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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2015

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 trinomial 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, 2015, we expensed approximately $118,575 in stock-based compensation.

Activity in our stock options during the period ended March 31, 2015 was as follows:

				Weighted
	Number of			Average
	Options			Exercise
	(in thousands)			Price

Outstanding at December 31, 2014		2,864		$	3.69

Granted		40		$	3.58
Exercised		(5	)	$	2.25
Cancelled		-		$	-
Outstanding at March 31, 2015		2,899		$	3.69

The grant date fair value of options granted during the first three months of 2015 were estimated on the grant date using a trinomial lattice option-pricing model and the following assumptions: expected volatility of 54%, expected term of between 5-8 years, risk-free interest rate of 0.02%, 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, 2015, we issued 5,000 shares upon the exercise of outstanding stock options.

- 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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