Note 9 - Director and Employee Stock Compensation Plans

12 Months Ended

Jun. 30, 2012

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

9. Director and Employee Stock Compensation Plans

Employee Stock Option Plans

All common stock options outstanding for pre-merger Rand Worldwide were converted into options to purchase membership interests in RWWI Holdings, an entity which is not part of the Company’s consolidated group.

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 provides 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 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 the requisite service period of three or four years, depending on the specific grant award.  As of the date of the merger with pre-merger Rand Worldwide, all of the outstanding stock options issued by Avatech became fully vested in accordance with their respective option agreements.

The Company recorded and included in selling, general and administrative expenses, $190,000 and $44,000 of stock compensation expense for the years ended June 30, 2012 and June 30, 2011.  Stock compensation expense for the year ended June 30, 2011 included $5,000 of expense prior to the merger for the vesting of common stock options granted by pre-merger Rand Worldwide, and $39,000 of expense for stock options granted after the merger.

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

	Year Ended June 30 2012			Year Ended June 30 2011
Average risk-free interest rate	0.72%	–	2.22%	2.31%
Dividend yield		0 %		0 %
Expected life	5	–	6.25	6.25
Expected volatility (years)	.50	–	.56	.56
Weighted average fair value of granted options		$ 0.39		$ 0.38

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 year ended June 30, 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		957,360			0.80
Exercised		(84,400	)		0.47
Forfeited		(702,627	)		1.05
Expired		(16,765	)		1.38
Outstanding at June 30, 2012		3,481,900		$	0.76	$	246,000
Exercisable at June 30, 2012		1,206,102		$	0.81	$	83,000
Weighted-average remaining contractual life (Years)	5.7

The aggregate intrinsic value of options exercised was $23,400 during the year ended June 30, 2012. No options were exercised during the year ended June 30, 2011.

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 June 30, 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 (years)	Options Exercisable		Weighted Average Exercise Prices of Options Exercisable		Weighted Average Remaining Contractual Life of Options Exercisable (years)
$	0.17 – 0.50		170,120	$	0.42	2.2		170,122	$	0.42	2.2
	0.55 – 0.75		1,883,920		0.70	8.7		529,480		0.69	8.3
	0.76 – 0.91		1,189,360		0.81	8.7		268,000		0.86	4.7
	1.05 – 2.20		238,500		1.29	3.6		238,500		1.29	3.6
			3,481,900					1,206,102

Assuming that no additional share-based payments are granted after June 30, 2012, $786,000 of compensation expense will be recognized in the consolidated statement of operations over a weighted-average period of 3.2 years.

Employee Stock Purchase Plan

Avatech’s Board of Directors adopted, and its stockholders subsequently approved, the Employee Stock Purchase Plan (the “ESPP”), under which, as amended, 2,000,000 shares of common stock are reserved for issuance.   As of June 30, 2011, 790,555 shares were available for future issuance. Effective January 1, 2011, the plan was suspended.

As of June 30, 2012, there was no liability for employees’ ESPP withholdings, as all shares of common stock purchased under the ESPP had been issued.

Restricted Stock Award Plan

In May 2003, the Company’s Board of Directors adopted, and its stockholders subsequently approved, the Avatech Solutions, Inc. Restricted Stock Award Plan, which was amended and restated on August 23, 2005 (the “Stock Plan”).  Officers, directors, key employees and consultants of the Company are eligible to receive stock awards under the Stock Plan, but employees and consultants may receive grants only if they already are stockholders or hold options to purchase shares of common stock at the time of grant.  Vesting for restricted stock awards granted under the Stock Plan may vary, but awards will generally vest based on continued service of the recipient or achievement of specific performance goals. The Company has reserved a total of 1,200,000 shares of common stock for issuance under the Stock Plan and 193,921 shares were available for future issuance as of June 30, 2012.