Quarterly report pursuant to sections 13 or 15(d)

4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

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4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements  
NOTE 4 - STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

  

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of September 30, 2012 and December 31, 2011, there were 78,400 and 78,400 and options outstanding under the 2010 Plan, respectively.

 

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock.  As of September 30, 2012, there were 1,800,000 options outstanding under the 2011 Plan. As of December 31, 2011, there were 1,500,000 options outstanding under the 2011 Plan.

 

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options expire ten years from the date of grant.


The fair value of stock options granted or revalued for nine months ended September 30, 2012 and 2011 was calculated with the following assumptions:

  

 

    2012     2011  
Risk-free interest rate     0.31-1.27 %     0.28-0.84 %
Expected dividend yield     0 %     0 %
Volatility factor     90 %     90 %
Expected life of option   2.90-7.00 years     4.75-5.00 years


The weighted-average fair value of stock options granted during the periods ended September 30, 2012 and 2011, under the Black-Scholes option pricing model was $0.21 and $0.20 per share, respectively.

 

The Company recognized $44,638 and $116,297 of stock-based compensation costs in the accompanying statement of operations for the three months ended September 30, 2012 and 2011, respectively.  The Company recognized $161,504 and $129,414 of stock-based compensation costs in the accompanying statement of operations for the nine months ended September 30, 2012 and 2011, respectively. No actual tax benefit was realized from stock option exercises during these periods. As of September 30, 2012, there was $238,649 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.43 years

 

 

          Exercise     Weighted  
          Price per     Average  
    Shares     Share     Exercise Price  
Outstanding as of December 31, 2011     1,578,400     $ 0.10-1.85     $ 0.19  
    Granted     300,000       0.10       0.10  
    Exercised     -       -       -  
    Options forfeited/cancelled     -       -       -  
Outstanding as of September 30, 2012     1,878,400     $ 0.10-1.85     $ 0.17  

 

The following table summarizes information about stock options that are vested or expected to vest at September 30, 2012: 

 

 

Vested or Expected to Vest     Exercisable Options  
            Weighted     Weighted                 Weighted     Weighted        
            Average     Average                 Average     Average        
      Number     Exercise     Remaining     Aggregate     Number     Exercise     Remaining     Aggregate  
Exercise     of     Price Per     Contractual     Intrinsic     of     Price     Contractual     Intrinsic  
Price     Options     Share     Life (Years)     Value     Options     Per Share     Life (Years)     Value  
$ 0.10       1,800,000     $ 0.10       4.16     $ 666,000       1,212,500     $ 0.10       4.62     $ 448,625  
  1.85       78,400       1.85       2.90       -       68,600       1.85       2.90       -  
$ 0.10-1.85       1,878,400     $ 0.17       4.11     $ 666,000       1,281,100     $ 0.21       4.20     $ 448,625  

 

At September 30,  2012,  the Company  has 300,000 and 4,921,600  options  available for grant under  the 2011  Plan  and  2010  Plan, respectively.