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STOCK-BASED COMPENSATION
 6 Months Ended
Jun. 30, 2013
Stock-Based Compensation  
NOTE 8. STOCK-BASED COMPENSATION

Under our stock option plan, our board of directors may grant options to purchase common shares to our key employees, officers, directors and consultants. We account for stock options in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, with option expense amortized over the vesting period based on the binomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense. During the six months ended June 30, 2013, we expensed approximately $294,000 in stock-based compensation which includes approximately $193,000 expensed due to accelerated options as discussed in Note 10.

 

Activity in our stock options during the period ended June 30, 2013 was as follows:

 

   

Number of Options (in thousands)

    

Weighted

Average  Exercise  Price

  
             
Outstanding at December 31, 2012     1,879     $ 3.81  
                 
Granted     60     $ 5.42  
Exercised     (41 )   $ 1.13  
Legal award (1)     94       7.00  
Cancelled     (5)     $ 2.54  
                 
Outstanding at June 30, 2013     1,987     $ 4.06  

 

(1) Includes approximately 110,000 options reinstated and accelerated as part of the jury verdict on the keen legal matter, net of 16,000 options previously vested.

 

The grant date fair value of options granted during the first six months of 2013 were estimated on the grant date using a binomial lattice option-pricing model and the following assumptions: expected volatility of 43%, expected term of between 3-5 years, risk-free interest rate of 0.4%, and expected dividend yield of 0%.

 

Expected volatility is based on a weighted average of the historical volatility of the Company's stock and peer company volatility. We use a peer group that has openly traded stock options on the options market which provides a more accurate gauge of industry volatility. The weighting percentages relative to our stock and the peer group is a 50%/50% weighting. Our peer group has remained relatively the same throughout our calculations year over year, and a peer is only replaced with a similar peer company if it is removed from the public stock exchanges or no longer has significantly traded volume on the open stock options market. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the options. The Company uses historical data to estimate pre-vesting forfeiture rates.

 

During the six months ended June 30, 2013, we issued 34,798 common shares in exchange for 41,000 non-employee stock options and 6,202 common shares (via a stock swap). Net proceeds from the issuance of common shares along with the shares received in the stock swap exercises were $23,925 for the six months ended June 30, 2013.