10. STOCK OPTIONS

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

10. 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 its 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 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 cannot be less than fair market value at the date of grant.

The following table summarizes the Company’s stock option activity for the year ended December 31, 2015 and the nine-month period ended September 30, 2016:

	Number of shares			Exercise price per share		Weighted average exercise price
Balance, December 31, 2014		1,126,000		$	1.21 – 2.45	$	1.54
Granted		317,000		$	0.75 – 1.05	$	0.89
Cancelled or expired		(245,000	)	$	1.05 – 2.22	$	1.72
Exercised		8,000		$	1.00	$	1.00
Balance, December 31, 2015		1,190,000		$	0.75 – 2.45	$	1.34
Exercised		24,000		$	1.00 – 1.21	$	1.09
Cancelled or expired		(513,000	)	$	0.75 - 2.00	$	1.61
Balance, September 30, 2016		653,000		$	0.75 – 2.45	$	1.13
Exercisable, September 30, 2016		506,000		$	1.00 – 2.45	$	1.24

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

	2015
Expected life – years		3.0
Interest rate		0.78 – 1.16	%
Volatility		58 - 77	%
Dividend yield		--	%
Weighted average fair value of options granted	$	0.36 – 0.37

The Company did not grant any options during the nine months ended September 30, 2016. Vesting of options granted in previous years resulted in expenses in the amount of $8,910 for consultants and $23,013 for employees during the nine months ended September 30, 2016.

During the nine months ended September 30, 2015 the Company granted 60,000 options to consultants that resulted in $17,673 expenses for the nine month period. During the same period, 99,000 options were granted to employees, resulting in $29,160 in expenses for the nine months ended September 30, 2015. Options granted in previous quarters resulted in additional expenses in the amount of $2,511 for consultants and $3,443 for employees during the nine months ended September 30, 2015.

As of September 30, 2016, there was approximately $8,340 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of .25 years.

The aggregate intrinsic value of vested options outstanding at September 30, 2016 is $529,960.