ended December 31, 2013 and 2012 was $4,000 and $208,000, respectively.

The fair value of stock options granted under stock-based compensation programs has been estimated as of the date of each grant using the multiple option form of the Black-Scholes valuation model, based on the grant price and assumptions regarding the expected grant life, stock price volatility, dividends, and risk-free interest rates. Each vesting period of an option award is valued separately, with this value being recognized evenly over the vesting period. The weighted average per share grant date fair value of options to purchase 167,500, 86,000 and 159,750 shares granted for the years ended December 31, 2014, 2013 and 2012 was $2.20, $3.53 and $1.82, respectively. The weighted average assumptions used to determine the fair value of stock options granted during those fiscal years were as follows:

	2014		2013		2012
Expected life (in years)	5.0		5.0		4.8
Risk-free interest rate	1.55	%	1.52	%	0.72	%
Expected volatility	50	%	60	%	42	%
Dividend yield	0	%	0	%	0	%

The expected life represents the period that the stock option awards are expected to be outstanding and was determined based on historical and anticipated future exercise and expiration patterns. The risk-free interest rate used is based on the yield of constant maturity U.S. Treasury bonds on the grant date with a remaining term equal to the expected life of the grant. We estimate stock price volatility based on a historical weekly price observation. The dividend yield assumption is based on the annualized current dividend divided by the share price on the grant date.  We have not historically paid any cash dividends and do not expect to do so in the foreseeable future.

Other information pertaining to options for the years ended December 31, 2014, 2013 and 2012 is as follows:

	2014		2013		2012
Stock-based compensation expense recognized within general and administrative expense on the consolidated statements of operations	$	271,000	$	213,000	$	244,000
Cash received from the exercise of options		—		8,500		121,000
Excess income tax benefits from exercise of stock options		—		—		71,000

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 December 31, 2014, there were stock awards issued for 8,168 shares with a weighted-average grant date fair value of $3.065.  For the year ended December 31, 2014, there were stock awards issued for 21,116 shares with a weighted-average grant date fair value of $4.29.