NOTE 7. STOCK OPTIONS

We recognized compensation expense related to stock options during the three months ended March 31, 2012, in accordance with the Financial Accounting Standards Board (“FASB”) standard regarding share-based payments, and as such, has measured the share-based compensation expense for stock options granted based upon the estimated fair value of the award on the date of grant and recognizes the compensation expense over the award’s requisite service period. There was no share based compensation expense for stock options during the three months ended March 31, 2011. The weighted average fair values for the stock options issued during the second quarter of 2011 were calculated using the Black Scholes option pricing model.

On June 6, 2011, we issued 975,000 stock options to directors and officers as follows:

Options to purchase up to a total of 75,000 shares of common stock were granted to our three independent members of the Board of Directors. These options vested and became exercisable immediately. The weighted-average estimated fair value of the stock options granted was $0.65 per share using the Black-Scholes model with the following assumptions:

Expected volatility	164.6
Risk-free interest rate	0.74%
Expected life	3 years
Dividend yield	0%

Options to purchase up to a total of 900,000 shares of common stock were granted to two executive officers. These options vest and become exercisable in twelve quarterly periods for the first three years of the five-year life of the options. The weighted-average estimated fair value of the stock options granted was $0.72 per share using the Black-Scholes model with the following assumptions:

Expected volatility	164.6
Risk-free interest rate	1.60%
Expected life	5 years
Dividend yield	0%

The fair value of the options granted during 2011 was $696,750. Compensation expense recognized in operating, general and administrative expenses in the Statements of Operations for the three months ended March 31, 2012 and 2011 was $54,000 and $0, respectively. At March 31, 2012 and December 31, 2011, the total unrecognized compensation expense related to non-vested stock option awards was $471,165 and $525,165, respectively. The remaining $471,165 in compensation expense will be recognized at $54,000 per quarter with the final $39,165 being recognized in the quarter ending June 30, 2014.