NOTE 6 – EMPLOYEE STOCK OPTIONS

Compensation expense charged against income for share-based awards during the three and nine months ended September 30, 2012 was $261,856 and $707,090, respectively, with no comparable amounts for the three and nine months ended September 30, 2011, and is included in general and administrative expense in the accompanying financial statements.

In 2011, Stanford’s Board of Directors and stockholders approved and adopted a long-term incentive plan which allows for the issuance of up to 2,500,000 shares of common stock through the grant of qualified stock options, non-qualified stock options and restricted stock. As of September 30, 2012, there were 1,375,000 shares eligible for issuance under the plan. On December 1, 2011, the Company granted 1,125,000 non-qualified stock options exercisable at $2.00 per share. On July 1, 2012, the Company granted 75,000 non-qualified stock options exercisable at $4.50 per share.  On July 1, 2012, the Company cancelled 125,000 non-qualified options exercisable at $2.00 per share.  On August 15, 2012, the Company granted 50,000 non-qualified options exercisable at $4.50 per share.  The stock options vest at the rate of 20% each year over five years beginning one year from the date granted and expire ten years from the date granted.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model and using certain assumptions. The expected volatility is based on the historical price volatility of the Dow Jones U.S. Oil and Gas Index. The Company used the simplified method for estimating the expected term for options granted in 2011. Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options. The following are the weighted-average assumptions used to determine the fair value of options granted during the eight months ended December 31, 2011 and nine months ended September 30, 2012:

A summary of the stock option activity as of September 30, 2012, and changes during the nine months then ended is as follows:

The weighted-average grant-date fair value of options granted during 2012 was $4.29 per share. Share-based compensation expense for the nine months ended September 30, 2012 was $707,090. As of September 30, 2012, there was approximately $1,580,789 of unrecognized compensation cost related to stock options that is expected be recognized over a weighted-average period of 2.7 years. The aggregate intrinsic value was determined based on the $5.82 market value of the Ring Energy, Inc. common stock on September 28, 2012.  No options were exercisable as of September 30, 2012.