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<div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 7.                  Commitments and Contingencies</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">On March 17, 2010, the Company and Timothy R. Kasmoch, the President and Chief Executive Officer, entered into an Employment Agreement for a five-year term.  Mr. Kasmoch is to receive an annual base salary of $150,000, subject to an annual discretionary increase.  In addition, Mr. Kasmoch is eligible for an annual cash bonus and was granted stock options from the Company's Second Amended and Restated 2004 Stock Option Plan.  Generally, the Agreement may be terminated by the Company with or without cause or by the Employee for any reason.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">On March 17, 2010, the Company and Robert W. Bohmer, the Executive Vice President and General Counsel, entered into an Employment Agreement for a five-year term.  Mr. Bohmer is to receive an annual base salary of $150,000, subject to an annual discretionary increase.  In addition, Mr. Bohmer is eligible for an annual cash bonus and was granted stock options from the Company's Second Amended and Restated 2004 Stock Option Plan.  Generally, the Agreement may be terminated by the Company with or without cause or by the Employee for any reason.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">On March 17, 2010, the Company and James K. McHugh, the Chief Financial Officer, Secretary and Treasurer, entered into an Employment Agreement for a five-year term.  Mr. McHugh is to receive an annual base salary of $125,000, subject to an annual discretionary increase.  In addition, Mr. McHugh is eligible for an annual cash bonus and was granted stock options from the Company's Second Amended and </font><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Restated 2004 Stock Option Plan.  Generally, the Agreement may be terminated by the Company with or without cause or by the Employee for any reason.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company's executive and administrative offices are located in Toledo, Ohio.  Through April 2011, the Company operated under a month to month lease at its former location.  The total rental expense for this former location included in the statements of operations for the years ended December 31, 2011 and 2010 is approximately $12,800 and $38,500, respectively.  In April 2011, the Company signed a 68 month lease with a new lessor in Toledo.  The total minimum rental commitment for the year ending December 31, 2012 is approximately $37,400, for 2013 is $30,600 and for the years 2014 through 2016 is $40,800 each year.  The total rental expense for this current location included in the statements of operations for the year ended December 31, 2011 is approximately $15,600.  The Company also leases various equipment on a month-to-month basis.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In October 2010, the Company began to lease property in Emlenton, Pennsylvania under a lease with A-C Valley Industrial Park, for one year.  After September 2011, the Company operated under a month to month lease agreement.  The total rental expense included in the statements of operations for the years ended December 31, 2011 and 2010 is $23,000 and $6,000, respectively.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In June 2009, the Company began to maintain an office in West Unity, Ohio under a lease with D&B Colon Leasing, LLC, for one year.  In June 2010, the Company renewed the lease for an additional year through May 31, 2011, and is currently operating under a month to month lease.  The total rental expense included in the statements of operations for each of the twelve months ended December 31, 2011 and 2010 is $30,000.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company maintains an office in Daytona Beach under a lease with the County of Volusia, Florida, which was renewed in March, 2009 for five years.  The total minimum rental commitment for the years ending December 31, 2012 through 2013 is $48,000 each year, and for 2014 is $12,000.  The total rental expense included in the statements of operations for each of the years ended December 31, 2011 and 2010 is $48,000.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company also leased processing equipment at its Florida location which began in February 2008 under a three-year lease.  The total rental expense included in the statements of operations for the years ended December 31, 2011 and 2010 is approximately $3,900 and $46,200, respectively.  In February 2011, the Company purchased the equipment through a financing arrangement with an equipment leasing company.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Management believes that all of the Company's properties are adequately covered by insurance.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company operates in an environment with many financial risks, including, but not limited to, major customer concentrations, customer contract termination provisions, competing technologies, infringement and/or misappropriation of intellectual property rights, the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions.  Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the business activities of the Company.  The Company cannot predict what effect, if any, current and future regulations may have on the operations of the Company.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">From time to time the Company is involved in legal proceedings and subject to claims which may arise in the ordinary course of business.  The Company is not aware of any legal proceedings or material claims at this time.</font></div></div>
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<div><div style="text-indent: 0pt; display: block;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 8.                  Income Tax Matters</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The composition of the deferred tax assets and liabilities at December 31, 2011 and 2010 is as follows:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><br /></div><div><table cellpadding="0" cellspacing="0" width="98%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="46%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="15%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Gross deferred tax liabilities:</font></div></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Property and equipment and intangible assets</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;"> $(19,200)</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;"> $(72,800)</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Gross deferred tax assets:</font></div></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Loss carryforwards</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 4,350,300</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 4,167,100</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Loss on market price of derivatives</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 4,100</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 47,700</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Section 754 basis step up</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 107,100</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 128,500</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Allowance for doubtful accounts</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 23,800</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 23,800</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Other</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 500</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 500</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="46%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="46%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Less valuation allowance</font></div></td><td align="right" valign="middle" width="16%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">(4,466,600)</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">(4,294,800)</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="46%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="46%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%" style="border-bottom: black 4px double; text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $                -</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%" style="border-bottom: black 4px double; text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $                 -</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The income tax provisions differ from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income from continuing operations for the years ended December 31, 2011 and 2010 and are as follows:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><br /></div><div><table cellpadding="0" cellspacing="0" width="98%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Computed "expected" tax expense (credit)</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;"> $(557,500)</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;"> $(1,009,500)</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">State taxes, net of federal tax benefit</font></div></td><td valign="middle" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">(Decrease) increase in income taxes resulting from:</font></div></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Change in valuation allowance</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 171,800</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 140,200</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Net operating loss carryfoward expiration</font></div></td><td valign="middle" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 520,300</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Nondeductible stock options and warrants</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 568,400</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 351,800</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Derivative adjustment - permanent</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;"> (205,400)</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Other</font></div></td><td align="right" valign="middle" width="16%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 22,700</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="15%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;"> (2,800)</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%" style="border-bottom: black 4px double; text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $                 -</font></div></td><td valign="middle" width="2%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="15%" style="border-bottom: black 4px double; text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $                   -</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The net operating losses available at December 31, 2011 to offset future taxable income total approximately $12,800,000 and expire principally in years 2018 - 2031.  Approximately $685,000 will expire if not used to offset taxable income for the 2012 tax year.</font></div></div>
1045
67305
91800
159304
-79911
-82938
2304415
3660455
2750560
3402995
300000
364000
0
-9000
277190
337799
211716
230931
-23969
569736
-302024
-597925
333379
3921
-1639793
-2969145
0
0
0
-2969145
0
-2969145
0
0
0
-1639793
0
-1639793
7386
-24268
-2482804
-2762889
843011
-206256
2000000
2000000
0
0
0.01
0.01
0
54865
420973
1103153
418037
196869
96850
611994
200000
0
56405
10834
984
101873
1327320
1490865
0
20000
357384
532454
0
24325
<div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 4.                  Related Party Transactions</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">On August 1, 2011, the Company borrowed $200,000 with a Promissory Note payable to a related party of Timothy Kasmoch, the Company's President and Chief Executive Officer, at 12% interest prepaid for a period of three months, renewable for an additional three months by the prepayment of additional interest and secured by certain equipment.  Mr. Kasmoch has personally guaranteed the repayment of this Note.  The Company extended the Note on October 30, 2011 and again on January 30, 2012, and is now due April 30, 2012.  The Company expects to extend the Note on or before the due date but pay the Note in full during 2012.</font></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During the year ended December 31, 2010 the Company advanced funds for operating capital of $9,000 to its joint venture limited liability company, Mahoning Valley N-Viro.  Mahoning Valley N-Viro is owned 50% by the Company and 50% by SouthSide Environmental Group of Struthers, Ohio.  As no financial activity occurred in Mahoning Valley N-Viro during 2010 and 2011 and the outlook unlikely of having future operations, the Company determined that the total $24,325 loaned by the Company to date would not be repaid and wrote down the investment to a net realizable value of zero as of December 31, 2011.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Also during 2011 and 2010, the Company paid Terri Kasmoch, the spouse of President and Chief Executive Officer Timothy Kasmoch, outside consulting fees for business development, web site and company media marketing and stock promotion efforts for the Company, and as an employee with the same duties starting in the 4<font style="display: inline; font-size: 70%; vertical-align: text-top;">th</font> quarter of 2010.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During the year ended December 31, 2011, the Company rented and purchased equipment, and contracted for repair services with Tri-State Garden Supply dba Gardenscape, a company owned and managed by the extended family of the Company's Chief Executive Officer, Timothy Kasmoch.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During the year ended December 31, 2010, the Company paid Thomas L. Kovacik, a member of the Board of Directors, a fee for consulting services.  The fee was paid with 10,000 stock options at an exercise price of $3.53, which vested immediately and are exercisable over 10 years.  To reflect the value of the options, the Company recorded an expense of $31,421.  The fee was exclusive of director fees and expenses paid for with cash and stock options.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following table summarizes these payments for 2011 and 2010 and the balance to each of any monies owed as of December 31, 2011:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><br /></div><div><table cellpadding="0" cellspacing="0" width="94%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="10%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="15%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Payee</font></div></td><td valign="bottom" width="8%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> Year</font></div></td><td valign="bottom" width="11%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Consulting fees</font></div></td><td valign="bottom" width="10%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Gross Payroll</font></div></td><td valign="bottom" width="16%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Rental, Equipment and Repairs</font></div></td><td valign="bottom" width="12%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> Total</font></div></td><td valign="bottom" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="font-style: italic; display: inline; font-family: times new roman; font-size: 10pt;"> Account payable balance at December 31</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="10%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="15%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Terri Kasmoch</font></div></td><td valign="middle" width="8%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="11%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">                                      $         -</font></div></td><td align="right" valign="middle" width="10%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $52,000</font></div></td><td valign="middle" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $            -</font></div></td><td align="right" valign="middle" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $52,000</font></div></td><td valign="middle" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="font-style: italic; display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;"> $                  -</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="10%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="15%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Terri Kasmoch</font></div></td><td valign="middle" width="8%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td><td align="right" valign="middle" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 10,685</font></div></td><td align="right" valign="middle" width="10%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 10,833</font></div></td><td valign="middle" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td align="right" valign="middle" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 21,518</font></div></td><td valign="middle" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="font-style: italic; display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="10%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="15%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Gardenscape</font></div></td><td valign="middle" width="8%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="11%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="10%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 15,214</font></div></td><td align="right" valign="middle" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 15,214</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="font-style: italic; display: inline; font-family: times new roman; font-size: 10pt;"> 12,500</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="10%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="15%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Thomas L. Kovacik</font></div></td><td valign="middle" width="8%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td><td align="right" valign="middle" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">31,421</font></div></td><td valign="middle" width="10%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td align="right" valign="middle" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 31,421</font></div></td><td valign="middle" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="font-style: italic; display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td></tr></table></div></div>
497861
462600
265000
0
208510
207465
-25814035
-23881836
5593665
5222146
<div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 6.                      Revenue and Major Customers</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Revenues for the years ended December 31, 2011 and 2010 billed through N-Viro International Corporation include revenues from one major customer, the City of Toledo, Ohio (included in the facility management, and, products and services classifications), which represented approximately 17% for 2011 and 22% for 2010 of total consolidated revenue.  The accounts receivable balance due (which is unsecured) from this customer at December 31, 2011 and 2010 was approximately $1,000 and $68,000, respectively.  The Company's agreement with the City of Toledo, our largest customer for many years through 2010, was not renewed at the end of 2011.  The City of Toledo's failure to renew that agreement has had a material adverse effect on the Company's business, financial conditions and results of operations.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company's six largest customers billed through Florida N-Viro each represent between 5% - 22% of the consolidated revenue for the Company, or a collective total of approximately 62% for these six customers for 2011 and 63% for 2010.  Florida operations accounted for approximately 80% and 74% of consolidated revenue during the years ended December 31, 2011 and 2010, respectively.  The accounts receivable balance due (which are unsecured) for these six Florida N-Viro customers at December 31, 2011 and 2010 was approximately $286,000 and $328,000, respectively.  A seventh Florida customer, Orange County Utilities, provided approximately $367,000 or 7% of the consolidated revenue in 2011, but the agreement began December 2010 and ended March 2011.  The Company does not expect Orange County to resume that agreement in the near future.  At the end of 2011, the Company was notified that a Florida customer, Seminole County, who represented gross revenue of $353,000 and $402,000 in 2011 and 2010, respectively, was terminating services for the Company effective January 2012.  This was approximately 6% and 8% of 2011 and 2010 gross revenue, respectively.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">A substantial portion of the Company's revenue is derived from services provided under contracts and agreements with existing licensees.  Some of these contracts, especially those contracts with large municipalities, provide for termination of the contract by the customer after giving relatively short notice (in some cases as little as ten days).  In addition, some of these contracts contain liquidated damages clauses, which may or may not be enforceable in the event of early termination of the contracts.  If one or more of these contracts are terminated prior to the expiration of its term, and the Company is not able to replace revenues from the terminated contract or receive liquidated damages pursuant to the terms of the contract, the lost revenue could have a material and adverse effect on its business and financial condition.</font></div></div>
3515617
3767262
<div><div style="text-indent: 0pt; display: block;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 5.                  Equity Transactions</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In January 2010, the Company executed a Placement Agent Agreement, or the Agreement, with Burnham Hill Partners of New York, NY, or BHP.  The Company engaged BHP as its placement agent in connection with the issuance of debt or equity securities through a transaction exempt from registration for a term of six months from the date of the Agreement.  For its services, the Company issued BHP 10,000 shares of the Company's unregistered common stock.  The shares were issued in a private transaction pursuant to an exemption under Section 4(2) of the Securities Act of 1933.  If the Company had secured a financing placement through BHP, the Company would have issued common stock placement warrants equal to 8% of the number of common stock shares issued in the financing, for a term of seven years and would have been exercisable at 120% of the price paid per share by the investors.  The Company accounted for this transaction by recording a deferred current asset of $30,000 that was amortized ratably over the subsequent six month period the services were rendered in 2010.</font></div><div style="text-indent: 0pt; display: block;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In December 2010, the Company issued 110,000 shares of unregistered Common Stock to SLD Capital Corporation (“SLD”), as compensation for services rendered by SLD to the Company under a Consulting Agreement, effective as of December 10, 2010.  The agreement is for a term of eighteen months from the effective date.  More details of this Agreement are contained in Note 2.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In July 2010, the Company executed a Purchase Agreement, License and Development Agreement and Registration Rights Agreement (the “Agreements”), with VC Energy I, LLC of Las Vegas, NV, or VC Energy.  Concurrently, the Company sold VC Energy 200,000 shares of the Company's unregistered common stock at a price of $2.50 per share, issued VC Energy 200,000 warrants exercisable at $2.75 per share, and also granted VC Energy an option to acquire another 400,000 shares of the Company's unregistered common stock at a price of $2.50 per share, and 400,000 warrants exercisable at $2.75 per share.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In September 2010, the Company executed Amendment Number 1, effective September 15, 2010 (the “Amendment”) to the Purchase Agreement with VC Energy.  The purpose of the Amendment was to modify certain of the purchase terms in the Purchase Agreement, and VC Energy exercised its option to purchase 200,000 shares of the Company's common stock for $500,000 which VC Energy paid for by delivering its unsecured promissory note to the Company for $500,000, payable in installments over a 12 month period, with the first $200,000 of such installments due bi-weekly between September 30, 2010 and December 30, 2010 and the final $300,000 due September 15, 2011.  The promissory note provided for acceleration in the event of default and a default interest rate of 8% per annum.  The Company also delivered 200,000 warrants to purchase shares of its common stock at an exercise price of $2.50 per share.  Under the Amendment, the Company transferred all 200,000 shares and 200,000 warrants to an Escrow Agent, and the shares and warrants were to be released ratably to VC Energy as installments payments due the Company were received.  VC Energy made all installment payments due through December 2010, and the escrow agent delivered 80,000 shares and 80,000 warrants to VC Energy, with the remaining shares and warrants continuing to be held by the escrow agent.  In addition, VC Energy's option to purchase the remaining 200,000 shares of the Company's common stock was extended to December 31, 2010 and then a second time to March 1, 2011, on the same terms as the original Purchase Agreement.  VC Energy did not exercise the purchase option for the additional 200,000 shares on or before March 1, 2011.  At each extension date, the Company recorded a deemed dividend for the increase in value of the purchase option as a reduction to Accumulated Deficit and an increase to the Additional Paid In Capital accounts, totaling $150,387 in 2010.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In August 2011, the Company and VC Energy signed a Termination Agreement and terminated the License and Development Agreement dated June 29, 2010, the Promissory Note dated September 15, 2010 and the Escrow Agreement dated September 15, 2010.  Included in these agreements was VC Energy's option to purchase the unpaid balance of 120,000 shares of the Company's common stock for $300,000.  All other agreements between the Company and VC Energy remain in force, except to the extent the provisions contained in them are inconsistent with the terms and conditions of the Termination Agreement.  In September 2011, the Company cancelled the 120,000 shares of common stock that were returned by operation of the Termination Agreement.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In both the VC Energy Agreements and the Amendment, the Company accounted for the warrants issued within the transaction with a provision that protects holders from declines in the stock price (“down-round” provisions) as a derivative security at fair value with future changes in fair value recorded in earnings.  As of December 31, 2011, the Company has recorded a liability of $12,196 to reflect the fair value of the outstanding warrants.  The Company will be periodically required to re-measure the fair value of the remaining warrants at the Balance Sheet date, with adjustments in the value recorded through the income statement as a gain or loss.  During the twelve months ended December 31, 2011 and 2010, the Company recorded a gain of $732,280 and a loss of $140,326, respectively, on the revaluation and partial cancellation from the two issuances of the warrants to the end of the period, which includes the gain in 2011 from the cancellation of 120,000 warrants as a result of the Termination Agreement.</font></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In December 2010, the Company issued 150,000 shares of unregistered Common Stock to Strategic Asset Management, Inc., (“SAMI”), as compensation for services rendered by SAMI to the Company under a Financial Public Relations Agreement, effective as of December 15, 2010.  The agreement is for a term of two years from the effective date.  More details of this Agreement are contained in Note 2.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In August 2011, the Company issued 100,000 shares of common stock to SAMI for additional services performed in connection with the December 2010 consulting agreement.  To reflect the entire value of the stock issued, the Company is taking a charge to earnings of $150,000 through December 2013, the ending date of the consulting agreement.  For the twelve months ended December 31, 2011, the charge to earnings was $52,100.  The Company also granted 100,000 stock warrants in connection with this transaction.  All the warrants are exercisable over a five year term, vest immediately and were priced at a premium over the fair market value of the Company's common stock as of the date of the grant, or $1.65 per warrant.  To reflect the entire value of the stock warrants granted, the Company is taking a charge to earnings totaling approximately $136,000 through December 2013.  For the twelve months ended December 31, 2011, the charge to earnings was approximately $47,100.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In November 2011, the Company issued 50,000 shares of unregistered common stock to Rakgear, Inc. for business consulting services.  To reflect the entire value of the stock issued, the Company is taking a non-cash charge to earnings of $73,000 ratably through December 2013, the ending date of the agreement.  For the twelve months ended December 31, 2011, the charge to earnings was approximately $10,000.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During 2011, we sold a total of 70,863 shares of unregistered restricted stock to five non-beneficial owners for total gross cash proceeds of $112,400.  These proceeds were all used for operating expenses.  Simultaneously and subject to the same terms and conditions, we issued a total of 64,263 warrants to two non-beneficial owners to acquire shares of our common stock at a price above the purchase price each owner paid for our common stock, which was the fair market value of the stock on the date of each transaction.  In all instances the shares and the warrants issued and sold were in a private offering transaction pursuant to an exemption under Section 4(2) of the Securities Act of 1933 for transactions by an issuer not involving a public offering.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Also during 2011, the Convertible Debentures matured, fifteen investors elected to replace their Debentures with new ones, two investors had theirs repaid and one investor converted $50,000 into 25,000 shares of unregistered common stock.  The amount of Debentures outstanding at the end of 2011 was $455,000, convertible at $2.00 per share or 227,500 shares.  More details on these transactions can be found in Note 3.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In addition to its first stock option plan approved in 1993, the Company has a stock option plan approved in May 2004, amended in June 2008 and again in August 2009 (the “2004 Plan”), for directors and key employees under which 2,500,000 shares of common stock may be issued.  The Company also has a stock option plan approved in July 2010 (the “2010 Plan”), for directors and key employees under which 5,000,000 shares of common stock may be issued.  Unless otherwise stated in the stock option agreement, options are 20% vested on the date of grant, with the balance vesting 20% per year over the next four years, except for directors whose options vest six months from the date of grant.  Options were granted in 2011 from the 2010 Plan and in 2010 from the 2004 Plan at the approximate market value of the stock at date of grant, as defined in each of the plans.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Pursuant to their respective five-year employment agreements, in March 2010 a total of 890,000 stock options were granted to the three executive officers of the Company.  Twenty percent of the options vested immediately on the date of grant, with the balance of the options to vest in equal annual installments over the next four years on the anniversary date of the original grant.  These options were granted pursuant to the 2004 Plan, are for a period of ten years and are intended as Incentive Stock Options.  To reflect the value of the stock options granted for the employment services provided, the Company is taking a charge to </font><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">earnings totaling approximately $2,358,000 through March 2014.  For the years ended December 31, 2011 and 2010, this charge was $471,539 and $844,840, respectively.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In August 2011, the Company granted 500,000 stock options to its Chief Executive Officer, Timothy Kasmoch.  The options are for a period of ten years, are pursuant to the 2010 Plan, are exercisable at $1.63 and vest immediately.  To reflect the value of the stock options granted, the Company took an immediate charge to earnings during the third quarter of 2011 totaling approximately $720,000.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">More information on these equity transactions is contained in this Form 10-K under Item 11, “Executive Compensation”.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During the year ended December 31, 2011, the Company granted stock options totaling 180,000 shares, exclusive of the officers, to all outside directors.  All options granted are for a period of ten years.  The options became fully vested six months after the date of grant, and were priced, pursuant to the 2010 Plan, at $1.78 for a total expense of approximately $321,000, expensed ratably and fully in 2011 over the subsequent six-month period.  More information on these equity transactions is contained in this Form 10-K under Item 10, “Directors, Executive Officers and Corporate Governance”.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During the year ended December 31, 2010, the Company granted additional stock options totaling 175,000 shares, exclusive of the officers:  90,000 options to outside directors, 10,000 options to an outside director acting in his capacity as a consultant and 75,000 options to three employees.  All options granted are for a period of ten years.  The options granted in 2010 to the directors became fully vested six months after the date of grant, and were priced, pursuant to the 2004 Plan, at a weighted average price of $3.08 for a total expense of approximately $209,000, expensed ratably over the subsequent six-month period.  The options granted to the consultant vested immediately and were priced, pursuant to the 2004 Plan, at $3.53 for a total expense of approximately $31,400, expensed immediately.  More information on these equity transactions is contained in this Form 10-K under Item 10, “Directors, Executive Officers and Corporate Governance”.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The options granted in 2010 to the three employees vested twenty percent on the date of grant, with the balance of the options to vest in equal annual installments over the next four years on the anniversary date of the original grant.  All of the options are exercisable at $1.89 per share and were granted pursuant to the 2004 Plan and are intended as Incentive Stock Options.</font></div><div style="text-indent: 0pt; display: block;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following summarizes the stock options activity for the years ended December 31, 2011 and 2010:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><br /></div><div><table cellpadding="0" cellspacing="0" width="98%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td colspan="2" valign="bottom" width="22%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td colspan="2" valign="bottom" width="23%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="11%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> Shares</font></div></td><td valign="bottom" width="11%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> Weighted Average Exercise Price</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="12%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> Shares</font></div></td><td valign="bottom" width="11%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> Weighted Average Exercise Price</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Outstanding, beginning of year</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2,273,300</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$2.67</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">1,279,825</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$2.24</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 9pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Granted</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">680,000</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$1.67</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">1,065,000</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$3.16</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 9pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Exercised</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">(515)</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$1.94</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="12%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">(54,125)</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$1.91</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 9pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Expired/forfeited during the year</font></div></td><td align="right" valign="bottom" width="11%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">(27,800)</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$1.71</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="12%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">(17,400)</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$3.75</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Outstanding, end of year</font></div></td><td align="right" valign="bottom" width="11%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 2,924,985</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$2.44</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="12%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 2,273,300</font></div></td><td align="right" valign="bottom" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$2.67</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="12%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Eligible for exercise at end of year</font></div></td><td align="right" valign="bottom" width="11%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 2,360,985</font></div></td><td align="right" valign="middle" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$2.26</font></div></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="12%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 1,501,300</font></div></td><td align="right" valign="middle" width="11%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$2.41</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="12%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="bottom" width="11%" style="padding-bottom: 4px;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="bottom" width="42%" style="padding-bottom: 4px;"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Weighted average fair value per option for o<font style="display: inline; font-family: times new roman; font-size: 10pt;">ptions granted during the year</font></font></div></td><td valign="bottom" width="11%" style="border-bottom: black 4px double; text-align: right;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$1.67</font></font></td><td valign="middle" width="11%" style="padding-bottom: 4px;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="1%" style="padding-bottom: 4px;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="12%" style="border-bottom: black 4px double;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $3.16</font></font></div></td><td valign="middle" width="11%" style="padding-bottom: 4px;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="12%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Options expected to vest over the life of the Plan</font></div></td><td align="right" valign="middle" width="11%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 2,924,985</font></div></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="1%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="12%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 2,273,300</font></div></td><td valign="middle" width="11%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes valuation model. The Company uses historical data among other factors to estimate the expected price volatility, the expected option term and the expected forfeiture rate.  The risk-free rate is based on the U.S. Treasury yield curve in effect at the date of grant for the expected term of the option.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following assumptions were used to estimate the fair value of options granted:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table cellpadding="0" cellspacing="0" width="98%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="bottom" width="18%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td colspan="2" valign="bottom" width="38%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Year Ended December 31,</font></div></td></tr><tr><td valign="bottom" width="18%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="42%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="20%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="bottom" width="18%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="bottom" width="18%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="bottom" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Expected dividend yield</font></div></td><td valign="bottom" width="20%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">     0.00%</font></div></td><td valign="bottom" width="18%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">   0.00%</font></div></td></tr><tr bgcolor="white"><td valign="bottom" width="18%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="bottom" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Weighted average volatility</font></div></td><td valign="bottom" width="20%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">203.4%</font></div></td><td valign="bottom" width="18%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">73.7%</font></div></td></tr><tr bgcolor="#cceeff"><td valign="bottom" width="18%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="bottom" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Risk free interest rate</font></div></td><td valign="bottom" width="20%"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2.1 - 3.2%</font></div></td><td valign="bottom" width="18%"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2.5 - 3.6%</font></div></td></tr><tr bgcolor="white"><td valign="bottom" width="18%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="bottom" width="42%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Expected term (in years)</font></div></td><td valign="bottom" width="20%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">5</font></div></td><td valign="bottom" width="18%" style="text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">7</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">On two occasions during 2010, all holders of N-Viro International Corporation warrants were granted an automatic extension of time to exercise their respective warrants.  On one more occasion in August 2011, an automatic extension of time was granted to certain warrant holders of record to exercise their respective warrants.  For all of the extensions, all other terms of the warrant remained in place, other than the expiration date.  The incremental fair value associated with the extension of the warrant expiration dates has been determined using the Black-Scholes model and has been recorded as a deemed dividend to common stockholders in the accompanying Statement of Stockholders' Equity (Deficit).  For the years ended December 31, 2011 and 2010, the deemed dividend was $132,642 and $461,467 respectively.</font></div></div>
1331440
1752826
32737
0
44498
37112
2750560
3402995
-1073
-1110
<div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 9.                  Fair Value Measurements and Disclosures</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company has adopted the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) related to nonfinancial assets and liabilities on a prospective basis.  ASC820 establishes the authoritative definition of fair value, sets out a framework for measuring fair value and expands the required disclosures about fair value measurement.  The valuation techniques required by ASC 820 are based on observable and unobservable inputs using the following three-tier hierarchy:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" style="font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 81pt;"><div><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">  </font></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;"><font style="display: inline; font-family: Symbol, serif;">·</font></font></div></td><td><div align="left"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" style="font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 81pt;"><div><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">  </font></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;"><font style="display: inline; font-family: Symbol, serif;">·</font></font></div></td><td><div align="justify"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable for assets or liabilities, either directly or indirectly, through market corroboration.</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table align="center" border="0" cellpadding="0" cellspacing="0" width="100%" style="font-family: times new roman; font-size: 10pt;"><tr valign="top"><td style="width: 81pt;"><div><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">  </font></div></td><td style="width: 18pt;"><div style="text-indent: 0pt; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;"><font style="display: inline; font-family: Symbol, serif;">·</font></font></div></td><td><div align="left"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Level 3 – Inputs are unobservable inputs based on the Company's own assumptions.</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following table summarizes the basis used to measure assets and liabilities at fair value on a recurring basis in the balance sheet:</font></div><div style="text-indent: 0pt; display: block;"> </div><div><table cellpadding="0" cellspacing="0" width="100%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Level 1</font></div></td><td valign="bottom" width="17%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Level 2</font></div></td><td valign="bottom" width="17%" style="border-bottom: black 2px solid; border-right: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Level 3</font></div></td><td valign="bottom" width="17%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt; font-weight: bold;">Total</font></div></td></tr><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td colspan="4" valign="bottom" width="67%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> as of December 31, 2011</font></div></td></tr><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Warrants</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$0</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$0</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">($12,196)</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt; font-weight: bold;">($12,196)</font></div></td></tr><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td colspan="4" valign="bottom" width="67%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> as of December 31, 2010</font></div></td></tr><tr><td valign="bottom" width="17%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="16%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Warrants</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$0</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">$0</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt;">($744,476)</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; color: #ff0000; font-size: 10pt; font-weight: bold;">($744,476)</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following table sets forth a summary of the changes in the fair value of the Company's Level 3 assets for the year ended December 31, 2011:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 108pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Balance, beginning of year                                                                 <font style="display: inline; color: #ff0000;">($744,476)</font></font></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 108pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Gain on market price change of warrants issued                           <font style="display: inline; text-decoration: underline;">    732,280</font></font></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 108pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Balance, end of year                                                                           <font style="border-bottom: 1pt double; display: inline; color: #ff0000; text-decoration: underline;">($   12,196)</font></font></div></div>
684890
684890
340447
0
0.01
0.01
123500
123500
52696
0
21453168
-20300837
-684890
520137
60622
-300000
24548644
-23881836
-684890
-257460
61914
0
26883156
-25814035
-684890
446145
446145
-257460
0
0
0
0
<div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 3.                  Pledged Assets, Line-of-Credit and Long-Term Debt</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During 2011, the Company maintained a line of credit with Monroe Bank + Trust, or the Bank, up to $400,000 bearing interest at the Wall Street Journal Prime Rate (3.25% at December 31, 2011) plus 0.75%, but in no event less than 5.00%, and secured by a first lien on all our assets (except equipment), with a new maturity date of August 15, 2012.  Two certificates of deposit totaling $141,430 from the Bank are held as a condition of maintaining the line of credit.  At December 31, 2011, we had $100,000 of borrowing capacity under the credit facility.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Long-term debt at December 31, 2011 and 2010 is as follows:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><br /></div><div><table cellpadding="0" cellspacing="0" width="89%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Notes payable - banks</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $209,527</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $365,703</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Notes payable - equipment vendors</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 279,379</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 203,027</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%" style="padding-bottom: 2px;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="bottom" width="50%" style="padding-bottom: 2px;"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Convertible debentures, net of discount of <font style="display: inline; font-family: times new roman; font-size: 10pt;">$24,553 in 2011 and $52,326 in 2010</font></font></div></td><td valign="bottom" width="14%" style="border-bottom: black 2px solid; text-align: right;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  <font style="display: inline; font-family: times new roman; font-size: 10pt;">430,447</font></font></td><td valign="middle" width="3%" style="padding-bottom: 2px;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 667,674</font></font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 919,353</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 1,236,404</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Less current maturities</font></div></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 367,190</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 1,005,473</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $552,163</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $230,931</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During 2011, the Company borrowed a total of $163,853 from two lenders to purchase insurance policies for general, property and directors & officers' insurance coverage during the year.  A total of two term notes were issued, ranging from 6% to 6.6% interest for a term not more than one year, monthly payments totaling $16,844 and each are unsecured.  The total amount owed on these notes as of December 31, 2011 was approximately $46,200 and these notes are expected to be paid in full on the applicable maturity date, the last of which is August 2012.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">From the beginning of 2006 through 2011, the Company borrowed a total of $1,677,100 from ten lenders to purchase processing and automotive equipment.  As of December 31, 2011, a total of thirteen term notes are outstanding, ranging from 6.2% to 10.9% interest for terms ranging three to five years, monthly payments totaling approximately $26,000 and all secured by equipment.  The total amount owed on all equipment-secured notes as of December 31, 2011 was approximately $442,000 and all notes are expected to be paid in full on the applicable maturity date, the last of which is in March 2016.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In 2009 the Company approved an offering of up to $1,000,000 of Convertible Debentures (the “Debentures”), convertible at any time into the Company's unregistered common stock at $2.00 per share.  The Debentures are issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record.  The Company has timely paid all accrued interest due to all Debenture holders of record as of each quarter-end date starting in July 2009.  At any time, the Company may redeem all or a part of the Debentures at face value plus unpaid interest.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During 2009 the Company issued $765,000 of Debentures to a total of twenty-three accredited investors, and one investor converted $10,000 of Debentures into unregistered common stock.  During 2010 the Company issued $55,000 of Debentures, and three investors converted a total of $90,000 of Debentures into unregistered common stock.  The Debentures matured at June 30, 2011, however fifteen investors holding Debentures totaling $365,000 elected to replace them with new ones that now mature at June 30, 2013.  All other features of the “expired” Debentures remained the same in the replacement ones, except for the new maturity date.  Of the four investors totaling $355,000 who did not replace their existing Debentures with new ones, two investors totaling $215,000 had their Debentures repaid; one investor converted $50,000 into unregistered common stock (at June 30, 2011) and one holding $90,000 of Debentures has not made a final decision.  As of December 31, 2011, the Company held $455,000 of Debentures.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Because the fair market value of the Company's common stock (the underlying security in the Debentures) may have been above the conversion price of $2.00 per share at the date of issuance, the Company was required under GAAP to record a discount given for certain (now) “expired” Debentures sold, which totaled $184,975.  The discount was then required to be amortized as a period expense over the periods the Debentures were scheduled to be outstanding, which averaged 20 months, through the maturity date of June 30, 2011.  For the year ended December 31, 2011 and 2010, amortization expense on the “expired” Debentures amounted to $52,326 and $108,334, respectively.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">For periods subsequent to June 30, 2011, the Company is required under GAAP to record a discount totaling $32,737 for certain Debentures replaced, and a gain on debt modification during the quarter ended June 30, 2011.  The discount is required to be amortized as a period expense over the next eight quarters the Debentures are scheduled to be outstanding.  For the six months ended December 31, 2011 these “replacement” debentures have been outstanding, amortization expense amounted to $8,184.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Approximate aggregate maturities of long-term debt for the years ending December 31 are as follows:  2012 - $567,000;  2013 - $460,000;  2014 - $59,000;  2015 - $27,000;  2016 - $6,000.</font></div><div style="text-indent: 0pt; display: block;"><br /></div></div>
2756
0
215223
0
0
217979
2209
0
455661
0
0
457870
541
0
101306
0
0
101847
5
0
979
0
0
984
451
0
89725
0
0
90176
270
0
49690
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<div><div><div><div style="text-indent: 0pt; display: block;"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 1.                  Operations and Summary of Significant Accounting Policies</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following is a summary of certain accounting policies followed in the preparation of these financial statements.  The policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">A.     Nature of Business – The Company owns and licenses the N-Viro Process, a patented technology to treat and recycle wastewater sludges and other bio-organic wastes, utilizing certain alkaline by-products produced by the cement, lime, electric utilities and other industries.  Revenue and the related accounts receivable are due from companies acting as independent agents or licensees, principally municipalities.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">B.     Use of Estimates – The preparation of financial statements in conformity with <font style="display: inline;">accounting principles generally accepted in the United States of America</font> requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">C.     Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">D.     Cash and Cash Equivalents – The Company has cash on deposit primarily in one financial institution which, at times, may be in excess of FDIC insurance limits.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">For purposes of the statements of cash flows, the Company considers all certificates of deposit with initial maturities of 90 days or less to be cash equivalents.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Restricted cash consists of:  two certificates of deposit and corresponding accrued interest which are held as collateral against the Company's line-of-credit; one certificate of deposit and corresponding accrued interest which is held as collateral with a performance bond on behalf of one of the Company's licensees; one certificate of deposit and corresponding accrued interest which is held as collateral on behalf of the Florida Department of Agriculture for the Company's soil distribution license.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">E.     Accounts Receivable – The Company extends unsecured credit to customers under normal trade agreements, which require payment within 30 days.  Accounts greater than 90 days past due amounted to $67,344 and $61,698 of receivables for the years ended December 31, 2011 and 2010, respectively.  The Company's policy is not to accrue and record interest income on past due trade receivables.  The Company does bill the customer finance charges on past due accounts and records the interest income when collected.  Credit is generally granted on an unsecured basis.  Periodic credit evaluations of customers are conducted and appropriate allowances are established.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Management estimates an allowance for doubtful accounts, which was $70,000 as of both December 31, 2011 and 2010.  The estimate is based upon management's review of delinquent accounts and an assessment of the Company's historical evidence of collections.</font></div><div style="text-indent: 0pt; display: block;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">F.     Property and Equipment – Property, machinery and equipment are stated at cost less accumulated depreciation.  Depreciation has been computed primarily by the straight-line method over the estimated useful lives of the assets.  Generally, useful lives are five to fifteen years.  Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset.  Depreciation expense amounted to $514,748 and $416,172 in 2011 and 2010, respectively.  Management has reviewed property and equipment for impairment when events and circumstances indicate that the assets might be impaired and the carrying values of those assets may not be recoverable.  Management believes the carrying amount is not impaired based upon estimated future cash flows.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">G.     Intangible Assets – Patent costs and territory rights are recorded at cost and then amortized by the straight-line method over their estimated useful lives (periods ranging from one and one-half to seventeen years; weighted-average amortization periods for patents/related intangibles and territory rights were 14.2 and 15.8 years at December 31, 2011 and 2010, respectively).  Amortization expense amounted to $23,276 and $26,691 in 2011 and 2010, respectively.  Estimated amortization expense, based on these patent costs and territory rights at December 31, 2011, for each of the ensuing five years is as follows:  2012 - $13,000;  2013 - $13,000;  2014 - $13,000;  2015 - $12,000; 2016 - $9,000.  Management has reviewed intangible assets for impairment when events and circumstances indicate that the assets might be impaired and the carrying values of those assets may not be recoverable.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company has capitalized the cost of acquiring certain customer licenses and contracts as part of the acquisition of Florida N-Viro on December 31, 2006.  Amortization expense amounted to $1,719 in 2011 and $6,259 in 2010.  Estimated amortization expense, based on these capitalized license and contracts at December 31, 2011, for each of the ensuing five years is as follows:  2012 - $1,700;  2013 - $1,700;  2014 - $1,700;  2015 - $1,700; 2016 - $500.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">H.     Revenue Recognition – Facility management revenue and royalty fees are recognized under contracts where the Company or licensees utilize the N-Viro Process to treat sludge, either pursuant to a fixed-price contract or based on volumes of sludge processed.  Revenue is recognized as services are performed.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">Alkaline admixture sales, alkaline admixture management service revenue and N-Viro Soil<font style="display: inline; font-size: 70%; vertical-align: text-top;">TM</font> revenue are recognized upon shipment.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">License and territory fees are generated by selling the right to market or use the N-Viro Process in a specified territory.  The Company's policy is to record revenue for the license agreements when all material services relating to the revenue have been substantially performed, conditions related to the contract have been met and no material contingencies exist.  We do not recognize revenue on any non-domestic license or territory fee contracts until the cash is received, assuming all other tests of revenue recognition are met.  Canada is excluded from this definition of non-domestic.  Research and development revenue is recognized as work is performed and billed to the contracting entity in accordance with the contract.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company records the amount of shipping and handling costs billed to customers as revenue.  The cost incurred for shipping and handling has been included in the cost of sales.</font></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">I.     Loss Per Common Share – Loss per common share has been computed on the basis of the weighted-average number of common shares outstanding during each period presented.  For the years ended December 31, 2011 and 2010, the effects of 2,924,985 and 2,273,300 stock options outstanding, respectively, 1,444,585 and 1,147,350 warrants to purchase common stock, respectively, and, debentures that are convertible to 227,500 and 360,000 shares of common stock, respectively, are excluded from the diluted per share calculation because they would be antidilutive.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">J.     Stock Options <font style="display: inline;">–</font> The Company records share-based compensation expense using a fair-value based method of measurement that results in compensation costs for essentially all awards of stock-based compensation to employees.  Compensation costs are recognized over the requisite period or periods that services are rendered.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">K.     New Accounting Standards – There are no Accounting Standards Updates expected to have a significant effect on the Company's consolidated financial position or results of operations.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">L.     Income Taxes – Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable or refundable for the current period plus or minus the change during the period in deferred tax assets and liabilities.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The accounting for uncertain tax positions requires the Company to evaluate each income tax position using a two step process which includes a determination as to whether it is more likely than not that the income tax position will be sustained, based upon technical merit and upon examination by the taxing authorities. At December 31, 2011 and 2010, there were no uncertain tax positions that required accrual.  None of the Company's federal or state income tax returns are currently under examination by the Internal Revenue Service (“IRS”) or state authorities.  However, fiscal years 2008 and later remain subject to examination by the IRS and respective states.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">M.                Supplemental Disclosure of Non-Cash Activity:</font></div><br /></div></div></div><div><div><table cellpadding="0" cellspacing="0" width="89%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="46%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="17%" style="border-bottom: black 2px solid; text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid; text-align: center;"><div style="text-align: center; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Common Stock issued for commissions on debentures</font></div></td><td valign="bottom" width="17%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $              -</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $5,500</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Burnham Hill Consulting - commission not due on cancellation of license of VC Energy agreement</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 18,000</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">VC Energy - issuance of common stock warrants</font></div></td><td valign="bottom" width="17%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 604,150</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Deemed dividend on extension of outstanding stock warrants</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 132,642</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 611,854</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">SLD Consulting - value of stock issued on consulting agreement</font></div></td><td valign="bottom" width="17%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 334,400</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">SAMI - value of stock issued on public relations agreement</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 210,307</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 304,500</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Rakgear - value of stock issued on consulting agreement</font></div></td><td align="right" valign="bottom" width="17%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 73,000</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="bottom" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="46%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Conversion of debentures to Common Stock</font></div></td><td valign="bottom" width="17%" style="border-bottom: black 2px solid; text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 90,204</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="46%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="17%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $433,949</font></div></td><td valign="bottom" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="bottom" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $1,950,608</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div></div><div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">N.     Segment Information <font style="display: inline; font-size: 10pt;">–</font> During 2011, the Company determined that it currently operates in one segment based on the financial information upon which the chief operating decision maker regularly assesses performance and allocates resources.  The chief operating decision maker is the Chief Executive Officer.</font></div></div></div>
0
0
611854
-611854
0
0
0
0
132642
-132642
0
0
732280
-140326
<div><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 10.                  Subsequent Events</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The Company has performed a review of events subsequent to the balance sheet date and no matters required disclosure.</font></div></div>
-64000
39000
<div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Note 2.                 Balance Sheet Data</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Property and equipment (at cost):</font></div><div style="text-indent: 0pt; display: block;"><br /><div style="text-indent: 0pt; display: block;"> </div><div><table cellpadding="0" cellspacing="0" width="89%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Buildings and leasehold improvements</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $290,129</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $121,411</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Equipment</font></div></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 3,169,055</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 3,296,751</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Furniture, fixtures and computers</font></div></td><td align="right" valign="middle" width="16%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 63,838</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 50,089</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="16%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 3,523,022</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 3,468,251</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="47%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Less accumulated depreciation</font></div></td><td align="right" valign="middle" width="16%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 2,195,702</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 1,977,386</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="16%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="47%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="16%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $1,327,320</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $1,490,865</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Deferred costs:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In December 2010, the Company executed a Financial Public Relations Agreement with Strategic Asset Management, Inc., or SAMI.  The Company engaged SAMI as its non-exclusive financial public relations counsel for a term of three years.  For its services, the Company issued SAMI 150,000 shares of the Company's unregistered common stock.  The Company is recording a non-cash charge to earnings of approximately $305,000 ratably over a 36-month period starting in December 2010.  For the year ended December 31, 2011, the charge to earnings was approximately $101,500.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In August 2011, the Company issued 100,000 shares of common stock and granted 100,000 stock warrants to SAMI for additional services performed in connection with the December 2010 Financial Public Relations Agreement.  To reflect the entire value of the stock and warrants issued, the Company is taking a charge to earnings of $285,700 through December 2013, the ending date of the agreement.  For the year ended December 31, 2011, the charge to earnings was approximately $99,200.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In December 2010, the Company executed a Consulting Agreement, with SLD Capital Corporation, or SLD.  The Company engaged SLD to provide business consulting services for a term of eighteen months.  For its services, the Company issued SLD 110,000 shares of the Company's unregistered common stock.  The Company is recording a non-cash charge to earnings of approximately $334,000 ratably over an 18-month period starting in December 2010.  For the year ended December 31, 2011, the charge to earnings was approximately $223,000.</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In November, 2011, the Company executed a Consulting Agreement with Rakgear, Inc.  The Company engaged Rakgear to provide business consulting services for a term of one year.  For its services, the Company issued Rakgear 50,000 shares of the Company's unregistered common stock.  The Company is recording a non-cash charge to earnings of $73,000 ratably over a 12-month period starting in November 2011.  For the year ended December 31, 2011, the charge to earnings was approximately $10,000.</font></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following is a summary of Deferred Costs – capitalized stock value on contracts, net as of December 31:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><br /></div><div><table cellpadding="0" cellspacing="0" width="89%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Deferred costs - Rakgear, Inc., less accumulated</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">amortization (2011 - $10,139;  2010 - $-0-)</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $62,861</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="14%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">                                         $           -</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Deferred costs - SAMI, less accumulated</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">amortization (2011 - $204,931;  2010 - $4,229)</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 385,269</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 300,271</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Deferred costs - SLD Capital, less accumulated</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 27pt; display: block; margin-left: 18pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">amortization (2011 - $235,518;  2010 - $12,585)</font></div></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 98,882</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 321,815</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $547,012</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $622,086</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Intangible and other assets:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">The following is a summary of intangible and other assets, net as of December 31:</font><br /></div><div style="text-indent: 0pt; display: block;"> </div><div><table cellpadding="0" cellspacing="0" width="89%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Patents and related intangibles, less accumulated</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">amortization (2011 - $103,908;  2010 - $294,327)</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $64,581</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $99,926</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Territory rights, less accumulated amortization</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">(2011 - $-0-;  2010 - $6,470)</font></div></td><td valign="middle" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 3,530</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Customer list, less accumulated amortization</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">(2011 - $55,365;  2010 - $53,646)</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 7,390</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 9,109</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Debenture issuance costs, less accumulated amortization</font></div></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 18pt; display: block; margin-left: 9pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">(2011 - $61,667;  2010 - $44,925)</font></div></td><td valign="middle" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 16,742</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Other</font></div></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 19,829</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 29,997</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $91,800</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $159,304</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"> </div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt; font-weight: bold;">Accrued liabilities:</font></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div><table cellpadding="0" cellspacing="0" width="89%" style="font-family: times new roman; font-size: 10pt;"><tr><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2011</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="center" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">2010</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Accrued payroll and employee benefits</font></div></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $29,062</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $32,192</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Sales tax payable</font></div></td><td valign="middle" width="14%" style="text-align: right;"><div style="text-align: right; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> -</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 177,421</font></div></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="left" valign="middle" width="50%"><div align="left" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;">Interest payable</font></div></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 10,735</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 2px solid;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> 16,449</font></div></td></tr><tr bgcolor="white"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="14%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td></tr><tr bgcolor="#cceeff"><td valign="middle" width="19%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td valign="middle" width="50%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $39,797</font></div></td><td valign="middle" width="3%"><font style="display: inline; font-family: times new roman; font-size: 10pt;">  </font></td><td align="right" valign="middle" width="14%" style="border-bottom: black 4px double;"><div align="right" style="text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: times new roman; font-size: 10pt;"> $226,062</font></div></td></tr></table></div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-indent: 0pt; display: block;"><br /></div><div align="justify" style="text-indent: 0pt; display: block; margin-left: 63pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">During the fourth quarter of 2011, the Company recognized $174,000 of gain for the reversal of a recorded sales tax liability management determined is no longer due.</font></div></div></div>
-0.27
-0.55
false
--12-31
2011-12-31
No
No
Yes
Smaller Reporting Company
11519000
N-VIRO INTERNATIONAL CORP
0000904896
6083624
2011
FY
10-K
12196
744476
5988077
5396018
400000
4000
-300000
996000
0
0
700000
-1200
300000
-282310
0
0
16490
-120000
0
0
26236
0
0
26236
0
0
169765
-159764
0
10001
87021
27735