Note 7- Stock Based Compensation

9 Months Ended

Sep. 30, 2013

Notes

Note 7- Stock Based Compensation

NOTE 7- STOCK BASED COMPENSATION

In 2009, the Company approved the 2009 Employee, Director and Consultant Stock Option Plan (the “2009 Plan”) and authorized an option pool of 5,500,000 shares that was subject to a 3 for 1 reverse stock split resulting in an authorized option pool of 1,833,333. Stock options typically vest over a three year period and have a life of ten years from the date granted.  In 2009, the Company accelerated the option vesting of certain employees who terminated their employment, but agreed to work in a consulting capacity. In exchange for the accelerated vesting, the employees agreed to shorter expiration periods for their options.  As of September 30, 2013 there were 1,567,100 shares available for awards under this plan.

In 2012, the Company approved the 2012 Employee, Director and Consultant Stock Option Plan (the “2012 Plan”) and authorized an option pool of 7,500,000 shares. Stock options typically vest over a three year period and have a life of ten years from the date granted.  As of September 30, 2013, there were 5,315,000 shares available for awards under this plan.

During the three and nine months ended September 30, 2013, the Company issued 315,000 and 960,000 options, respectively,  to acquire shares of common stock to employees, directors or consultants.

The grant-date fair value of options is estimated using the Black Scholes option pricing model.  The per share weighted average fair value of stock options granted during 2013 was $0.38 and was determined using the following assumptions:  expected price volatility ranging between 51% to 53%, risk-free interest rate ranging from .79% to 1.66%, zero expected dividend yield, and six years expected life of options.  The per share weighted average fair value of stock options granted during 2012 was $0.19 and $0.17 and was determined using the following assumptions:  expected price volatility 57% and 51%, risk-free interest rate ranging from 1.04% to 1.61%, zero expected dividend yield, and six years expected life of options. The expected term of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff Accounting Bulletin 107, and represents the period of time that options granted are expected to be outstanding.  The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted on an investment basis in effect at the time of grant for that business day.

As of September 30, 2013, there was approximately $426,662 of total unrecognized stock compensation expense, related to unvested stock options under the both Plans.  This expense is expected to be recognized over the remaining weighted average vesting periods of the outstanding options of 1.75 years.

A summary of options issued, exercised and cancelled for the years ended September 30, 2013 are as follows:

	Shares	Weighted- Average Exercise     Price	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2012	7,384,619	$   0.34	8.30	$       -
Granted	960,000	0.38	9.64	-
Exercised	(110,092)	0.35	-	-
Cancelled	(3,587,897)	0.35	-	-
Outstanding at September 30, 2013	4,646,630	$   0.35	8.06	$       -
Exercisable at September 30, 2013	1,667,130	$   0.33	7.14	$       -