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STOCK-BASED COMPENSATION
 3 Months Ended
Mar. 31, 2014
Notes to Financial Statements  
NOTE 7. 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 three months ended March 31, 2014, we expensed approximately $82,000 in stock-based compensation.

 

Activity in our stock options during the period ended March 31, 2014 was as follows:

 

   

Number Of

Options

(in

thousands)

    

Weighted

Average

 Exercise

 Price

  
             
Outstanding at December 31, 2013     2,467     $ 3.55  
                 
Granted     213     $ 3.90  
Exercised     --     $ --  
Cancelled     --     $ --  
                 
Outstanding at March 31, 2014     2,680     $ 3.58  

 

The grant date fair value of options granted during the first three months of 2014 were estimated on the grant date using a trinomial lattice option-pricing model and the following assumptions: expected volatility of 53%, expected term of between 3-5 years, risk-free interest rate of 0.6%, and expected dividend yield of 0%.

 

Expected volatility is based on a five year average of the historical volatility of the Company's stock. Previous to December 2013 we used a weighted average of our historical volatility combined with a peer group of companies’ volatility, which had openly traded stock options on the options market and weighted to percentages relative to our stock and the peer group at a 50%/50% weighting. 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 three months ended March 31, 2014, we issued no common shares in exchange for stock options.