The Company follows FASB ASC 718 Compensation-Stock Compensation, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant, and recognition of stock-based compensation expense over the service period for awards expected to vest. The fair value of stock options was determined using the Black-Scholes valuation model. Such fair value is recognized as an expense over the service period, net of forfeitures. Stock-based compensation expense was $251,000 and $259,000 in fiscal years 2012 and 2011, respectively, and was primarily included in selling, general, and administrative expenses.
The Companys stock options vest over a period of three and five years. The fair value for these stock options was estimated at the date of grant using a Black-Scholes stock option pricing model, with the following weighted average assumptions for fiscal years 2012 and 2011; risk-free interest rates of 3.51% to 3.54%, volatility factor of the expected market price of the Companys common stock of 109% to 117%, no dividend yield, and a weighted average expected life of the stock options of 6.5 years.