7. Share-based Compensation

12 Months Ended

Dec. 31, 2012

Notes

7. Share-based Compensation

7.         Share-Based Compensation

The Company grants stock options to individual employees and directors with three years continuous tenure.  After termination of employment, stock options may be exercised within ninety days, after which they are subject to forfeiture. 

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in:

	2012	2011
Dividend yield	0.00%	0.00%
Expected volatility	68%	74%
Risk-free interest rate	0.36%	1.40%
Expected term (in years)	3	3
Estimated fair value per option granted	$       0.15	$       0.21

The average risk-free interest rate is based on the three-year U.S. Treasury Bond rate in effect as of the grant date.  The expected volatility is determined using a weighted average of weekly historical volatility of the stock price over a period of one year prior to the grant dates.  The Company uses historical data to estimate option exercise rates.  The option exercise rate for option grants in 2012 was seven percent. 

In the years ended December 31, 2012 and 2011, the Company recognized $2,255 and $3,420 respectively, in share-based compensation expense.  No non-vested share-based compensation arrangements existed as of December 31, 2012. 

A summary of option activity follows:

	Number Outstanding	Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Term (Years)
Balance at 12/31/10	585,000	0.52	1.1
Granted	210,000	0.44
Exercised	0	0
Canceled	(205,000)	0.79
Balance at 12/31/11	590,000	0.40	1.1
Granted	220,000	0.37
Exercised	0	0
Canceled	(305,000)	0.35
Balance at 12/31/12	505,000	0.42	2.1
Outstanding and Exercisable at 12/31/12	505,000	0.42	2.1

The aggregate intrinsic value of the options outstanding and exercisable at December 31, 2012, was $0.