Note 4 - Employee Stock Compensation Plans

3 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4.  Employee Stock Compensation Plans

The Board of Directors may grant options under the Avatech Solutions, Inc. 2002 Stock Option Plan (the “Plan”) to purchase shares of the Company’s common stock at an exercise price of not less than the fair market value of the common stock on the date of grant.  The Plan provided for the granting of either incentive or non-qualified stock options to purchase an aggregate of up to 3,100,000 shares of common stock to eligible employees, officers, and directors of the Company.  At the Company’s Annual Shareholder meeting held on November 9, 2011, shareholders approved an amendment to the Plan increasing the aggregate number of shares in the Plan by 3,700,000, or a total of 7,800,000 shares. Stock options generally expire after 10 years. Options generally vest ratably over three or four years, depending on the specific grant award.  As of the date of the Merger with Rand Worldwide, all of Avatech’s outstanding stock options became fully vested in accordance with their respective option agreements.  For the three months ended September 30, 2011, total stock compensation expense charged against income for this Plan was $41,000.  There were no stock options granted during the three months ended September 30, 2011 or 2010.

Expected volatilities are based on historical volatility of the Company’s common stock.  The expected term of options granted represents the period of time that options granted are expected to be outstanding.  The Company uses historical data to estimate option exercise and employee termination within the valuation model.  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.

A summary of stock option activity during the three months ended September 30, 2011 and related information is included in the table below:

	Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at July 1, 2011		3,328,332		$	0.81
Granted		–			–
Exercised		(73,000	)		0.50
Forfeited		(634,800	)		1.07
Expired		–			–
Outstanding at September 30, 2011		2,620,532		$	0.76	$	149,000
Exercisable at September 30, 2011		827,012		$	0.88	$	36,000
Weighted-average remaining contractual life	4.3 Years

All options granted have an exercise price equal to the fair market value of the Company’s common stock on the date of grant.  Exercise prices for options outstanding as of September 30, 2011 ranged from $0.17 to $3.81 as follows:

Range of Exercise Prices		Options Outstanding		Weighted Average Exercise Prices of Options Outstanding		Weighted Average Remaining Contractual Life  of Options Outstanding	Options Exercisable		Weighted Average Exercise Prices of Options Exercisable		Weighted Average Remaining Contractual Life of Options Exercisable
$	0.17 – 0.50		189,947	$	0.41	3.0 years		189,947	$	0.41	3.0 years
	0.51 – 0.75		1,883,320		0.70	9.4 years		89,800		0.64	5.7 years
	0.76 – 1.00		280,000		0.86	4.8 years		280,000		0.86	4.8 years
	1.01 – 3.81		267,265		1.31	4.2 years		267,265		1.31	4.2 years
			2,620,532					827,012

Assuming that no additional share-based payments are granted after September 30, 2011, $584,000 of compensation expense will be recognized in the consolidated statement of operations over a weighted-average period of 3.7 years.