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14. STOCK OPTIONS

6 Months Ended

Jun. 30, 2015

Other Liabilities Disclosure [Abstract]

Description of Stock Option Plan

In fiscal year 2011, the Company authorized a Stock Incentive Plan whereby a maximum of 18,870,184 shares of the Company’s common stock could be granted in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, and Other Stock-Based Awards. On April 18, 2013, the Company’s Board of Directors voted to increase to 35,000,000 the maximum allowable shares of the Company’s common stock allocated to the 2011 Stock Incentive Plan. The Company has outstanding unexercised stock option grants totaling 40,720,000 shares as of September 30, 2015. All grants are non-qualified as the plan was not approved by the shareholders within one year of its adoption.

Determining Fair Value under ASC 505

The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.

Stock Option Activity

During the six months ended June 30, 2015, the Company had no stock option activity.

As of June 30, 2015, there are 40,570,000 options to purchase common stock at an average exercise price of $0.058 per share outstanding under the 2011 Stock Incentive Plan. The Company recorded $101,058 and $580,335 of compensation expense, net of related tax effects, relative to stock options for the three months ended June 30, 2015 and 2014 in accordance with ASC 505. Net loss per share (basic and diluted) associated with this expense was approximately ($0.00). At June 30, 2015, there is $437,828 of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 4.21 years.

Stock option activity for the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013 is as follows:

		Weighted Average
		Options				Exercise Price				$
Outstanding as of December 31, 2012			12,851,187				0.098				1,259,781
Granted			34,000,000				0.070				2,386,000
Exercised			-				-				-
Forfeitures			(6,000,000	)			(0.030	)			(180,108	)
Outstanding as of December 31, 2013			40,851,187				0.085				3,465,673
Granted			49,720,000				0.075				3,706,000
Exercised			(5,126,187	)			(0.133	)			(682,922	)
Forfeitures			(44,725,000	)			(0.092	)			(4,132,751	)
Outstanding as of December 31, 2014			40,720,000			$	0.058			$	2,356,000
Granted			-			-					-
Exercised			-			-					-
Forfeitures			(150,000	)			(0.050	)			(7,500	)
Outstanding as of June 30, 2015			40,570,000			$	0.058			$	2,348,500

The following table summarizes information about stock options outstanding and exercisable at June 30, 2015:

								Weighted				Weighted								Weighted
								Average				Average								Average
Range of				Number				Remaining Life				Exercise Price				Number				Exercise Price
Exercise Prices				Outstanding				In Years				Exerciseable				Exerciseable				Exerciseable
$	0.05				24,570,000				4.30			$	0.050				9,107,500			$	0.050
	0.07				16,000,000				4.08				0.070				3,333,333				0.070
					40,570,000				4.21			$	0.058				12,440,833			$	0.057

Stock option grants totaling 40,570,000 shares of common stock have an intrinsic value of $0 as of June 30, 2015.

The entire disclosure for freestanding option contracts issued by an entity that are indexed to, and potentially settled in, an entity's own stock. Includes disclosure on the strike price and the number of shares to which the contract is indexed, the settlement date or dates of the contract, and the issuer's accounting for the contract. If the terms of the contract provide settlement alternatives, those settlement alternatives are disclosed, including who controls the settlement alternatives, and the maximum number of shares that could be required to be issued, to net share settle the contract, if applicable. If a contract does not have a fixed or determinable maximum number of shares that could be required to be issued, the fact that a potentially infinite number of shares that may be required to be issued to settle the contract is disclosed. Disclosure also includes the contract's current fair value for each settlement alternative and how changes in the price of the issuer's equity instruments affect those settlement amounts.

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