13.

Stock Options

For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid cash dividends to date and does not currently expect to pay cash dividends) and the expected term of the option. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price over a period commensurate with the expected life of the share option as well as other factors. The risk-free interest rate is derived from the zero-coupon U.S. government issues with a remaining term equal to the expected life at the time of grant.

For options issued during 2012, fifty percent (50%) of the options vested immediately on the grant date with the remaining fifty percent (50%) vesting on January 17, 2013. The company recognized compensation expense of $88,000 during the first quarter of 2013.

In 2015, the Board extended the outstanding options to January 17, 2020. The options vest immediately and company recognized compensation expense of $159,000 during the first quarter of 2015.

Fair market value using the Black-Scholes option-pricing model was determined using the following assumptions:

Expected life (years)		5
Risk free rate of return		1.29%
Dividend yield		0
Expected volatility		193%