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6. STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

The Company records stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation and ASC No. 505-50, Equity – Equity-Based Payments to Non-Employees. 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 share-based payment awards to employees is recognized using the straight-line single-option method. Stock-based compensation expense for share-based payment awards to non-employees is recorded at its fair value on the grant date and is periodically re-measured as the underlying awards vest.

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 and six months ended June 30, 2014 and 2013 under the ASC No. 718 requirements.

		Three months ended June 30,				Six months ended June 30,
		2014		2013		2014		2013
Weighted-average risk-free rate		1.26%		0.55%		1.25%		0.56%
Weighted-average volatility		81.42%		79.47%		81.62%		79.80%
Dividend yield		0.00%		0.00%		0.00%		0.00%
Expected life		4.89 years		4.92 years		4.75 years		4.82 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 June 30, 2014 and 2013 was $60,000 and $27,000, respectively, and $111,000 and $53,000 for the six months ended June 30, 2014 and 2013, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital. The Company granted stock options to purchase 650,000 and 798,000 shares of common stock during the three months ended June 30, 2014 and 2013, respectively, and stock options to purchase 1,500,000 and 1,128,000 shares of common stock during the six months ended June 30, 2014 and 2013, respectively.

The total intrinsic value of options exercised during the three and six months ended June 30, 2014 was approximately $32,000 and $39,000, respectively. During the three and six months ended June 30, 2014, the Company received approximately $17,000 and $23,000, respectively, in cash payments for the exercise of options to purchase approximately 18,000 and 98,000 shares, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2013 was approximately $2,000. Pursuant to the Company’s 2004 and 2010 Performance Incentive Plans, stock option exercises may be made on a net-exercise arrangement, where shares of common stock are withheld in the amount of the exercise price as payment of the exercise price instead of cash. Under such net-exercise arrangements, options to purchase approximately 15,000 shares of common stock were exercised and approximately 6,000 shares of common stock were issued. There were no options exercises for the three months ended June 30, 2013.