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STOCK-BASED COMPENSATION
 9 Months Ended
Sep. 30, 2015
Notes to Financial Statements  
NOTE 7. STOCK-BASED COMPENSATION

Under our stock option plans, 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 nine months ended September 30, 2015, we expensed approximately $380,000 in stock-based compensation.

 

Activity in our stock options during the period ended September 30, 2015 was as follows:

 

   

Number of

Options

(in thousands)

    

Weighted

Average Exercise

 Price

  
             
Outstanding at December 31, 2014     2,864     $ 3.69  
                 
Granted     385     $ 2.52  
Exercised     (97 )   $ 2.25  
Cancelled     (429 )   $ 2.81  
Outstanding at September 30, 2015     2,723     $ 3.59  

  

The grant date fair value of options granted during the first nine 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 1.58%, and expected dividend yield of 0%.

 

Expected volatility is based on a five year average of the historical volatility of the Company's stock. 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 nine months ended September 30, 2015, we issued 97,500 shares upon the exercise of outstanding stock options.