Stock Option Plans

We account for stock-based compensation by recording stock options at their fair value on the measurement date, which is typically the date the services are performed (generally the vesting period of the grant). Stock-based compensation totaling $1,767 and $11,100 was recognized during the three months ended June 30, 2011 and 2010, respectively, based on the fair value of the stock options granted.

We estimate the fair value of stock options granted using the Black-Scholes option pricing model. Under this method, the average fair value of stock options granted by the Company during the three months ended June 30, 2011 was $1.56 per share. In addition to the exercise price of the awards, certain weighted average assumptions were used to estimate the fair value of stock option grants as follows: expected volatility of 95.8%, expected dividend yield of 0%, risk- free interest rate of 1.55% and an expected option term of 6 years.

At June 30, 2011, outstanding options to purchase 1,257,667 shares of the Company’s common stock are fully vested. In addition, certain option grants contain disposition restrictions which prohibit the sale of 50% of the shares acquired by exercising the awarded options until the first anniversary of the grant date and the remaining 50% of the shares acquired by exercising the awarded options until the second anniversary of the grant date. As of June 30, 2011, the fair value of unamortized stock-based compensation expense related to unvested stock options was approximately $36,033 which is expected to be recognized over a remaining vesting period of three years.

The following table summarizes information about stock option activity for the three months ended June 30, 2011:

						Weighted
				Weighted		Average
				Average		Remaining	Aggregate
				Exercise		Contractual	Intrinsic
	Shares			Price		Term	Value
Outstanding at March 31, 2011		1,296,000		$	2.11	6.3 years
Granted		20,000		$	2.14	10 years
Expired		(25,000	)	$	2.50	7.5 years
Outstanding at June 30, 2011		1,291,000		$	2.10	6.1 years	$	95,200

Exercisable at June 30, 2011		1,257,667		$	2.11	6.1 years	$	79,200

Aggregate intrinsic value represents the total pretax intrinsic value, based on options with exercise prices less than the Company’s closing price of $2.00 as of June 30, 2011, which would have been recognized by the option holders had these option holders exercised their options as of that date.