4. Stock Options.

For the three months and nine months ended September 30, 2012 the Company recorded stock-based compensation expense of $40,672 and $131,105, respectively. For the three months and nine months ended September 30, 2011 the Company recorded stock-based compensation expense of $36,912 and $116,853, respectively. These expenses were related to vested employee stock options.

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation - Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at September 30, 2012 and 2011 for the employee stock options is $220,122 and $217,747, respectively and will be recognized through March 2015.

A summary of the Company's stock option plans as of September 30, 2012, and changes during the nine-month period then ended is presented below:


	Nine Months Ended September 30, 2012
	Number of Options		Weighted Average Exercise Price
Options outstanding at December 31, 2011		2,993,972	$	.37
Options granted		920,000		.14
Options exercised		-		-
Options cancelled		25,000		.14
Options expired		10,000		.37
Options at end of period		3,878,972		.32
Options exercisable at September 30, 2012		2,135,722		.42

Changes in the Company's unvested options for the nine months ended September 30, 2012 are summarized as follows:


	Nine Months Ended September 30, 2012
	Number of Options		Weighted Average Exercise Price
Non-Vested options at December 31, 2011		1,561,699	$	.25
Options granted		920,000		.14
Options vested		713,449		.24
Options cancelled		25,000		.14
Non-Vested options at September 30, 2012		1,743,250		.13


	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Remaining Average Contractual Life (In Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$ .11 - $1.70		3,834,972		3.69	$	.30		2,091,722	$	.25
$1.99 - $2.60		44,000		.58		2.31		44,000		2.31
Totals		3,878,972		5.79	$	.32		2,135,722	$	.24

The estimated fair value of each stock option grant on the date of grant was computed using the following weighted-average assumptions:


	Nine Months Ended September 30,
	2012		2011
Risk-free interest rate	2.23	%	3.68	%
Expected term (life) of options (in years)	10.0		10.0
Expected dividends	-		-
Expected volatility	243.1	%	138.0	%