Accounting for Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Accounting for Stock-Based Compensation

Accounting for Stock-Based Compensation

6. Accounting for Stock-Based Compensation

During the three month periods ended March 31, 2014 and 2013, the Company granted 280,500 and 263,000 stock options, respectively, to employees and contractors.  The Company recognized $98,350 and $70,000, respectively, in stock-based compensation expense for the three month periods ended March 31, 2014 and 2013.  This expense is allocated based on appropriate employee department.

During the three month period ended March 31, 2014, 150,000 options were exercised under the 2005 Plan compared to none in the previous year.

Valuation Assumptions

The fair values of employee and director option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

	For Three Months Ended  March 31, 2014			For Three Months Ended March 31, 2013
Weighted average grant date fair value	$	1.78		$	0.47
Weighted average assumptions used:
Expected dividend yield	0.0		%	0.0		%
Risk-free interest rate	1.5		%	0.8		%
Expected volatility	228.0		%	225.0		%
Expected life (in years)	4.9			4.9
Forfeiture rate	8.0		%	8.0		%

Expected volatility is based on historical volatility and in part on implied volatility.  The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior.  The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Options granted to non-employees are valued using the fair market value on each measurement date of the option.