Stock Based Compensation

3 Months Ended

Oct. 31, 2011

Stock-based Compensation [Abstract]

STOCK-BASED COMPENSATION

4. STOCK-BASED COMPENSATION

The Company measures the cost of employee, officer and director services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. The Company recorded stock-based compensation of $8,000 and $22,000, respectively, for the three months ended October 31, 2011 and 2010. All stock-based compensation is included in the Company’s selling, general and administrative costs and expenses.

The Company’s 2000 Stock Option Plan, as amended (the “Plan”), provides for the issuance of up to 2,000,000 shares of the Company’s common stock. The Plan allows the issuance of incentive stock options, stock appreciation rights and restricted stock awards. The exercise price of the options is determined by the compensation committee of the Company’s Board of Directors, but incentive stock options, if any, must be granted at an exercise price not less than the fair market value of the Company’s common stock as of the grant date or an exercise price of not less than 110% of the fair value for a 10% shareholder. Options expire up to ten years from the date of the grant and are exercisable according to the terms of the individual option agreements.

In November 2010, the Board and Compensation Committee approved the Non-Invasive Monitoring Systems, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). Awards granted under the 2011 Plan may consist of incentive stock options, stock appreciation rights (SAR), restricted stock grants, restricted stock units (RSU) performance shares, performance units or cash awards. The 2011 Plan authorizes up to 4,000,000 shares of our common stock for issuance pursuant to the terms of the 2011 Plan. The 2011 Plan has not yet been approved by our shareholders, and no awards have been granted under the 2011 Plan.

The Company did not grant any stock options during the three months ended October 31, 2011 or 2010. The fair values of options granted are estimated on the date of their grant using the Black-Scholes option pricing model based on assumptions regarding expected term, volatility, risk-free interest rates, dividend yield and forfeiture rates. The expected term of stock option awards granted is generally based upon the “simplified” method for “plain vanilla” options discussed in SAB No. 107, as amended by SEC Staff Accounting Bulletin No. 110. The expected volatility is derived from historical volatility of the Company’s stock on the U.S. over-the-counter bulletin board for a period that matches the expected term of the option. The risk-free interest rate is the yield from a Treasury bond or note corresponding to the expected term of the option. The Company has not paid cash dividends and does not expect to pay cash dividends in the future. Forfeiture rates are based on management’s estimates.

A summary of the Company’s stock option activity for the three months ended October 31, 2011 is as follows:

					Weighted
			Weighted		average
			Average		remaining		Aggregate
			Exercise		contractual		intrinsic
	Shares		Price		term (years)		Value
Options outstanding, July 31, 2011		1,841,250	$	0.592
Options granted		—		n/a
Options exercised		—		n/a
Options forfeited or expired		350,000	$	0.569
Options outstanding, October 31, 2011		1,491,250	$	0.598		2.26	$	9,600
Options expected to vest, October 31, 2011		1,478,540	$	0.599		2.23	$	9,600
Options exercisable, October 31, 2011		1,313,750	$	0.624		1.88	$	9,600

Of the 1,491,250 options outstanding at October 31, 2011, 498,750 were issued under the 2000 Plan and 992,500 were issued outside of shareholder approved plans. There were no options exercised or expired during the three month period ended October 31, 2011 and 2010. There were 350,000 and 40,000 options forfeited during the three month periods ending October 31, 2011 and 2010, respectively, as a result of employee terminations.

As of October 31, 2011, there was $35,000 of unrecognized costs related to outstanding stock options. These costs are expected to be recognized over a weighted average period of 1.55 years.