STOCK-BASED COMPENSATION

3 Months Ended

Sep. 30, 2011

Shareholders' Equity and Share-based Payments [Text Block]

NOTE 3. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the employee’s requisite service period. The Company recognized $16,261 and $11,544 in stock-based compensation expense during the three months ended September 30, 2011 and 2010, respectively. These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options. The Company maintains a 2005 equity incentive plan for the benefit of employees. Incentive and nonqualified stock options, restricted common stock, stock appreciation rights, and other stock-based awards may be granted under the plan. Awards granted under the plan may be performance-based. As of September 30, 2011, there were 901,114 shares of common stock authorized and reserved for issuance, but not granted under the terms of the 2005 equity incentive plan, as amended.

The following table summarizes the Company’s stock option activity during the three months ended September 30, 2011.

	Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of period		933,462		$	1.33
Granted		-			-
Exercised		-			-
Cancelled		(68,244	)		1.49
Outstanding at end of period		865,218			1.31

Exercisable at end of period		489,004			1.63

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company’s stock option plan. The weighted-average fair values of stock options granted under the plan for the three months ended September 30, 2010 were based on the following assumptions at the date of grant as follows. There were no options granted during the three months ended September 30, 2011.

	Three Months Ended September 30,
	2010
Expected dividend yield		0	%
Expected stock price volatility		60	%
Risk-free interest rate		2.54	%
Expected life of options	10 years
Weighted-average grant date fair value	$	0.48

Expected option lives and volatilities are based on historical data of the Company. The risk-free interest rate is based on the U.S. Treasury Bills rate on the grant date for constant maturities that correspond with the option life. Historically, the Company has not declared dividends and there are no future plans to do so.

As of September 30, 2011, there was $78,741 of unrecognized stock-based compensation cost related to grants under the stock option plan that is expected to be expensed over a weighted-average period of 4 years. There was $11,185 of intrinsic value for options outstanding as of September 30, 2011.