10. STOCK COMPENSATION

3 Months Ended

Jun. 30, 2012

Note 10. Stock Compensation

Shareholders' Equity and Share-based Payments

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, 2012 and 2011:

	June 30, 2012			June 30, 2011
Vesting of Stock Options	$	52,794		$	127,364
Incremental fair value of option Modifications		19,838			–
Vesting Expense Associated with CEO Restricted Stock Grant		96,667			96,667
Direct Stock Grants		–			–
Total Stock-Based Compensation Expense	$	169,299		$	224,031
Basic and diluted loss per common share	$	(0.00	)	$	(0.00	)

All of the stock-based compensation expense recorded during the three months ended June 30, 2012 and 2011, which totaled $169,299 and $224,031, 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, 2012 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, 2011 also had no impact on basic and diluted loss per common share .

In March 2012, our Chief Executive Officer and our Chief Financial Officer agreed to suspend the exercise of up to 12,588,243 of their stock options, which allowed us to utilize the shares underlying those stock options in capital raising activities while we presented our stockholders with a proposal to increase the number of authorized shares from 250,000,000 to 500,000,000. That proposal was approved by our stockholders at our Special Stockholders’ Meeting on June 4, 2012. Following that approval we extended their stock options by the 70 days, which equaled the number of days that they had unreserved their shares. We valued the change in fair value of their vested stock options due to this extension, and based on the change in fair value, recorded an increase to our stock based compensation expense in the quarter ended June 30, 2012 of $19,838. For their unvested options, we recorded an increase to fair value of $5,100, which will be expensed over the remaining vesting period of those options.

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, 2012 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, 2012 nor in the three months ended June 30, 2011.

Options outstanding that have vested and are expected to vest as of June 30, 2012 are as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years
Vested		17,478,690	$	0.32		3.80
Expected to vest		1,950,003	$	0.25		8.25
Total		19,428,693

A summary of stock option activity during the three months ended June 30, 2012 is presented below:

	Amount		Range of Exercise  Price		Weighted Average Exercise  Price
Stock options outstanding at March 31, 2012		19,428,693	$	0.21 - $0.41		$ 0.14
Exercised		--	$	--
Issued		--	$	--
Cancelled/Expired		--	$	--
Stock options outstanding at June 30, 2012		19,428,693	$	0.21 - $0.41		$ 0.32
Stock options exercisable at June 30, 2012		17,478,690	$	0.21 - $0.41		$ 0.32

At June 30, 2012, there was approximately $670,915 of unrecognized compensation cost related to share-based payments, including our Chief Executive Officer’s restricted stock grant, which is expected to be recognized over a weighted average period of 1.12 years.

On June 30, 2012, 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.