13. STOCK OPTIONS

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK OPTIONS

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 29,020,000 shares as of December 31, 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 year ended December 31, 2015, the Company had the following stock option activity:

Mr. Adam Edwards resigned July 11, 2015 and an option to purchase four million five hundred thousand shares of the Company’s common stock under the Company’s 2011 Stock Incentive Plan at $0.05 per shares expired on October 10, 2015.

Ms. Tina Qunell resigned July 2, 2015 and an option to purchase seven million shares of the Company’s common stock under the Company’s 2011 Stock Incentive Plan at $0.05 per share expired on October 1, 2015.

Resigned employees forfeited options to purchase 200,000 shares of the Company’s common stock under the Company’s 2011 Stock Incentive Plan at $0.05 per share expired during the year ended December 31, 2015.

On July 31, 2014, the Company’s Board of Directors granted Mr. Scott an option to purchase 16,000,000 shares of the Company’s common stock under the Company’s 2011 Stock Incentive Plan at an exercise price of $0.07 per share, the fair market price on July 31, 2014. On December 18, 2015, the Company reduced the exercise price to $0.01 per share. Two million shares vested immediately upon the Company’s resolution of the class action lawsuits on of August 17, 2015).

As of December 31, 2015, there are 29,020,000 options to purchase common stock at an average exercise price of $0.028 per share outstanding under the 2011 Stock Incentive Plan. The Company recorded $175,661 and $724,267 of compensation expense, net of related tax effects, relative to stock options for the years ended December 31, 2015 and 2014 in accordance with ASC 505. Net loss per share (basic and diluted) associated with this expense was approximately ($0.00). As of December 31, 2015, there is $244,011 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 3.85 years.

Stock option activity for the years ended December 31, 2015 and 2014 is as follows:

	Weighted Average
	Options			Exercise Price			$
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		-			-			(960,000	)
Exercised		-			-			-
Forfeitures		(11,700,000	)		(0.050	)		(585,000	)
Outstanding as of December 31, 2015		29,020,000		$	0.028		$	811,000

The following table summarizes information about stock options outstanding and exercisable at December 31, 2015: 

Range of Exercise		Number		Weighted Average Remaining Life In		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
Prices		Outstanding		Years		Exerciseable		Exerciseable		Exerciseable
$	0.05		13,020,000		4.00	$	0.050		7,120,000	$	0.050
	0.01		16,000,000		3.77		0.010		7,833,333		0.010
			29,020,000		3.85	$	0.028		14,953,333	$	0.043

Stock option grants totaling 29,020,000 shares of common stock have an intrinsic value of $0 as of December 31, 2015.