The Company has established the 2008 Equity Incentive Plan, which is a shareholder-approved plan that permits the granting of stock options and restricted stock to employees, directors and consultants. The 2008 Equity Incentive Plan provides for the issuance of up to 1,550,000 shares of common stock of which 50,000 shares are available for grant as Incentive Stock Options. The exercise price for options awarded is no less than 100% of the fair market value of the common stock on the day of grant. The options generally vest either immediately on the date of grant or 1 to 3 years from the date of grant.

For the three months ended March 31, 2014, the Company recorded compensation costs for options and warrants of $70,954, as compared to $363,369 for the three months ended March 31, 2013. For the three months ended March 31, 2013, compensation costs relating to the issuance of options and warrants amounted to $287,171 and the Company recorded an expense of $76,198 associated with the repricing of options and warrants held by a consultant of the Company, while for the three months ended March 31, 2014, there was no expense associated with the repricing of options or warrants.

The Company has valued the options at their date of grant utilizing the Black Scholes option pricing model. Prior to the fourth quarter of 2009, there was not a public market for the Company shares. Accordingly, the fair value of the underlying shares was determined based on recent transactions by the Company to sell shares to third parties and other factors determined by management to be relevant to the valuation of such shares. Beginning in the fourth quarter of 2009, the quoted price for the Company’s shares on the OTCBB was used to value the underlying shares. Expected volatility is based upon a weighted average historical volatility of peer companies operating in a similar industry. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of options used was based on the contractual life of the option granted. The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future. The following weighted-average assumptions were utilized in the fair value calculations for options granted:

	Number of Shares Remaining Options		Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding at January 1, 2014		1,386,108	$	.61
Options granted during 2014		115,000	$	.23
Options cancelled or expired during 2014		(70,500)		.75
Outstanding at March 31, 2014		1,430,608	$	.52	7.8 years	$	26,450
Exercisable at March 31, 2014		772,308	$	.64	6.4 years	$	26,450

For the three months ended March 31, 2014, the Company recorded compensation costs for options granted under the plan of $65,992, as compared to $160,751 for the three months ended March 31, 2013. Stock option grants amounted to 115,000 for the three months ended March 31, 2014 (135,000 for the three months ended March 31, 2013) while 160,000 options vested during that period (141,650 options vested for the three months ended March 31, 2013). There were 70,500 options cancelled or expired for the three months ended March 31, 2014, while no options were cancelled for the three months ended March 31, 2013. No options were exercised for the three months ended March 31, 2014 or March 31, 2013.

For the three months ended March 31, 2013, the Company recorded expenses totaling $13,575 associated with the repricing of 25,000 options awarded to a consultant (now an employee) of the Company. No such expense was recorded for the three months ended March 31, 2014.

On December 13, 2010, the Board of Directors approved a restricted stock grant award to certain employees in lieu of future salary cash payments. The employees forfeited salary over a twelve-week period to purchase common shares, which were valued at fair market value as of the date of grant. The Compensation Committee of the Company’s Board of Directors have approved a change in the vesting date for restricted stock held by certain employees from April 1, 2011 to April 1, 2015. A total of 55,969 shares vested on April 1, 2011, and the remaining 169,368 shares are scheduled to vest on April 1, 2015.

On March 31, 2014, Adeeb Saba was named Chief Operating Officer and the Compensation Committee awarded him 250,000 shares of restricted stock, which will vest one half each on the first and second anniversary of the award. Compensation costs associated with this award amount to $72,500 and will be recognized over the vesting period of the stock.