12. STOCK OPTIONS

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Note 12. 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 prices 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, 2012 and 2011:

	Number of shares			Exercise price per share		Weighted average exercise price
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	)	$	1.50 - $3.60	$	3.23
Balance, December 31, 2011		1,193,700		$	1.50 - $3.60	$	2.04
Granted		94,000		$	2.00 – 2.22	$	2.14
Cancelled or expired		(288,700	)	$	1.50 – 3.60	$	2.35
Balance, December 31, 2012		999,000		$	1.21 – 2.45	$	1.96
Exercisable, December 31, 2012		782,000		$	1.50 – 2.45	$	2.04

The weighted-average remaining contractual life of outstanding options is 2.9 years. The aggregate intrinsic value of options outstanding at December 31, 2012 is $776,430.  The weighted-average remaining contractual life of outstanding options exercisable is 2.0 years. The aggregate intrinsic value of exercisable options outstanding at December 31, 2012 is $301,500.

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

	2012			2011
Expected life – years		5.0			5.0
Interest rate		0.36 – 0.38	%		0.79 – 1.83	%
Volatility		51 - 58	%		60 - 62	%
Dividend yield		--	%		--	%
Weighted average fair value of options granted	$	0.38		$	0.39 – 1.02

During the year ended December 31, 2012, the Company granted 33,000 (2011 – 231,000) stock options to consultants and has applied ASC 718 using the Black-Scholes option-pricing model, which resulted in additional expenses of $21,939 (2011 - $51,874).  Options granted in other years resulted in additional expenses of $27,159 (2011 – $5,016).  During the year ended December 31, 2012, employees were granted 61,000 (2011 – 432,000) stock options, which resulted in additional expenses of $39,586 (2011 – $69,777).  Options granted in other years resulted in additional expenses in the amount of $53,766 for employees during the year ended December 31, 2012 (2011 - $129,106).  No stock options were exercised during the year ended December 31, 2012.

As of December 31, 2012, there was approximately $67,888 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 3 years.