STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2012

Equity

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 $19,063 and $13,020 in stock-based compensation expense during the three months ended March 31, 2012 and 2011, respectively, and  recognized $51,392 and $37,096 in stock-based compensation expense during the nine months ended March 31, 2012 and 2011, 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 March 31, 2012, there were 466,161 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 nine-month period ended March 31, 2012.

	Number of  Options			Weighted-Average Exercise Price
Outstanding at beginning of period		933,462		$	1.33
Granted		52,277			.82
Exercised		-			-
Cancelled		(85,568	)		1.48
Outstanding at end of period		900,171			1.28
Exercisable at end of period		557,400			1.50

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 nine months ended March 31, 2012 and 2011 were based on the following assumptions at the date of grant as follows:

	Nine Months Ended March 31,
	2012			2011
Expected dividend yield		0	%		0	%
Expected stock price volatility		69	%		60 – 64	%
Risk-free interest rate		2.09	%		2.50 – 3.43	%
Expected life of options	10 years			10 years
Weighted-average grant date fair value	$	0.62		$	0.53

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 March 31, 2012, there was $68,952 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 $9,644 of intrinsic value for options outstanding as of March 31, 2012.