Stock-Based Compensation

On September 15, 2010, the Company’s Board of Directors (the “Board”) adopted the Contango ORE, Inc. Equity Compensation Plan (the “2010 Plan”). Under the 2010 Plan, the Board may issue up to 1,000,000 shares of common stock and options to officers, directors, employees or consultants of the Company. Awards made under the 2010 Plan are subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Board. As of March 31, 2013, there were 23,478 restricted shares outstanding and 400,000 options outstanding issued under the 2010 Plan.

Stock-based compensation expense for the periods reflected was as follows:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2013		2012		2013		2012
Stock-based compensation included in:
Exploration expenses (1)	$	57,982	$	12,022	$	293,206	$	46,305
Stock-based compensation expense (2)	127,540		38,454		858,164		154,430
Total stock-based compensation expense	$	185,522	$	50,476	$	1,151,370	$	200,735


(1)	Related to restricted stock and stock option awards to the Company’s technical consultant, the owner of Avalon.


(2)	Related to restricted stock and stock option awards to the Company’s directors and employees.

The amount of compensation expense recognized does not reflect compensation actually received by the individuals, but rather represents the amount recognized by the Company in accordance with GAAP.

Restricted Stock. In November 2010, the Company granted 70,429 restricted shares of common stock to its officers and directors and an additional 23,477 restricted shares to its technical consultant. All shares of restricted stock vest over a three year period, beginning in November 2011, the one-year anniversary of when the restricted stock was issued. Compensation expense related to these shares will be recognized over the vesting period. As of March 31, 2013, the total compensation cost related to nonvested awards not yet recognized was $72,777. The remaining costs are expected to be recognized over the remaining vesting period of the awards.

In October 2012, the Compensation Committee elected to immediately vest all restricted stock held by Mr. Peak. This vesting resulted in compensation expense of $42,454 which was recognized during the quarter ended December 31, 2012.

Stock Options. In September 2011, the Company granted 40,000 stock options to its directors and officers and an additional 10,000 stock options to its technical consultant at a weighted-average exercise price of $13.13 per share pursuant to the 2010 Plan, to be expensed over the vesting period which is one-third immediately; one-third in September 2012; and one-third in September 2013. The option awards were granted for services performed during the fiscal year ended June 30, 2011.

In July 2012, the Company granted 75,000 stock options to its directors and officers and an additional 25,000 stock options to its technical consultant, at a weighted-average exercise price of $10.25 per share pursuant to the 2010 Plan, to be expensed over the vesting period which is one-third immediately; one-third in July 2013; and one-third in July 2014. The option awards were granted for services performed during the fiscal year ended June 30, 2012.

In October 2012, the Compensation Committee elected to immediately vest all stock options held by Mr. Peak. This vesting resulted in compensation expense of $99,517 which was recognized during the three months ended December 31, 2012.

In December 2012, the Company granted 175,000 stock options to its directors and an additional 75,000 stock options to its technical consultant, at a weighted-average exercise price of $10.20 per share pursuant to the 2010 Plan, to be expensed over the vesting period which is one-third immediately; one-third in December 2013; and one-third in December 2014 The option awards were granted for services performed during the fiscal year ended June 30, 2013.

The Company applies the fair value method to account for stock option expense. Under this method, cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as financing cash flows. See Note 3 – Summary of Significant Accounting Policies. All employee stock option grants are expensed over the stock option’s vesting period based on the fair value at the date the options are granted. The fair value of each option is estimated as of the date of grant using the Black-Scholes options-pricing model. As of March 31, 2013, the stock options had a weighted-average remaining life of 4.4 years. The the total compensation cost related to nonvested options not yet recognized as of March 31, 2013 was $915,448.

A summary of the status of stock options granted under the 2010 Plan as of March 31, 2013 and changes during the nine months then ended, is presented in the table below:



	Nine Months Ended March 31, 2013
	Shares Under Options		Weighted Average Exercise Price
Outstanding, June 30, 2012	50,000		$	13.13
Granted - July 2012 (1)	100,000		$	10.25
Granted - December 2012 (2)	250,000		$	10.20
Exercised	—		$	—
Forfeited	—		$	—
Outstanding, end of period	400,000		$	10.58
Aggregate intrinsic value	$	—
Exercisable, end of period	171,667		$	10.97
Aggregate intrinsic value	$	—
Available for grant, end of period	506,094
Weighted average fair value per share of options granted during the period	$	5.34

(1)

The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the July 2012 grant: (i) risk-free interest rate of 0.69%; (ii) expected life of three years; (iii) expected volatility of 106.5%; and (iv) expected dividend yield of 0%. The weighted average fair value per share for the options granted in July 2012 is $6.02.

(2)

The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the December 2012 grant: (i) risk-free interest rate of 0.33%; (ii) expected life of 2.5 years; (iii) expected volatility of 87.3%; and (iv) expected dividend yield of 0%. The weighted average fair value per share for the options granted in December 2012 is $5.07.