STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

NOTE 8. STOCK-BASED COMPENSATION

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 binomial 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, 2012, we expensed approximately $109,000 in stock-based compensation.

Activity in our stock options during the period ended September 30, 2012 was as follows:

	Number Of Options (in thousands)			Weighted Average  Exercise  Price
Outstanding at December 31, 2011		1,533		$	3.99
Granted		279		$	2.58
Exercised		(26	)	$	0.70
Cancelled		(5	)	$	7.33
Outstanding at September 30, 2012		1,781		$	3.80

The grant date fair value of options granted during the first nine months of 2012 were estimated on the grant date using a binomial lattice option-pricing model and the following assumptions: expected volatility of 43%, expected term of between 3-5 years, risk-free interest rate of 0.4%, and expected dividend yield of 0%.

Expected volatility is based on a weighted average of the historical volatility of the Company's stock and peer company volatility. The weighting percentages relative to our stock and the peer group is a 50%/50% weighting. Our peer group has remained relatively the same throughout our calculations year over year, and a peer is only replaced with a similar peer company if it is removed from the public stock exchanges or no longer has significantly traded volume on the open stock options market. 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.