Stock-Based Compensation

9 Months Ended

Sep. 30, 2014

Note 10. Stock-Based Compensation

The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the BSM model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected price volatility, the expected option life, and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The Company calculates expected volatility for stock options and awards using historical volatility because the Company believes the future volatility will approximate historical volatility. At September 30, 2014, the Company had one active stock-based employee compensation plan.

During the second quarter of 2014, the Company granted one director options to purchase 25,000 shares of common stock. The options were priced above fair market value and vested 20% on the grant date, with an additional 20% vesting on the first four anniversaries of the grant date. The options expire ten years from the date of grant.

During the third quarter of 2013, the Company granted to its Chief Executive Officer and three of its outside directors options to each purchase 50,000 shares of common stock and granted options to purchase 25,000 shares of common stock to the fourth outside director. The options to the Chief Executive Officer were granted at fair market value and vested immediately. The options granted to outside directors were priced above fair market value and vested 20% on the grant date, with an additional 20% vesting on the first four anniversaries of the grant date. All of the stock option grants expire ten years from the date of the grant.

The assumptions made in estimating the fair value of the options on the grant date based upon the BSM option-pricing method are as follows:


	Nine Months Ended September 30
	2014	2013
Dividend yield	0.00%	0.00%
Expected volatility	44.11%	44.27-45.00%
Risk free interest rate	2.02%	1.33-1.92%
Expected life	6 years	5.5-6 years

The Company recognized compensation expense of approximately $51 and $149 during the nine months ended September 30, 2014 and 2013, respectively, in connection with the issuance of the options.

There were no stock options exercised during the nine-month period ended September 30, 2014. During the nine-month period ended September 30, 2014, 14,480 stock options were forfeited.

A summary of the Company’s stock option plan as of September 30, 2014 and changes during the nine months then ended is listed below:


	Number of Shares	Weighted-Average Exercise Price

Balance at January 1, 2014	246,980	$ 4.53
Granted	25,000	4.39
Exercised	0
Canceled/forfeited/expired	14,480	4.16
Balance at September 30, 2014	257,500	$ 4.54

Vested and exercisable as of
September 30, 2014	132,500

The Company has two equity plans with options outstanding. This roll forward includes both plans.

As of September 30, 2014, there was approximately $188 of unrecognized compensation expense. The Company expects to recognize this expense over the next four years. There was no intrinsic value in the options outstanding and exercisable as of Setpember 30, 2014 as all exercise prices were greater than the current fair market value as of that date.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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