7. Stockholders’ Equity

Stock Options – Incentive Stock Plans

The Company sponsors two incentive stock plans (a “2014 Plan” and a “2009 Plan”) each allowing for a maximum of 1,000,000 shares to be granted in the form of either incentive stock options, non-qualified stock options, restricted stock awards, or unrestricted stock awards. Employees, directors, advisors, and consultants of the Company are eligible to receive the grants. These plans have been approved by the stockholders of the Company. The Compensation Committee of the Board of Directors administers the plans.

The 2014 Plan and the 2009 Plan provide that options may be issued under the Plans at an option price not less than fair market value of the stock at the time the option is granted. Under these plans, restricted stock of the Company may be granted at no cost to the grantee. The grantees are entitled to dividends and voting rights for their respective shares. Restrictions limit the sale or transfer of these shares during the requisite service period. In addition, the committee may grant or sell unrestricted stock at a purchase price to be determined by the committee. Vesting terms and restrictions, if applicable, under the plans, are set by the committee and will be 10 years or less. The 2014 Plan expires in 2024 and the 2009 Plan expires in 2019.

In March 2015, under the 2014 Plan, the Company issued time-vesting stock option grants totaling 274,500 shares. These option grants have an exercise price of $1.11 per share with a five-year term and vest annually in equal increments over 4.8 years. The aggregate estimated compensation cost related to the time-vesting stock option grant was $150,200. The grant-date fair value of the options was $0.5473 per share and was determined using a Black-Scholes option pricing model using an average risk-free rate of 1.68%, an average dividend yield of 0%, and an average volatility of 56.3%.

Also, in March 2015, under the 2014 Plan, the Company issued performance-based stock option grants totaling 640,500 shares. These option grants have an exercise price of $1.11 per share with a five-year term. The options’ vesting provisions are contingent upon the Company achieving certain financial performance measurements. The aggregate estimated compensation cost related to the performance based options was $342,300; however, recognition is contingent upon performance vesting. As of December 31, 2015, vesting conditions are not probable and no expense has been recorded. The grant-date fair value of the options was $0.5473 per share and was determined using a Black-Scholes option pricing model using an average risk-free rate of 1.68%, an average dividend yield of 0%, and an average volatility of 56.3%.

Compensation cost for all of the stock option plans was approximately $57,468 ($57,000 net of tax) and $32,737 ($32,000 net of tax) for the years ended December 31, 2015 and 2014, respectively, and has been recorded in selling, general, and administrative expense. As of December 31, 2015, the total remaining unrecognized compensation cost related to the non-vested portion of time vesting stock options totaled $153,000 ($152,000 net of tax), which will be amortized over the weighted remaining requisite service period of 2.7 years.

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:

	2015				2014
			Weighted				Weighted
			Avg.				Avg.
	Options		Exercise		Options		Exercise
			Price				Price
Outstanding beginning of the year		1,382,000	$	3.49		1,465,000	$	3.42
Granted		915,000		1.11		-
Exercised		-				-
Expired and forfeited		(465,000)		2.40		(83,000)		2.40
Outstanding at end of year		1,832,000	$	1.16		1,382,000	$	3.49

Exercisable at end of year		214,500	$	1.23		608,000	$	6.39

The aggregate intrinsic value of stock options outstanding and currently exercisable at December 31, 2015 was $-0-.

	As of December 31, 2015
	Options Outstanding						Options Exercisable
Range of	Number		Weighted Avg.		Weighted Avg.		Number		Weighted Avg.		Weighted Avg.
Exercise Prices	Outstanding		Remaining Life		Exercise Price		Exercisable		Remaining Life		Exercise Price

$ 1.11		915,000		4.17	$	1.11		-		-	$	-
$ 1.17		202,000		2.17		1.17		-		-		-
$1.20 - $1.32		715,000		1.00		1.22		214,500		1.00		1.23
$1.11 - $1.32		1,832,000		2.71	$	1.16		214,500		1.00	$	1.23

Distributor Stock Purchase Plan

In July 2009, the Company established a Distributor Stock Purchase Plan (2009 Plan) which replaced a similar plan which had expired. Since inception, a total of 83,591 warrants have been issued under the 2009 Plan.

The plan allows distributors who have reached the “Ambassador” status the opportunity to allocate up to 10% of their monthly compensation into the plan to be used to purchase the Company’s common stock at the current market value. The plan also states that at the end of each year, the Company will grant warrants to purchase additional shares of the Company’s common stock based on the number of shares purchased by the distributors under the plan during the year. The warrant exercise price will equal the market price for the Company’s common stock at the date of issuance. The warrants issued shall be in the amount of 25% of the total shares purchased under the plan during the year and the warrants are fully vested upon grant.

The Company records expense under the fair value method for warrants granted to distributors. Total expense recorded for these warrants was $5,596 and $13,633 in 2015 and 2014, respectively.

The fair value of the warrants was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

	Year ended December 31
	2015			2014

Expected warrant life (years)		3.0			3.0
Risk-free weighted average interest rate		1.37	%		1.10	%
Stock price volatility		68.2	%		64.1	%
Dividend yield		0.0	%		0.0	%

A summary of the Company’s warrant activity and related information for the years ended December 31 follows:

	2015				2014
			Weighted				Weighted
			Avg.				Avg.
			Exercise				Exercise
	Warrants		Price		Warrants		Price

Outstanding beginning of the year		35,025	$	1.78		37,987	$	1.76
Granted		15,328		0.58		11,192		1.17
Exercised		-				-
Expired		(11,768)		1.31		(14,154)		1.23
Outstanding at end of year		38,585	$	1.45		35,025	$	1.78

Exercisable at end of year		38,585				35,025

	As of December 31, 2015
	Warrants Outstanding						Warrants Exercisable
Range of	Number		Weighted Avg.		Weighted Avg.		Number		Weighted Avg.
Exercise Prices	Outstanding		Remaining Life		Exercise Price		Exercisable		Exercise Price
$ 0.58		15,328		3.00	$	0.58		15,328	$	0.58
$ 1.17		11,192		2.00		1.17		11,192		1.17
$ 2.81		12,065		1.00		2.81		12,065		2.81
$0.58 - $2.81		38,585		2.08	$	1.45		38,585	$	1.45

The intrinsic value for stock warrants outstanding at December 31, 2015 was $-0-.

Other equity transaction

For the years ended December 31, 2015 and 2014, the Company recorded expense and a corresponding liability for certain consulting services of $-0- and $70,499, respectively. In December 2014, based upon the fair market value of the Company’s common stock on issuance date, the Company issued 153,478 shares of Company common stock at a fair market value of $176,499 to this consultant for services rendered over a multi-year period.