STOCK OPTIONS

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 13. 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 promote the success of the Company’s 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 incentive options are issued for 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, 2011 and 2010:

	Number of shares			Exercise price per share		Weighted average exercise price
Balance, December 31, 2009		1,546,700		$	2.25 - $3.85	$	3.25
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
Granted		663,000		$	1.50 – 2.45	$	1.63
Cancelled or expired		(1,306,000	)	$	1.90 – 3.60	$	3.23
Balance, December 31, 2011		1,193,700		$	1.50 – 3.60	$	2.04
Exercisable, December 31, 2011		774,700		$	1.50 – 3.60	$	2.28

The weighted-average remaining contractual life of outstanding options is 4.5 years. The aggregate intrinsic value of options outstanding at December 31, 2011 is $414,000. The weighted-average remaining contractual life of outstanding options exercisable is 4.5 years. The aggregate intrinsic value of exercisable options outstanding at December 31, 2011 is $184,000.

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 – 1.83	%		1.40 – 2.49	%
Volatility		60 - 62	%		60	%
Dividend yield		--	%		--	%
Weighted average fair value of options granted	$	0.39 – 1.02		$	0.29 – 0.70

During the year ended December 31, 2011, the Company granted 231,000 (2010 – 61,000) stock options to consultants and has applied ASC 718 using the Black-Scholes option-pricing model, which resulted in additional expenses of $58,497 (2010 - $20,032). During the year ended December 31, 2011, employees were granted 432,000 (2010 – 254,000) stock options, which resulted in additional expenses of $78,483 (2010 – $65,801). Options granted in previous years resulted in additional expenses in the amount of $118,538 for employees during the year ended December 31, 2011 (2010 - $60,801). No stock options were exercised during this period.

As of December 31, 2011, there was approximately $218,587 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 4 years.