10. STOCK OPTIONS

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

10. STOCK OPTIONS

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 year ended December 31, 2014 and the nine-month period ended September 30, 2015:

	Number of shares			Exercise price per share		Weighted average exercise price
Balance, December 31, 2013		1,164,000		$	1.21 – 2.45	$	1.73
Granted		227,000		$	1.00 – 1.21	$	1.01
Cancelled or expired		(265,000	)	$	1.00 – 2.25	$	1.91
Balance, December 31, 2014		1,126,000		$	1.00 – 2.45	$	1.54
Granted		159,000		$	1.05	$	1.05
Exercised		8,000		$	1.00	$	1.00
Cancelled or expired		(236,000	)	$	1.00 - 2.22	$	1.73
Balance, September 30, 2015		1,041,000		$	1.00 – 2.45	$	1.43
Exercisable, September 30, 2015		829,000		$	1.00 – 2.45	$	1.50

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

	2015			2014
Expected life – years		3.0			3.0
Interest rate		1.07	%		0.78	%
Volatility		61	%		58	%
Dividend yield		—	%		—	%
Weighted average fair value of options granted	$	0.49		$	0.36

During the nine months ended September 30, 2015 the Company granted 60,000 options to consultants that resulted in $5,891 in expenses this quarter.  During the same period, 99,000 options were granted to employees, resulting in $9,720 in expenses this quarter.  Options granted in previous quarters resulted in additional expenses in the amount of $837 for consultants and $1,148 for employees during the quarter ended September 30, 2015.

During the nine months ended September 30, 2014 the Company granted 100,000 options to consultants that resulted in $12,356 in expenses this quarter. During the same period, 127,000 options were granted to employees, resulting in $9,205 in expenses this quarter. Options granted in previous quarters resulted in additional expenses in the amount of $1,871 for consultants and $3,456 for employees during the quarter ended September 30, 2014. No stock options were exercised during the period.

As of September 30, 2015, there was approximately $17,596 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of .25 years.

The aggregate intrinsic value of vested options outstanding at September 30, 2015 is $487,600.