Note 4 - Employee Stock Compensation Plans

9 Months Ended

Mar. 31, 2012

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 originally 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 for issuance to eligible employees, officers, and directors of the Company upon their exercise of options.  At the Company’s Annual Meeting of Stockholders held on November 9, 2011, stockholders approved an amendment to the Plan increasing the aggregate number of shares reserved for issuance upon the exercise of options by 3,700,000, for a total of 6,800,000 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, all of Avatech’s outstanding stock options became fully vested in accordance with their respective option agreements.  For the nine months ended March 31, 2012, total stock compensation expense charged against income for this Plan was $125,000.

The following are the assumptions made in computing the fair value of stock-based awards:

	Three months ended						Nine months ended
	March 31,						March 31,
	2012			2011			2012			2011
Average risk-free interest rate		2.22	%		0.20	%		2.22	%		0.20	%
Dividend yield		0	%		0	%		0	%		0	%
Expected term	10.0 years			10.0 years			10.0 years			10.0 years
Average expected volatility		0.56			1.08			0.56			1.08
Weighted average per share fair value of granted options	$	0.45		$	0.64		$	0.45		$	0.64

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 nine months ended March 31, 2012 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		18,000			0.67
Exercised		(84,400	)		0.43
Forfeited		(700,450	)		0.97
Expired		(16,765	)		1.38
Outstanding at March 31, 2012		2,544,717		$	0.75	$	161,000
Exercisable at March 31, 2012		744,599		$	0.87	$	34,000
Weighted-average remaining contractual life	4.0 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 March 31, 2012 ranged from $0.17 to $2.20 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		172,297	$	0.42	2.5 years		172,299	$	0.42	2.5 years
	0.51 – 0.75		1,883,920		0.70	9.0 years		83,800		0.64	5.5 years
	0.76 – 1.00		250,000		0.86	4.5 years		250,000		0.86	4.5 years
	1.01 – 2.20		238,500		1.29	3.9 years		238,500		1.29	3.9 years
			2,544,717					744,599

Assuming that no additional share-based payments are made after March 31, 2012, $501,000 of compensation expense will be recognized in the consolidated statement of operations over a weighted-average period of 3.3 years.