Stock-based Compensation

3 Months Ended

Dec. 31, 2011

Notes to Financial Statements

4. Stock-based Compensation

4.  Stock-based Compensation

The Company recognized compensation expense of $27,377 and $29,454 in general and administrative expense in the Consolidated Statements of Operations for the three months ended December 31, 2011 and 2010, respectively.  Compensation expense recognized for the nine months ended December 31, 2011 and 2010 was $76,761 and $46,876, respectively.  The total cost related to non-vested awards not yet recognized at December 31, 2011 totals approximately $290,000 which is expected to be recognized over a weighted average of 7.9 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 for employees and 96 months for directors 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.

During the nine months ended December 31, 2011, stock options covering 40,000 shares were granted.  During the nine months ended December 31, 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 nine months ended December 31, 2011 and 2010.  All such amounts represent the weighted average amounts.

	Nine Months Ended
	December 31
	2011			2010
Grant-date fair value	$	5.69		$	5.15
Volatility factor		85.92	%		82.83	%
Dividend yield		-			-
Risk-free interest rate		1.49	%		2.07	%
Expected term (in years)		7.25			7

The following table is a summary of stock option activity for the nine months ended December 31, 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		40,000		6.80
Exercised		-		-
Forfeited or Expired		-		-
Outstanding at December 31, 2011		93,750	$	6.16		7.87	$	78,638
Vested at December 30, 2011		23,750	$	5.00		3.96	$	47,613
Exercisable at December 30, 2011		23,750	$	5.00		3.96	$	47,613

During the nine months ended December 31, 2011, no stock options were exercised.  During the nine months ended December 31, 2010, stock options covering 6,250 shares were exercised with a total intrinsic value of $24,340.  The Company received proceeds of $27,187 from these exercises.

The following table summarizes information about options outstanding at December 31, 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
	6.30 – 6.80		40,000		6.80
$	4.00 – 6.80		93,750	$	6.16		7.87	$	78,638

Outstanding options at December 31, 2011 expire between May 2012 and November 2021 and have exercise prices ranging from $4.00 to $6.80.

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 nine months ended December 31, 2011.  During the nine months ended December 31, 2010, 7,500 unvested stock options were forfeited due to the termination of a consulting agreement with a consultant.