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6. STOCK-BASED COMPENSATION
 3 Months Ended
Mar. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION

(6) STOCK-BASED COMPENSATION

 

The Company records stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation.  The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method.

 

The Company uses the historical stock price volatility as an input to value its stock options under ASC No. 718. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns of the Company, which the Company believes are indicative of future exercise behavior. For the risk-free interest rate, the Company uses the observed interest rates appropriate for the term of time options are expected to be outstanding. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

 

The following weighted-average assumptions were used for grants issued during the three months ended March 31, 2014 and 2013 under the ASC No. 718 requirements.

 

   Three months ended March 31, 
   2014   2013 
Weighted average risk-free rate   1.24%   0.57%
Weighted average volatility   81.77%   80.59%
Dividend yield   0.00%   0.00%
Expected life   4.64 years    4.57 years 

 

ASC No. 718 requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeiture rates differ from those estimates. Forfeitures were estimated based on historical activity for the Company. Stock-based compensation expense for the three months ended March 31, 2014 and 2013 was $52,000 and $26,000, respectively, and is included in selling, general and administrative expenses and credited to additional paid-in-capital. The Company granted stock options to purchase 850,000 and 330,000 shares during the three months ended March 31, 2014 and 2013, respectively.