STOCK OPTION PLANS AND AGREEMENTS

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK OPTION PLANS AND AGREEMENTS

The Company’s board of directors and stockholders have approved stock option plans adopted in 1993, 1994, 1995, 1996, 1997, 1998, 1999, and 2005, which have authority to grant options to purchase up to an aggregate of 3,937,833 common shares at December 31, 2014 (4,088,833 – 2013).  No further grants may be made from the 1993, 1994, 1995, 1996, 1997, 1998, and 1999 plans.

2005 Plan - As of December 31, 2014, 142,833 options to purchase shares remain unissued under the 2005 plan.  Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options.  The 2005 plan expired on March 4, 2015.

2009 Plan - During 2009, the Company’s board of directors approved the 2009 stock option plan, which grants options to purchase up to an aggregate of 4,000,000 common shares.  As of December 31, 2014, 470,500 options to purchase shares remain unissued under the 2009 plan.  Options issued to date are nonqualified since the Company has decided not to seek stockholder approval of the 2009 Plan.

Option Agreements - During 2014 and 2013, the Company's board of directors approved stock option agreements with consultants and employees of which options for an aggregate of 3,575,500 common shares are outstanding at December 31, 2014 with an average exercise price of $.13 per share.  At December 31, 2014, options for 1,225,000 shares are vested; options for 2,050,000 shares vest based on achieving specific sales performance criteria for the Company and options for 300,000 shares vest over three years.

Origination Fee - On December 1, 2014, as payment of a portion of an origination fee under the LOC Agreement, the Company issued options to purchase 600,000 shares of its common stock at an exercise price of $.05, all of which were immediately vested.

The Company grants stock options to its key employees and independent service providers as it deems appropriate.  Employee stock options are exercisable as long as the optionee continues to be an employee of the Company and for thirty days subsequent to employee termination.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions.

Volatility is based on the Company’s historical volatility.  The expected life of the options was assumed to be 3.25 or 5.75 years using the simplified method for plain vanilla options as stated in FASB ASC 718 to improve the accuracy of this assumption while simplifying record keeping requirements until more detailed information about the Company’s exercise behavior is available. The risk-free rate for the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  The following assumptions were used for the years ended December 31, 2014 and 2013.

	2014	2013
Risk-free interest rate	.77% - 1.98%	. 34% - 2.15%
Expected dividend yield	0%	0%
Expected stock price volatility	100%	75%
Expected life of options	3.25 - 5.75 years	3.25 - 5.75 years

The following is a summary of stock option activity, including qualified and non-qualified options for the years ended December 31, 2014 and 2013:

	Number of Options Outstanding			Weighted Average Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2012		6,884,500		$	.20
Granted		3,587,500		$	.15
Expired		(1,124,833	)	$	.09
Forfeited		(126,667	)	$	.10
Outstanding at December 31, 2013		9,220,500		$	.18
Granted		3,030,000		$	.09
Expired		(517,667	)	$	.15
Forfeited		(833,333	)	$	.13
Outstanding at December 31, 2014		10,899,500		$	.16	5.0 years	$	6,000
Vested or expected to vest at
December 31, 2014		8,549,500		$	.15	5.5 years	$	6,000
Exercisable at December 31, 2014		7,309,500		$	.18	4.9 years	$	2,300

At December 31, 2014, there was approximately $79,000 of total unrecognized compensation cost related to outstanding non-vested options, which excludes non-vested options which are performance based for which the option expense cannot be presently quantified.  This cost is expected to be recognized over a weighted average period of approximately two years.  The total fair value of shares vested during the year ended December 31, 2014 was approximately $130,000.

The weighted average fair value of options granted was $.07 and $.08 per share for the years ended December 31, 2014 and 2013, respectively.  The exercise price for all options granted equaled or exceeded the market value of the Company’s common stock on the date of grant.