STOCK BASED COMPENSATION

3 Months Ended

Jun. 30, 2012

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

NOTE 13 — STOCK BASED COMPENSATION

In 2006, the directors adopted, and the stockholders approved, the 2006 long-term incentive plan, or the Plan, covering 1,000,000 shares of common stock. On August 5, 2010, the Plan was amended to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,000,000 shares. On September 15, 2011, the directors adopted and the shareholders approved an amendment to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,300,000 shares. The Plan provides for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The Plan is to be administered by a committee of not less than two directors each of whom is to be an independent director. In the absence of a committee, the Plan is administered by the Board of Directors. Independent directors are not eligible for discretionary options.

Pursuant to the Plan, each newly elected independent director receives at the time of his election, a five-year option to purchase 50,000 shares of common stock at the market price on the date of his or her election.  In addition, the Plan provides for the annual grant of an option to purchase 10,000 shares of common stock on July 1st of each year following the third anniversary of the date of his or her first election.

On April 26, 2012, the Company granted stock options to an employee to purchase 50,000 shares of common stock at an exercise price of $0.70 per share, the fair market value on the date of grant. The options will vest in equal amounts over three years on the anniversary of the grant date.

The fair market value is estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The risk-free interest rate was selected based upon the five-year U.S. Treasury yields. The Company uses the simplified method for all grants to estimate the expected term of the option. We assume that stock options will be exercised evenly over the period from vesting until the awards expire. As such, the assumed period for each vesting tranche is computed separately and then averaged together to determine the expected term for the award. Because of our limited stock exercise activity we did not rely on our historical exercise data. The assumptions utilized for option grants during the three months ended June 30, 2012 were 106% for volatility, a risk free interest rate of 0.083%, and expected term of approximately six years. At June 30, 2012, there were 453,506 shares of common stock were available for grant under the Plan.

The following table summarizes activity for the three months ended June 30, 2012:

	Number Of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding at 3/31/2012	2,415,666		$	1.040	$	107,375	7.71
Granted	50,000		$	0.700
Forfeited	(16,666	)	$	—
Exercised	—		$	—
Outstanding at 6/30/2012	2,449,000		$	1.038	$	24,250	7.56
Vested at 6/30/2012 or expected to vest	2,449,000		$	1.038	$	24,250	7.56
Exercisable at 6/30/2012	1,074,668		$	0.963	$	24,250	0.96

At June 30, 2012 there was $856,036 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over the next three years. The total fair value of shares vested during the three months ended June 30, 2012 was $104,732.

The following is a summary of the status of the Company’s stock options outstanding but not vested for the three months ended June 30, 2012:

	Number of Options		Weighted Average
Outstanding at 3/31/2012	1,489,000		$	1.205
Granted	50,000		$	0.700
Vested	(164,667	)	$	1.960
Outstanding at 6/30/2012	1,374,333		$	1.096