12. STOCK OPTIONS

12 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Note 12. Stock Options

The Company adopted a stock option plan ("Plan"). The purpose of this Plan is to provide additional incentives to key employees, officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best available personnel for positions of responsibility and otherwise promote the success of the Company’s business. It is intended that options issued under this Plan constitute non-qualified stock options. The general terms of awards under the option plan are that 100% of the options granted will vest the year following the grant. The maximum term of options granted is 5 years.

The Company may issue stock options and stock bonuses for shares of its common stock to provide incentives to directors, key employees and other persons who contribute to the success of the Company. The exercise price of all incentive options are issued for not less than fair market value at the date of grant.

The following table summarizes the Company’s stock option activity for the years ended December 31, 2013 and 2012:

	Number of shares			Exercise price per share		Weighted average exercise price
Balance, December 31, 2011		1,193,700		$	1.50 - $3.60	$	2.04
Granted		94,000		$	2.00 - 2.22	$	2.14
Cancelled or expired		(288,700	)	$	1.50 - $3.60	$	2.35
Balance, December 31, 2012		999,000		$	1.50 - $2.45	$	1.96
Granted		233,000		$	1.21 - 1.50	$	1.27
Cancelled or expired		(68,000	)	$	3.60	$	3.60
Balance, December 31, 2013		1,164,000		$	1.21 – 2.45	$	1.73
Exercisable, December 31, 2013		1,034,000		$	1.21 – 2.45	$	1.75

The weighted-average remaining contractual life of outstanding options is 2.1 years. The aggregate intrinsic value of options outstanding at December 31, 2013 is nil. The weighted-average remaining contractual life of outstanding options exercisable is 2.1 years. The aggregate intrinsic value of exercisable options outstanding at December 31, 2013 is nil.

The fair value of each option grant is calculated using the following weighted average assumptions:

	2013			2012
Expected life – years		5.0			5.0
Interest rate		0.36 – 0.63	%		0.36 – 0.38	%
Volatility		51 - 63	%		51 - 58	%
Dividend yield		--	%		--	%
Weighted average fair value of options granted	$	0.36 – 0.38		$	0.38

During the year ended December 31, 2013, the Company granted 55,000 (2012 – 33,000) stock options to consultants and has applied ASC 718 using the Black-Scholes option-pricing model, which resulted in additional expenses of $16,628 (2012 - $21,939). Options granted in other years resulted in additional expenses of $20,597 (2012 – $27,159). During the year ended December 31, 2013, employees were granted 178,000 (2012 – 61,000) stock options, which resulted in additional expenses of $56,975 (2012 – $39,586). Options granted in other years resulted in additional expenses in the amount of $34,955 for employees during the year ended December 31, 2013 (2012 - $53,766). No stock options were exercised during the year ended December 31, 2013.

As of December 31, 2013, there was approximately $29,247 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 2 years.