10. STOCK OPTIONS

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Note 10. 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 date of 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 two years ended December 31, 2012 and the nine month period ended September 30, 2013:

	Number of shares			Exercise price per share		Weighted average  exercise price
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
Granted		233,000		$	1.21- 1.50	$	1.27
Cancelled or expired		(68,000	)	$	3.60	$	3.60
Balance, September 30, 2013		1,164,000		$	1.21 – 2.45	$	1.73
Exercisable, Setpember 30, 2013		738,000		$	1.50 – 2.45	$	1.91

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

		2013			2012
Expected life – years		5.0			5.0
Interest rate		0.38 - 0.63	%		0.36 – 0.38	%
Volatility		51 – 63	%		51-58	%
Dividend yield		—	%		—	%
Weighted average fair value of options granted	$	0.36 - 0.38		$	0.38

During the nine months ended September 30, 2013 the Company granted 55,000 options to consultants that resulted in $10,828 in expenses this period. During the same period, 178,000 options were granted to employees, resulting in $47,306 in expenses this period. Options granted in previous quarters resulted in additional expenses in the amount of $19,313 for consultants and $12,471 for employees during the nine months ended September 30, 2013. No stock options were exercised during the period.

During the nine months ended September 30, 2012 the Company granted 33,000 options to consultants that resulted in $29,555 in expenses this period.  During the same period, 61,000 options were granted to employees, resulting in $15,984 in expenses this period.  Options granted in previous quarters resulted in additional expenses in the amount of $20,580 for consultants and $29,741 for employees during the quarter ended September 30, 2012.  No stock options were exercised during the period.