The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

The Company has adopted a stock option and award plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. Options provide the opportunity to acquire a proprietary interest in the Company and to benefit from its growth. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The Plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors.

On February 6, 2012, the Company granted 7,500,000 options to two employees. Stock-based compensation is being recognized over the two year vesting period. The options were valued at $3,408,750 using the Black-Scholes Option Pricing Model with the following assumptions:

	Employee Stock Options
Stock Price	$0.55
Exercise Price	$.61
Expected volatility	84.47%
Risk-free rate	1.93%
Vesting period	2 years
Expected term	10 years

Employee stock-based compensation expense relating to options granted in 2010 and 2012, and recognized in March 31, 2013 and March 31, 2012 totalled $534,723 and $nil, respectively. Unrecognized expense of $2,530,712 remains to be recognized through 2015.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense or prepaid expense and additional paid-in capital over the period during which services are rendered. There were 2,500,000 options valued at $1,136,250 issued to an advisor on February 6, 2012. Based on the vesting term, $520,781 was charged to consulting expense and $615,469 was recorded as prepaid consulting. During the period ended March 31, 2013, $142,031 of the prepaid consulting expense was charged to financial consulting expense. There were 750,000 options issued in 2011 to settle a dispute with an advisor. These options were valued at $400,425 using the Black-Scholes pricing model.

A summary of changes in stock options during the period ended March 31, 2013 is as follows:

	Stock Options	Weighted Average Exercise Price	Expiry Date
Outstanding, December 31, 2010	3,000,000	$ 1.00	10/21/20
Issued	750,000	1.55	2/11/16
Exercised	0	0
Expired	0	0
Outstanding, December 31, 2011	3,750,000	1.39
Issued	10,000,000	.61	2/6/22
Exercised	0	0
Expired	0	0
Outstanding, December 31, 2012	13,750,000	$ .75
Issued	0	0
Exercised	0	0
Expired	0	0
Outstanding, March 31, 2013	13,750,000	$ .75

Because the Company’s stock-based compensation options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, amounts estimated using the Black-Scholes option pricing model may differ materially from the actual fair value of the Company’s stock-based compensation options.