Note 11 - Stock Options

12 Months Ended

Dec. 31, 2012

Note 11 – Stock options

On March 15, 2012, the Company entered into a three year consulting agreement (the “Mainland Consulting Agreement”) with Mainland Investments Ltd. (“Mainland”). The Mainland Consulting Agreement requires Mainland to provide to the Company, financial, advisory, and marketing and investor relation services and the Company is required to pay to Mainland annual compensation of $1,000,000 and grant to Mainland a total of 3,000,000 stock options, with 1,000,000 options granted for each year of the contract exercisable at $1.00 per share.

The following table summarizes information concerning stock options outstanding as of December 31, 2012:

	Shares		Weighted Average Grant Date Fair Value
Unvested, at December 31, 2011		-	$	-
Granted		3,000,000
Vested		1,000,000
Forfeited		-
Unvested, at December 31, 2012		2,000,000	$	1.00

The Company recognized stock-based expense as consulting fees of $7,904 during the year ended December 31, 2012. Unrecognized compensation expense related to outstanding stock options as of December 31, 2012 was $15,981 and is expected to be recognized as $7,984 and $7,997 in 2013 and 2014, respectively.

Valuation Assumptions

The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) to determine the fair value of stock options as of the grant date. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price and expected dividends.

The following table presents the range of the weighted average fair value of options granted and the related assumptions used in the Black-Scholes model for stock option grants made during the year ended December 31, 2012:

	Options Granted
	2012
Fair value of options granted	$	0.008
Assumptions used:
Expected life (years) (a)		3 - 5
Risk free interest rate (b)		0.510% - 1.040	%
Volatility (c)		369.50	%
Dividend yield (d)		0.00	%

	a)	Expected life: The expected term of options granted is determined using the “shortcut” method allowed by SAB No.107. Under this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term.

	b)	Risk-free interest rate: The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options.

	c)	Volatility: The expected volatility of the Company’s common stock is calculated by using the historical daily volatility of the Company’s stock price calculated over a period of time representative of the expected life of the options.

	d)	Dividend yield: The dividend yield rate is not considered in the model, as the Company has not established a dividend policy for the stock.

Bluforest Inc. 10-K/A