STOCKHOLDERS DEFICIENCY

3 Months Ended

Mar. 31, 2012

STOCKHOLDERS DEFICIENCY

STOCKHOLDERS DEFICIENCY

8. STOCKHOLDERS’ DEFICIENCY

Common stock and warrants

The Company has reserved shares of common and preferred stock for issuance at March 31, 2012, and December 31, 2011, as follows:

	March 31, 2012	December 31, 2011
Common shares, par value $0.001	300,000,000	300,000,000
Preferred shares, par value $0.001	5,000,000	5,000,000

Stock Based Compensation

Stock Option Plan

In 2004, the POWRtec Board of Directors adopted the 2004 Incentive Stock Plan (the " Prior Plan"), under which shares of common stock are reserved for issuance to employees, management and consultants of the Company.  On December 15, 2010, the Company established an additional share incentive plan, the 2010 Share Incentive Plan (the “New Plan”), which superceded the Prior Plan, and all grants under the Prior Plan were cancelled. The New Plan permits the granting of stock options (including incentive stock options within the meaning of Code Section 422 and non-qualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, and other stock-based awards. The New Plan has authorized 15,000,000 shares of Common Stock issuable pursuant to all awards granted under the Plan, and 6,000,000 options were reissued under the New Plan to reflect the post-merger split of shares of forty for one. This resulted in a re-measurement event creating additional stock based compensation of $1,160,000.

Activity with respect to outstanding stock options under the New Plan during the three months ended March 31, 2012 was as follows:

	Shares available for grant	# Options outstanding	Weighted average price
Balance December 31, 2011	3,000,000	7,000,000	$                 0.13
Granted	-	-
Exercised	-	-
Cancelled	-	-
Balance March 31, 2012	3,000,000	7,000,000	$                0.13
Options exercisable at March 31, 2012	3,691,781

The Company accounts for share-based compensation plans in accordance to the provisions of ASC 718, "Stock Compensation" (formerly referred to as SFAS No. 123(R)). We estimate the fair value of each option award on the date of grant using the Black-Scholes option-pricing model, and appropriate assumptions for volatility, the expected term of options and the risk-free rate for the expected term of the option.

During the three months ended March 31, 2012 and 2011, the Company recorded $1,627 and $11,471 of stock-based compensation expense, respectively, related to stock options granted to employees, directors and consultants.  

Warrants

The Company has issued to directors of the Company a total of 3,436,230 warrants to purchase shares of common stock at prices ranging from $.004 to $.11. The Company accounts for the compensation value embedded in the warrants in accordance to the provisions of ASC 718, "Stock Compensation" (formerly referred to as SFAS No. 123(R)). We estimate the fair value of each warrant award on the date of grant using the Black-Scholes option-pricing model, and appropriate assumptions for volatility, the expected term of options and the risk-free rate for the expected term of the option, and amortize the compensation expense on a straight-line basis over the directors’ service periods.

During the three months ended March 31, 2012 and 2011, the Company recorded $7,674 and $12,818 of equity-based compensation expense, respectively, related to warrants granted to employees, directors and consultants.