NOTE 10. STOCK COMPENSATION

3 Months Ended

Jun. 30, 2011

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

NOTE 10. STOCK COMPENSATION

The following tables summarize share-based compensation expenses relating to shares and options granted and the effect on basic and diluted loss per common share during the three months ended June 30, 2011 and 2010.

	June 30, 2011			June 30, 2010
Vesting of Stock Options	$	127,364		$	93,904
Incremental fair value of option Modifications		--			491,377
Vesting Expense Associated with CEO Restricted Stock Grant		96,667			32,222
Direct Stock Grants
Total Stock-Based Compensation Expense	$	224,031		$	617,503
Basic and diluted loss per common share	$	(0.00	)	$	(0.01	)

All of the stock-based compensation expense recorded during the three months ended June 30, 2011 and 2010, which totaled $224,031 and $617,503, respectively, is included in payroll and related expense in the accompanying condensed consolidated statements of operations.  Stock-based compensation expense recorded during the three months ended June 30, 2011 had no impact on basic and diluted loss per common share and the stock-based compensation expense recorded during the three months ended June 30, 2010 increased basic and diluted loss per common share by $0.01.

On May 21, 2010, the Board of Directors of the Company amended the expiration terms of certain outstanding stock options such that all outstanding stock options of the Company shall have a term that is for not less than ten (10) years following the original date of grant. No other terms or features of the stock options were modified or amended. Stock options held by Mr. James Joyce, our Chief Executive Officer and Chairman of the Board of Directors, Dr. Richard Tullis, our Chief Science Officer and member of the Board of Directors, Mr. Franklyn Barry, a member of the Board of Directors, and Mr. Edward Broenniman, a member of the Board of Directors, were modified accordingly. Of the foregoing (i) options to purchase 2,231,100 shares held by Mr. Joyce were extended to February 23, 2015; (ii) options to purchase 867,175 shares held by Dr. Tullis were extended to February 23, 2015; (iii) options to purchase 308,725 shares held by Mr. Broenniman were extended to February 23, 2015; and (iv) options to purchase 264,550 shares held by Mr. Barry were extended to February 23, 2015.  All of the foregoing options are at an exercise price of $0.38 per share. The foregoing represents only a portion of the total options and shares owned by the directors and officers of the Company.

This option extension resulted in an additional charge of $491,377 in the three months ended June 30, 2010 based upon the change in the fair value resulting from the extension to the term of the options based upon the binomial lattice option valuation model.

In addition, in June 2009, we committed to issue 4,000,000 shares of restricted common stock to our Chief Executive Officer at a price per share of $0.29, which vests in equal installments over a thirty six month period commencing June 30, 2010.  As a result, we recorded a stock-based compensation charge of $32,222 in June to reflect the initial month’s vesting under that restricted share grant.

We review share-based compensation on a quarterly basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The cumulative effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for the three months ended June 30, 2011 was insignificant.

The expected volatility is based on the historic volatility. The expected life of options granted is based on the "simplified method" as described in the SEC's guidance due to changes in the vesting terms and contractual life of current option grants compared to our historical grants.

We did not issue any stock option grants in the three months ended June 30, 2011 nor in the three months ended June 30, 2010.

Options outstanding that have vested and are expected to vest as of June 30, 2011 are as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Number of		Exercise		Contractual
	Shares		Price		Term in Years
Vested		15,908,560	$	0.34		6.38
Expected to vest		4,025,000	$	0.25		9.25
Total		19,933,560

At June 30, 2011, there was approximately $1,355,308 of unrecognized compensation cost related to share-based payments, including the restricted stock grant, which is expected to be recognized over a weighted average period of 1.51 years.

On June 30, 2011, our stock options had a negative intrinsic value since the closing price on that date of $0.09 per share was below the weighted average exercise price of our stock options