Stock-Based Compensation

On September 15, 2010, the Company’s Board of Directors (the “Board”) adopted the Contango ORE, Inc. Equity Compensation Plan (the “2010 Plan”). Under the 2010 Plan, the Board may issue up to 1,000,000 shares of common stock and options to officers, directors, employees or consultants of the Company. Awards made under the 2010 Plan are subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Board. As of March 31, 2014, there were 63,333 shares of unvested restricted common stock outstanding and options to purchase 461,667 shares of common stock outstanding issued under the 2010 Plan.

Stock-based compensation expense for the periods reflected was as follows:



	Three Months Ended March 31,				Nine Months Ended March 31,				Period from Inception (October 15, 2009)
	2014		2013		2014		2013		to March 31, 2014
Stock-based compensation included in:
Exploration expense ⁽¹⁾	$	69,625	$	57,982	$	296,571	293,206		$	725,976
Stock-based compensation expense⁽²⁾	122,951		127,540		689,746		858,164		2,079,480
Total stock-based compensation expense	$	192,576	$	185,522	$	986,317	$	1,151,370	$	2,805,456


⁽¹⁾	^{Related to restricted stock and stock option awards to the Company’s technical consultant, the owner of Avalon and one Avalon employee.}


⁽²⁾	^{Related to restricted stock and stock option awards to the Company’s directors and employees.}

The amount of compensation expense recognized does not reflect compensation actually received by the individuals, but rather represents the amount recognized by the Company in accordance with GAAP.

Restricted Stock. In November 2010, the Company granted 70,429 restricted shares of common stock to its officers and directors and an additional 23,477 restricted shares to its technical consultant. All shares of restricted stock vest over a three year period, beginning in November 2011, the one-year anniversary of when the restricted stock was issued. Compensation expense related to these shares will be recognized over the vesting period. All of the restricted stock from this grant was fully vested as of March 31, 2014.

In December 2013, the Company's directors, executive officers and our technical consultant were granted an aggregate of 95,000 shares of restricted stock. The restricted stock vests over two years, beginning with one-third vesting on the date of grant. As of December 31, 2013, there were 63,333 shares of restricted stock that remained unvested. As of March 31, 2014, the total compensation cost related to unvested awards not yet recognized was $529,870. The remaining costs will be recognized over the remaining vesting period of the awards.

Stock Options. The option awards listed in the table below have been granted to directors, officers, employees and consultants of the Company:



Option Awards
Period Granted	Options Granted	Weighted Average Exercise Price	Vesting Period ⁽⁷⁾
September 2011 ⁽¹⁾	50,000	$13.13	Vests over two years, beginning with one-third on the grant date.
July 2012 ⁽²⁾	100,000	$10.25	Vests over two years, beginning with one-third on the grant date.
December 2012 ⁽³⁾	250,000	$10.20	Vests over two years, beginning with one-third on the grant date.
June 2013 ⁽⁴⁾	37,500	$10.00	Vested Immediately
July 2013 ⁽⁵⁾	5,000	$10.00	Vested Immediately
September 2013 ⁽⁶⁾	37,500	$10.01	Vested Immediately
September 2013 ⁽⁶⁾	15,000	$10.01	Vests over two years, beginning with one-third on the grant date.

⁽¹⁾ ^{The Company granted}^40,000^{stock options to its directors and officers and an additional}^10,000^{stock options to its technical consultant, the owner of Avalon, for services performed during fiscal year 2011.}

⁽²⁾ ^{The Company granted}^75,000^{stock options to its directors and officers and an additional}^25,000^{stock options to its technical consultant for services performed during fiscal year 2012.}

⁽³⁾ ^{The Company granted}^175,000^{stock options to its directors and an additional}^75,000^{stock options to its technical consultant for services performed during fiscal year 2013.}

⁽⁴⁾ ^{The Company granted}^37,500^{stock options to its employees for services performed during fiscal year 2013.}

⁽⁵⁾ ^{The Company granted}^5,000^{stock options to an employee of Avalon for services performed during fiscal year 2013.}

⁽⁶⁾ ^{The Company granted}^52,500^{stock options to its employees for services performed during the first quarter of fiscal year 2014.}

^{(7) If at any time there occurs a change of control, as defined in the 2010 Plan, any options that are unvested at that time will immediately vest.}

The Company applies the fair value method to account for stock option expense. Under this method, cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as financing cash flows. See Note 3 – Summary of Significant Accounting Policies. All employee stock option grants are expensed over the stock option’s vesting period based on the fair value at the date the options are granted. The fair value of each option is estimated as of the date of grant using the Black-Scholes options-pricing model. As of March 31, 2014, the stock options had a weighted-average remaining life of approximately 3.5 years. The the total compensation cost related to unvested options not yet recognized as of March 31, 2014 was $287,094.

A summary of the status of stock options granted under the 2010 Plan as of March 31, 2014 and changes during the nine months then ended, is presented in the table below:



	Nine Months Ended March 31, 2014
	Shares Under Options		Weighted Average Exercise Price
Outstanding, June 30, 2013	404,167		$10.49
Granted - July 2013 ⁽¹⁾	5,000		$10.00
Granted - September 2013 ⁽²⁾	52,500		$10.01
Exercised	—		—
Forfeited	—		—
Outstanding, end of period	461,667		$10.43
Aggregate intrinsic value	$	—
Exercisable, end of period	370,000		$10.54
Aggregate intrinsic value	$	124,542
Available for grant, end of period	349,427
Weighted average fair value per share of options granted during the period	$	3.92

⁽¹⁾

^{The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the July 2013 grant: (i) risk-free interest rate of}^0.47%^{; (ii) expected life of}^2.5^{years; (iii) expected volatility of}^63.3%^{; and (iv) expected dividend yield of}^0%^{. The weighted average fair value per share for the options granted in July 2013 is}^$2.68^.

⁽²⁾

^{The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the September 2013 grant: (i) risk-free interest rate of}^0.51%^{; (ii) expected life of}^2.6^{years; (iii) expected volatility of}^64.4%^{; and (iv) expected dividend yield of}^0%^{. The weighted average fair value per share for the options granted in September 2013 is}^$4.04^.