NOTE 7 COMMON STOCK WARRANTS AND OPTIONS

9 Months Ended

Sep. 30, 2012

Shareholders' Equity and Share-based Payments [Text Block]

NOTE 7  COMMON STOCK WARRANTS AND OPTIONS

Warrants

All outstanding warrants were either exercised or expired unexercised prior to December 31, 2009, thus there are no warrants outstanding as of September 30, 2012 or December 31, 2011.

Options

In August 2009, the Company granted options to purchase a total of 1,500,000 shares to an outside consultant for services rendered, with an exercise price of $0.10 per share, exercisable for up to five years. The options vested as follows: (i) 500,000 of the options vested immediately on the date of grant, (ii) 500,000 options will vest on the date certified by the Company as the date the Company’s hospital disinfection program completes its beta-testing, and (iii) the remaining 500,000 options will vest on the date certified by the Company as the date that the Company’s process has been commercialized and a minimum of 50 units or devices have been sold to third parties by the Company.  During the three months ended September 30, 2012, 500,000 options vested totaling $48,699 which was recorded as part of general and administrative expenses.  As of September 30, 2012, 500,000 of the 1,500,000 options had not yet vested.

In July 2010, the Company granted options to purchase a total of 3,500,000 shares to certain board members and employees of the Company as additional compensation for work performed. As of December 31, 2011, options for 250,000 shares were cancelled under this agreement. These options are exercisable for five years at $0.20 per share, but did not vest until the Company has achieved commercial sales. During the three months ended September 30, 2012, these 3,250,000 options vested totaling $659,822 which was recorded as part of general and administrative expenses as the Company achieved commercial sales.

In September 2010, the Company granted options to purchase 250,000 shares to an outside consultant in connection with extending his consulting agreement with the Company through September 2011. These options are exercisable for five years at $0.275 per share, but do not vest until the Company has achieved commercialization and sales of the AsepticSure™ product. During the three months ended September 30, 2012, these 250,000 options totaling $65,067, which was recorded as part of general administrative expenses, as the Company achieved commercial sales.

In March 2011, the Company granted options for the purchase of 150,000 shares of common stock to an individual for accounting related services to be performed through December 30, 2011, which did not vest until such date.  The options have an exercise price of $0.14 per share, and are exercisable for up to five years.  The grant date fair value of these options was $20,042, in connection with which the Company recognized $6,380 and $13,731 of expense during the three and nine months ended September 30, 2011, respectively.  The remaining $6,311 was recognized between October 1, and December 30, 2011.

In March 2011, the Company granted options for the purchase of 100,000 shares of common stock to an individual for web and press support services to be performed through December 30, 2011, which did not vest until such date. The options have an exercise price of $0.14 per share, and are exercisable for up to five years.  The grant date fair value of these options was $13,361, in connection with which the Company recognized $4,254 and $9,155 of expense during the three and nine months ended September 30, 2011, respectively.  The remaining $4,206 was recognized between October 1, and December 30, 2011.

In February 2012, the Board of Directors approved the 2012 Equity Incentive Award Plan and authorized up to 10,000,000 shares of common stock to be available for awards under the Plan. On February 21, 2012, each of four directors of the Company was awarded stock options for the purchase of 1,000,000 shares of common stock, exercisable at a price of $0.23 per share, which was the closing price of the Company’s common stock reported on the OTC Bulletin Board on the date of grant. In addition, certain officers, consultants and employees of the Company were awarded options in the aggregate for the purchase of 1,050,000 shares of stock at an exercise price of $0.23 per share. The value of these options granted, totaling $1,057,600, was recorded as expense during the nine months ended September 30, 2012 as each of the options granted was fully vested on the date of grant.

In May 2012, the Company granted options for the purchase of 1,000,000 shares of common stock to an individual for distribution channel related services to be performed, which do not vest until completion of specific milestones.  The options have an exercise price of $0.17 per share, and are exercisable for up to five years.  The grant date fair value of these options was $153,997 in connection with which the Company recorded no expense during the nine months ended September 30, 2012.  The Company will recognize the expense in the future upon achievement of these milestones.

In May 2012, the Company granted options for the purchase of 1,000,000 shares of common stock to an individual for medical consulting support services already performed (vested immediately on the grant date) and to be performed in the future, which do not vest until completion of certain milestones. The options have an exercise price of $0.17 per share, and are exercisable for up to five years. The grant date fair value of these options was $149,460, in connection with which the Company recorded $100,138 of expense during the nine months ended September 30, 2012.  The remaining $49,322 will be recorded by the Company in the future upon achievement of the remaining milestones.

In August 2012, the Company granted options for the purchase of 2,500,000 shares of common stock to three individuals in connection with the purchase of restricted stock, exercisable at a price of $0.05 per share.  No expense was recorded for these options as any value associated with these options was recorded as part of the stock transactions.

The Company estimated the fair value of the stock options at the date of the grant, based on the following weighted average assumptions:

Risk-free interest rate	2.46%
Expected life	5 years
Expected volatility	185.59% to 196.94%
Dividend yield	0.00%

A summary of the status of the Company’s outstanding options as of September 30, 2012, and changes during the nine-month period then ended is presented below:

	Shares		Weighted Average Exercise Price
Outstanding, beginning of period		7,750,000	$	0.17
Granted		9,550,000	$	0.17
Expired/Canceled		-		-
Exercised		-		-
Outstanding, end of period		17,300,000	$	0.19
Exercisable		15,470,000	$	0.17

The Company estimates the fair value of each stock award by using the Black-Scholes option pricing model, which model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero. Under the provisions of this accounting standard, additional expense of $1,931,325 and $22,886 was recorded for the nine-month period ended September 30, 2012 and 2011, respectively, using the Black-Scholes option pricing model.