NOTE 13 - STOCK BASED COMPENSATION

In 2006, our board of directors adopted, and our stockholders approved, the 2006 long-term incentive plan, or the Plan, covering 1,000,000 shares of common stock. On August 5, 2010, the Plan was amended to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,000,000 shares. On September 15, 2011, the directors adopted and our stockholders approved an amendment to increase the maximum number of shares of common stock that may be issued pursuant to the Plan to an aggregate of 3,300,000 shares. The Plan provides for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The Plan is to be administered by a committee of not less than two directors each of whom is to be an independent director. In the absence of a committee, the Plan is administered by our board of directors. Independent directors are not eligible for discretionary options.

Pursuant to the Plan, each newly elected independent director receives, at the time of election, a five-year option to purchase 50,000 shares of common stock at the market price on the date of his or her election. In addition, the Plan provides for the annual grant of an option to purchase 10,000 shares of common stock on July 1 of each year following the third anniversary of the date of election.

On July 1, 2015, we granted stock options to members of our board of directors to collectively purchase 30,000 shares of common stock at an exercise price of $0.10 per share, the fair market value on the date of grant. Fifty percent of the options will vest upon the six month anniversary of the grant date while the remaining fifty percent of the options will vest upon the eighteen month anniversary of the grant date.

On August 12, 2015, we granted stock options to our chief executive officer to purchase in total 1,000,000 shares of common stock at an exercise price of $0.08 per share, the fair market value on the date of grant. One third of the options vested on the date of the grant, one third of the options will vest on the first anniversary of the grant date, and the final one third of the options will vest on the second anniversary of the grant date.

The fair value of the options we granted was estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The average dividend yield over the historical period for which volatility was computed is zero. The risk-free interest rate was selected based upon yields of five-year U.S. Treasury issues. We use the simplified method for all grants to estimate the expected term of the option. We assume that stock options will be exercised evenly over the period from vesting until the awards expire. As such, the assumed period for each vesting tranche is computed separately and then averaged together to determine the expected term for the award. Because of our limited stock option exercise activity we did not rely on our historical exercise data. The assumptions utilized for option grants during the period presented were as follows: a range from 119.5% to 120.8% for volatility, a range of 1.62% to 1.70% for the risk free interest rate, and approximately six years for the expected term. At December 31, 2015, there were 792,006 shares of common stock available for grant under the Plan. The following table summarizes information about options for the periods presented below:

	Number Of		Weighted Average		Aggregate Intrinsic		Weighted Average Remaining Contractual Life
	Options		Exercise Price		Value		(in years)
Outstanding at 3/31/2015	1,190,500		$	1.049	$	21,600	5.18

Granted	1,030,000		$	0.081
Exercised	(135,000	)	$	1.100
Forfeited	(155,000	)	$	1.015

Outstanding at 12/31/2015	1,930,500		$	0.661	$	102,503	7.85

Vested or expected to vest at 12/31/2015	1,930,500		$	0.661	$	102,503	7.85

Exercisable and vested at 12/31/2015	1,235,500		$	0.767	$	34,568	6.52

At December 31, 2015 there was $40,646 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over the next two years. The total fair value of shares vested during the nine months ended December 31, 2015 was $67,183. The following table summarizes the activity of our stock options outstanding but not vested for the nine months ended December 31, 2015:

	Number of Options		Weighted Average Exercise Price
Outstanding at 3/31/2015	112,500		$	0.664
Granted	1,030,000		$	0.081
Forfeited	(40,000	)	$	0.670
Vested	(407,500	)	$	0.165

Outstanding at 12/31/2015	695,000		$	0.092