Stock Option Plans

Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the vesting period. During the three and six months ended September 30, 2011, stock-based compensation totaling $3,500 and $5,267, respectively, was recognized based on the fair value of the stock options granted. Stock-based compensation totaling $900 and $12,000 was recognized during the three and six months ended September 30, 2010, respectively.

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 six months ended September 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 September 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 September 30, 2011, the fair value of unamortized stock-based compensation expense related to unvested stock options was approximately $33,111 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 six months ended September 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 September 30, 2011		1,291,000		$	2.10	5.8 years	$	146,560

Exercisable at September 30, 2011		1,257,667		$	2.11	5.7 years	$	129,760

Aggregate intrinsic value represents the total pretax intrinsic value, based on options with exercise prices less than the Company’s closing price of $2.06 as of September 30, 2011, which would have been recognized by the option holders had these option holders exercised their options as of that date.

On September 27, 2011, the Company issued warrants to purchase an aggregate of 75,000 shares of the Company’s common stock in connection with consulting services for investor relations services. The warrants have a four and one-half year term and are currently exercisable as follows: warrants to purchase 25,000 shares of common stock at an exercise price of $3.00 per share; warrants to purchase 25,000 shares of common stock at an exercise price of $4.00 per share; and warrants to purchase 25,000 shares of common stock at an exercise price of $5.00 per share. The shares underlying the warrants are not registered and are subject to certain trading restrictions.

The Company recognized $82,250 of stock-based compensation expense related to investor relations services based on a fair value weighted average of the warrants of $1.17. The fair values of the warrants was calculated using the Black-Scholes option pricing model with the following weighted average assumptions: expected volatility, 93.6%; risk-free interest rates of 0.97%; expected option term, four and one-half years; and expected dividend yields of 0%.