The Company estimates the fair value of stock options granted using the Black-Scholes-Merton (Black-Scholes) option-pricing formula and amortizes the estimated option value using an accelerated amortization method where each option grant is split into tranches based on vesting periods. The Company’s expected term represents the period that the Company’s share-based awards are expected to be outstanding and was determined based on historical experience regarding similar awards, giving consideration to the contractual terms of the share-based awards and employee termination data. Executive level employees who hold a majority of options outstanding, and non-executive level employees each have similar historical option exercise and termination behavior and thus were grouped for valuation purposes. The Company’s expected volatility is based on the historical volatility of its traded common stock and places exclusive reliance on historical volatilities to estimate our stock volatility over the expected term of its awards. The Company has historically not paid dividends to common stockholders and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from the U.S. Treasury zero-coupon bonds with an equivalent term.

As of June 30, 2013, the total unrecognized compensation cost related to non-vested options amounted to $291,000, which is expected to be recognized over the options’ average remaining vesting period of 2.50 years. No income tax benefit was realized by the Company in the six months ended June 30, 2013.

Under the Company’s stock option plans, option awards generally vest over a four year period of continuous service and have a 10 year contractual term. The fair value of each option is amortized on a straight-line basis over the option’s vesting period. The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model.

There were 65,000 and 40,000 options granted during the first six months of 2013 and 2012, respectively.

Activity under the Company’s stock option plans for the six months ended June 30, 2013 is as follows:

	OPTIONS OUTSTANDING
		Shares		Weighted Average Exercise Price Per Share
Balance, December 31, 2012		708,000		$	4.14
Granted		65,000			2.76
Canceled		(87,000	)		4.31
Balance, June 30, 2013		686,000		$	3.98

The following table summarizes outstanding options under the Company’s stock option plans as of June 30, 2013.

	Number of Shares	Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding Options	686,000	$3.98	5.90	-

Ending Vested and Exercisable	447,000	$4.55	4.54	-

Options Expected to Vest	596,000	$4.08	5.90	-