(6) STOCK-BASED COMPENSATION PLANS

The Company has a 2005 Stock Option Plan (the “Option Plan”) and has reserved 3,000,000 shares of common stock for issuance under the Option Plan. Vesting terms are determined by the Board of Directors. All stock options under the Option Plan expire no later than ten years from the date of grant.

For the years ended December 31, 2013 and 2012, the Company recorded compensation expense related to stock options of $133 and $166, respectively. Stock-based compensation recorded in the accompanying consolidated statements of operations for the years ended December 31, 2013 and 2012 included $11 and $20, respectively, in cost of goods sold and $122 and $146, respectively, in selling, general and administrative expenses.

For the year ended December 31, 2013, the Company granted options to purchase up to 1,424,216 shares of common stock to employees at exercise prices that ranged from $0.22 to $0.48 per share. During the year ended December 31, 2012, the Company granted options to purchase up to 322,500 shares of common stock at exercise prices that ranged from $0.70 to $0.81 per share.

The Company used the Black Scholes option pricing model to determine the fair value of stock option grants, using the following assumptions during the years ended December 31, 2013 and 2012:

	2013			2012
Weighted average expected term		6.25 years			6.25 years
Weighted average volatility		111	%		134	%
Weighted average risk-free interest rate		1.54	%		0.8	%
Dividend yield		0	%		0	%

(6) STOCK-BASED COMPENSATION PLANS (continued)

The weighted average expected term of stock options represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The weighted average expected volatility is based on the historical price volatility of the Company’s common stock. The weighted average risk-free interest rate represents the U.S. Treasury bill rate for the expected term of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected term of the stock options.

Forfeitures of share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the years ended December 31, 2013 and 2012 was 40% and 37%, respectively.

A summary of stock option activity under the Option Plan for the years ended December 31, 2013 and 2012, are presented below:

	Shares Under Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at January 1, 2012		1,661,750		$	0.98
Granted		322,500		$	0.74
Exercised		(34,500	)	$	0.39
Forfeited		(448,250	)	$	0.97
Outstanding at December 31, 2012		1,501,500		$	0.95		7.0 Years	$	78
Exercisable at December 31, 2012		810,623		$	1.11		5.8 Years	$	50
Outstanding at January 1, 2013		1,501,500		$	0.95
Granted		1,424,216		$	0.26
Exercised		(23,000	)	$	0.63
Forfeited		(430,500	)	$	0.87
Outstanding at December 31, 2013		2,472,216		$	0.57		8.1 Years	$	178
Exercisable at December 31, 2013		808,623		$	1.05		5.4 Years	$	5

A summary of status of the Company’s non-vested shares under option as of and for the year ended December 31, 2013 is presented below:

	Non-vested Shares Under Option			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2013		690,877		$	0.69
Granted		1,424,216		$	0.22
Vested		(276,250	)	$	0.78
Forfeited		(175,250	)	$	0.78
Non-vested at December 31, 2013		1,663,593		$	0.29

As of December 31, 2013, the Company had approximately $326 of unrecognized compensation expense related to stock options that will be recognized over a weighted-average period of approximately 3.5 years. In addition, the Company issued 23,000 shares of common stock in 2013 through a cashless exercise of 46,000 common stock options, pursuant to a separation agreement dated November 1, 2013 (Note 15 ).