This excerpt taken from the RHB 10-K filed Mar 15, 2006.
Stock Option Plan
The Company has a stock option plan that is accounted for under the intrinsic value method and the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees.
In accordance with APB No. 25, pro forma information regarding net income is required and is determined as if the Company had accounted for its stock option plan under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation. The fair value of the stock options is estimated on the date of grant, using the minimum value method, which determines the excess of the fair value of the stock over the present value on the grant date using a risk-free rate over the expected exercise life of the options. For purposes of pro forma disclosure, the estimated fair value of options is amortized to expense over the options vesting periods.
InteliStaf Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The following illustrates the pro forma effect on net income if the Company had applied the fair value recognition under SFAS No. 123 for stock options granted under its stock option plan:
The Company used the following assumptions in estimating the fair value of stock options in 2005: risk-free interest rate 3%; weighted-average expected life of options 5 years.
In accordance with APB No. 25, the Company recognizes employee compensation expenses over the vesting period associated with the options for all options granted. The Company determines the expense to be recognized based on the estimated market value on the grant date compared to the exercise price of the options (see Note 7).