Stock-based Compensation

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

4. Stock-based Compensation

The Company recognized compensation expense of $22,147 and $13,754 in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010, respectively.  Compensation expense recognized for the six months ended September 30, 2011 and 2010 was $49,384 and $17,422, respectively.The total cost related to non-vested awards not yet recognized at September 30, 2011 totals approximately $93,000 which is expected to be recognized over a weighted average of 2.7 years.

The fair value of each stock option is estimated on the date of grant using the Binomial valuation model.  Expected volatilities are based on historical volatility of the Company’s stock over the expected term of 84 months and other factors.  We use historical data to estimate option exercise and employee termination within the valuation model.  The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  As the Company has never declared dividends, no dividend yield is used in the calculation.  Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions.  There is no assurance the value realized by an optionee will be at or near the value estimated by the Binomial model.

There were no stock options granted during the six months ended September 30, 2011.  During the six months ended September 30, 2010, stock options covering 42,500 shares were granted.

Included in the following table is a summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted during the six months ended September 30, 2010.  All such amounts represent the weighted average amounts.

Grant-date fair value	$5.15
Volatility factor	82.83%
Dividend yield	-
Risk-free interest rate	2.07%
Expected term (in years)	7

The following table is a summary of activity of stock options for the six months ended September 30, 2011:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contract Life in Years		Aggregate Intrinsic Value
Outstanding at March 31, 2011		53,750	$	5.69		7.33	$	401,200
Granted		-		-
Exercised		-		-
Forfeited or Expired		-		-
Outstanding at September 30, 2011		53,750	$	5.69		6.83	$	19,575
Vested at September 30, 2011		20,000	$	5.12		4.78	$	18,675
Exercisable at September 30, 2011		20,000	$	5.12		4.78	$	18,675

During the six months ended September 30, 2011, no stock options were exercised.  During the six months ended September 30, 2010, stock options covering 2,500 shares were exercised with a total intrinsic value of $12,429.

The following table summarizes information about options outstanding at September 30, 2011:

Range of Exercise Prices		Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Life in Years		Aggregate Intrinsic Value
$	4.00 – 5.24		13,750	$	4.10
	5.25 – 6.29		40,000		6.23
$	4.00 – 6.29		53,750	$	5.69		6.83	$	19,575

Outstanding options at September 30, 2011 expire between May 2012 and September 2020 and have exercise prices ranging from $4.00 to $6.29.

No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history for these types of awards.  There were no stock options forfeited or expired during the six months ended September 30, 2011.  During the six months ended September 30, 2010, 7,500 unvested stock options were forfeited due to the termination of a consulting agreement with a consultant.