12. Shareholders' Interest: Stock Option Plan (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Stock Option Plan

Stock Option Plan

On May 2, 2011 the Company adopted and executed the Employees’ Directors’ and Consultants Stock Option Plan (the “Plan”).  During the quarter ended March 31, 2013, the Company granted 50,000 options to non-employee directors which were fully vested upon issuance.  During the quarter ended March 31, 2012, the Company granted 70,000 options to non-employee directors which were fully vested upon issuance. 

During the quarter ended March 31, 2013, the Company granted 1,000,000 options to our CEO.  As approved by the Board of Directors these options granted will vest over a four year period, with 200,000 options vesting upon issuance.  No options were granted to employees during the quarter ended March 31, 2012.

During the three months ended March 31, 2013 and 2012, the Board of Directors extended the expiration dates for all options previously granted to one and two, respectively, departing Board members in recognition for service.  Those options will expire per their original term specified in each individual option agreement, typically either 5 or 10 years from the date of granting, rather than expiring within the specified time period, typically 90 or 180 days following the Board members’ termination dates.  The Company considered the extension as a modification to the option agreements recording incremental compensation expense of $16,920 and $80,000 for the three months ended March 31, 2013 and 2012, respectively.

We estimated the fair value of each option on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended March 31, 2013	Three Months Ended March 31, 2012
Dividend yield (1)	0.00%	0.00%
Expected volatility (2)	99.2% - 100.3%	86.7% - 87.1%
Risk-free interest rates (3)	0.63%	0.89%
Expected lives (2)	2.0 – 4.0 YEARS	5 YEARS

(1)        We have not paid cash dividends on our common stock since 1981, and currently do not have plans to pay or declare cash dividends. Consequently, we used an expected dividend rate of zero for the valuations.

(2)        Estimated based on our historical experience. Volatility was based on historical experience over a period equivalent to the expected life in years.

(3)        Based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

During the three months ended March 31, 2013, the Company recognized expense of $14,250 for stock options issued to directors and expense of $80,267 for stock options issued to our CEO.  During the three months ended March 31, 2012, the Company recognized expense of $58,630, for stock options issued to directors.  No stock options were issued to employees during the three months ended March 31, 2012.