Stock Options

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Stock Options

Stock Options

The Company adopted a stock option plan ("Plan").  The purpose of this Plan is to  provide  additional  incentives  to  key  employees, officers, directors and consultants  of  the  Company  and its subsidiaries in order to help attract and retain  the  best  available  personnel  for  positions  of  responsibility  and otherwise promoting the success of its business.  It is intended that options issued under this Plan constitute non-qualified stock options. The general terms of awards under the option plan are that 100% of the options granted will vest the year following the grant.  The maximum term of options granted is 5 years.

The Company may issue stock options and stock bonuses for shares of its common stock to provide incentives to directors, key employees and other persons who contribute to the success of the Company. The exercise price of all options is not less than fair market value at the date of grant.

 The following table summarizes the Company’s stock option activity for the years ended December 31, 2009, 2010 and the period ended September 30, 2011:

	Number of shares			Exercise price per share		Weighted average exercise price		Weighted average remaining contractual life
Balance, December 31, 2008		1,910,700			$3.00 - $4.55	$	3.38	2 years
Granted		122,000		$	2.25	$	2.25
Cancelled or expired		(204,740	)		$3.00 - $4.60	$	3.74
Balance, December 31, 2009		1,546,700			$2.25 - $3.85	$	3.25	1.25 years
Granted		315,000			$1.50 – 2.25	$	1.87
Cancelled or expired		(25,000	)		$1.50 – 3.85	$	1.97
Balance, December 31, 2010		1,836,700			$1.50 – 3.60	$	3.03	1.25 years
Granted		543,000			$1.50 – 2.00	$	1.61
Cancelled or expired		1,177,000			$1.90 – 3.60	$	3.20
Balance, September 30, 2011		1,202,700			$1.50 – 3.60	$	2.34	3 years
Exercisable, September 30, 2011		448,700			$1.50 – 3.60	$	2.10

The intrinsic value at September 30, 2011 is $564,140 (December 31, 2010 – nil)

The fair value of each option grant is calculated using the following weighted average assumptions:

	2011			2010
Expected life – years		5.0		5.0
Interest rate		0.79 - 1.8	%	1.4 – 2.49%
Volatility		60 - 62	%	60%
Dividend yield		—	%	—%
Weighted average fair value of options granted		$  0.39 – 0.50		$     0.29-0.70

During the nine months ended September 30, 2011 the Company granted 231,000 options to consultants that resulted in $39,697 in expenses this period. During the same period, 312,000 options were granted to employees, resulting in $52,572 in expenses this period. Options granted in previous quarters resulted in additional expenses in the amount of $29,744 for employees during the nine months ended September 30, 2011. No stock options were exercised during the period.

During the nine months ended September 30, 2010 the Company granted 61,000 options to consultants that resulted in $15,024 in expenses for the period. During the same period, 254,000 options were granted to employees, resulting in $45,046 in expenses for the period. Options granted in previous quarters resulted in additional expenses in the amount of $15,855 for consultants and $32,613 for employees during the nine months ended September 30, 2010. No stock options were exercised during the nine months ended September 30, 2010.