Stock-Based Compensation

3 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

(3) Stock-Based Compensation

Stock Option Plans

As of June 30, 2011, we had 649,963 shares of common stock available for future grant to employees, consultants and key suppliers under our 2002 Equity Incentive Plan ("Plan").  Under the Plan, the exercise price of each option is set at the fair value of the common stock on the date of grant and the maximum term of the option is 10 years from the date of grant.  Options granted to employees generally vest ratably over a three-year period.  The maximum number of shares that may be granted as options to an employee under the Plan in any calendar year is 500,000.  Forfeitures under the Plan are available for re-issuance at any time prior to expiration of the Plan in 2013.  Options granted under the Plan to employees require the option holder to abide by certain Company policies, which restrict their ability to sell the underlying common stock.  Prior to the adoption of the Plan, we issued stock options under our 1992 Incentive and Non-Qualified Option Plan, which expired by its terms in 2002. Forfeitures under the 1992 Incentive and Non-Qualified Option Plan may not be re-issued.

Non-Employee Director Stock Option Plan

In February 1994 our Board of Directors ratified a Stock Option Plan for Non-Employee Directors  ("Directors Plan") pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors.  As of June 30, 2011, we had 77,635 shares of common stock available for future grant under the Directors Plan.  Option terms range from 3 to 10 years from the date of grant.  Option exercise prices are equal to the fair value of the common shares on the date of grant. Options granted under the plan generally vest immediately.  Forfeitures under the Directors Plan are available for re-issuance at a future date.

Stock Purchase Plan

We have established a Stock Purchase Plan under which eligible employees may contribute up to 10 percent of their compensation to purchase shares of our common stock at 85 percent of the fair market value at specified dates.  At June 30, 2011 we had 485,805 shares of common stock available for issuance under the Stock Purchase Plan.  During the quarters ended June 30, 2011 and 2010, we issued 10,974 and zero shares of common stock, respectively, under the Stock Purchase Plan.  Cash received by us upon the purchase of shares under the Stock Purchase Plan for the quarters ended June 30, 2011 and 2010 was $21,619 and zero, respectively.   

Stock Bonus Plan

We have a Stock Bonus Plan ("Stock Plan") administered by the Board of Directors.  At June 30, 2011 there were 763,718 shares of common stock available for future grant under the Stock Plan.  Under the Stock Plan, shares of common stock may be granted to employees, key consultants, and directors who are not employees as additional compensation for services rendered.  Vesting requirements for grants under the Stock Plan, if any, are determined by the Board of Directors at the time of grant.  There were no shares granted under the Stock Plan during the quarters ended June 30, 2011 or 2010. 

We use the straight-line attribution method to recognize share-based compensation costs over the requisite service period of the award.  Options granted by us generally expire ten years from the grant date.  Options granted to existing and newly hired employees generally vest over a three-year period from the date of the grant.  The exercise price of options is equal to the market price of our common stock (defined as the closing price reported by the NYSE Amex) on the date of grant. 

We use the Black-Scholes-Merton option pricing model for estimating the fair value of stock option awards.  The table below shows total share-based compensation expense for the quarters ended June 30, 2011 and 2010 and the classification of these expenses:

	Quarter Ended June 30,
	2011	2010
Costs of contract services	$    3,447	30,120
Costs of product sales	19,977	13,092
Research and development	25	5,816
Production engineering	43,647	23,782
Selling, general and administrative	23,991	5,536
	$  91,087	78,346

Share-based compensation capitalized in inventories were insignificant as of June 30, 2011 and March 31, 2011.

We adjust share-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience.  The effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments in the quarters ended June 30, 2011 and 2010 were insignificant.

All shares granted under the Director's Plan are vested.

A summary of the status of non-vested shares under the 2002 Equity Incentive Plan as of June 30, 2011 and 2010 and changes during the quarters ended June 30, 2011 and 2010 are presented below:

	Quarter Ended June 30, 2011		Quarter Ended June 30, 2010
		Weighted-Average		Weighted-Average
	Shares	Grant Date	Shares	Grant Date
	Under Option	Fair Value	Under Option	Fair Value
Non-vested at April 1	475,934	$ 1.73	338,747	$ 1.93
Granted	-	$   -	-	$   -
Vested	-	$   -	-	$   -
Forfeited	(3,610)	$ 1.79	(1,832)	$ 1.61
Non-vested at June 30	472,324	$ 1.73	336,915	$ 1.94

As of June 30, 2011, there was $407,509 of total unrecognized compensation costs related to stock options granted under the 2002 Equity Incentive Plan.  The unrecognized compensation cost is expected to be recognized over a weighted-average period of 21 months.  There were no stock options granted, or that vested during the quarters ended June 30, 2011 and 2010. 

A summary of the non-vested shares under the Stock Bonus Plan as of June 30, 2011 and 2010 and changes during the quarters ended June 30, 2011 and 2010 are presented below:

	Quarter Ended June 30, 2011		Quarter Ended June 30, 2010
		Weighted-Average		Weighted-Average
	Shares	Grant Date	Shares	Grant Date
	Under Contract	Fair Value	Under Contract	Fair Value
Non-vested at April 1	62,199	$ 2.50	98,929	$ 2.97
Granted	-	$   -	-	$   -
Vested	-	$   -	-	$   -
Forfeited	-	$   -	-	$   -
Non-vested at June 30	62,199	$ 2.50	98,929	$ 2.97

As of June 30, 2011, there was $81,141 of total unrecognized compensation costs related to common stock granted under our Stock Bonus Plan.  The unrecognized compensation cost at June 30, 2011 is expected to be recognized over a weighted-average period of 18 months.  There were no shares granted, or that vested under the Stock Bonus Plan during the quarters ended June 30, 2011 and 2010. 

Expected volatility is based on historical volatility.  The expected life of options granted are based on historical experience.

Additional information with respect to stock option activity during the quarter ended June 30, 2011 under our 2002 Equity Incentive Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2011	2,630,491	$ 3.00	3.7 years	$   959,001
Granted	-	$   -
Exercised	-	$   -		$         -
Forfeited	(6,309)	$ 3.08
Outstanding at June 30, 2011	2,624,182	$ 3.00	3.5 years	$     39,661
Exercisable at June 30, 2011	2,151,858	$ 2.99	2.9 years	$     30,795
Vested and expected to vest at June 30, 2011	2,606,759	$ 3.00	3.4 years	$     39,375

Additional information with respect to stock option activity during the quarter ended June 30, 2010 under our 2002 Equity Incentive Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2010	2,377,075	$ 3.45	3.9 years	$ 2,509,155
Granted	-	$   -
Exercised	(1,000)	$ 3.57		$           600
Forfeited	(3,166)	$ 3.57
Outstanding at June 30, 2010	2,372,909	$ 3.45	3.7 years	$ 1,264,435
Exercisable at June 30, 2010	2,035,994	$ 3.40	3.5 years	$ 1,125,880
Vested and expected to vest at June 30, 2010	2,364,772	$ 3.45	3.7 years	$ 1,261,128

Additional information with respect to stock option activity during the quarter ended June 30, 2011 under our Director's Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2011	329,786	$ 2.86	3.1 years	$   129,642
Granted	-	$    -
Exercised	-	$    -		$         -
Forfeited		$    -
Outstanding at June 30, 2011	329,786	$ 2.86	2.9 years	$       9,734
Exercisable at June 30, 2011	329,786	$ 2.86	2.9 years	$       9,734
Vested and expected to vest at June 30, 2011	329,786	$ 2.86	2.9 years	$       9,734

Additional information with respect to stock option activity during the quarter ended June 30, 2010 under our Director's Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2010	256,653	$ 3.15	2.6 years	$   303,651
Granted	-	$    -
Exercised	-	$    -		$        -
Forfeited	(977)	$ 7.63
Outstanding at June 30, 2010	255,676	$ 3.13	2.4 years	$   143,003
Exercisable at June 30, 2010	255,676	$ 3.13	2.4 years	$   143,003
Vested and expected to vest at June 30, 2010	255,676	$ 3.13	2.4 years	$    143,003

Cash received by us upon the exercise of stock options for the quarters ended June 30, 2011 and 2010 was zero and $3,570, respectively.  The source of shares of common stock issuable upon the exercise of stock options is from authorized and previously unissued common shares.