9. EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

3 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS

During the three months ended September 30, 2013 and 2012, the Company’s results of operations include compensation expense for stock options granted and restricted shares vested under its various equity incentive plans. The amount recognized in the financial statements related to stock-based compensation was $284,080 and $236,150, based on the amortized grant date fair value of options and vesting of restricted shares during the three months ended September 30, 2013 and 2012, respectively.

At the annual meeting of shareholders held on November 7, 2012 the Company’s shareholders approved an amendment of the 2010 Omnibus Long-Term Incentive Plan (“Omnibus Plan”) which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 900,000 shares and the creation of the 2012 Non-employee Director Equity Compensation Plan (“2012 Director Equity Plan”), under which the Company may issue up to 700,000 restricted stock unit awards and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy.

During the three months ended September 30, 2013 options to purchase 200 shares were granted to employees exercisable at a price of $1.90 and exercisable at various dates through September 2021.  As of September 30, 2013, an additional 902,327 shares were available to be issued under the Omnibus Plan.

On January 21, 2011, certain members of management of Tier Electronics LLC were awarded inducement options to purchase a total of 150,000 shares of the Company’s common stock at an exercise price of $5.75.  The options vest as follows: (1) 84,000 vest in three equal annual installments beginning on December 31, 2011 based on achievement of certain performance targets, (2) 66,000 vest in three equal annual installments beginning on the one-year anniversary of the grant date.  As of September 30, 2013, of the 84,000 shares 28,000 shares had vested and 28,000 shares were cancelled and of the 66,000 shares 44,000 shares had vested.

In January 2010 the Company’s new President and CEO was awarded two inducement option grants covering a total of 100,000 shares with an exercise price of $6.65 per share.  20,000 of these options vested in two equal installments on June 30, 2010 and December 31, 2010, based on the satisfaction of certain performance targets for each of the six-month periods then ended.   The remaining 80,000 of these options vested over three years with the first one-third vesting on January 7, 2011 and the remaining two-thirds vested in 24 equal monthly installments beginning on January 31, 2011 and ending on December 31, 2012.

In November 2011 the Company’s Chief Operating Officer was awarded two inducement option grants covering a total of 100,000 shares with an exercise price of $3.95 per share.  20,000 of these options provided for vesting in two equal installments on September 30, 2012 and June 30, 2013 based on the achievement of certain performance targets. As of September 30, 2013, 5,000 of these shares had vested and the remaining 15,000 shares were cancelled.   The remaining 80,000 of these options will vest over three years with the first one-quarter vesting on November 9, 2012 and the remaining three quarters vesting in 24 equal monthly installments beginning on December 9, 2012 and ending November 9, 2014. As of September 30, 2013, 48,889 of the remaining 80,000 shares had vested.

In aggregate for all plans, at September 30, 2013 the Company had a total of 780,050 options outstanding, 1,131,687 RSUs outstanding and 902,327 shares available for future grant under the Omnibus Plan.

Information with respect to stock option activity under the employee and director plans is as follows:

	Number of Options			Weighted Average Exercise Price Per Share
Balance at July 1, 2012		847,813		$	6.25
Options granted		142,710			1.90
Options forfeited		(205,240	)		5.05
Balance at June 30, 2013		785,283			5.78
Options granted		200			1.90
Options forfeited		(5,433	)		3.46
Balance at September 30, 2013		780,050		$	5.79

The following table summarizes information relating to the stock options outstanding at September 30, 2013:

	Outstanding						Exercisable
Range of Exercise Prices	Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$1.70 to $2.50		128,810		6.79	$	1.94		50,670		6.58	$	2.00
$2.51 to $5.00		210,367		5.88		3.88		135,889		5.74		3.88
$5.01 to $7.50		380,873		4.66		6.24		322,456		4.54		6.31
$7.51 to $17.95		60,000		1.14		17.95		60,000		1.14		17.95
Balance at September 30, 2013		780,050		5.07		5.79		569,015		4.65		6.57

During the three months ended September 30, 2013 options to purchase 200 shares were granted to employees exercisable at $1.90 per share based on service based vesting terms from July 2013 through September 2016 and exercisable at various dates through September 2021. During the three months ended September 30, 2012 options to purchase 128,010 shares were granted to employees exercisable at prices from $1.75 to $1.90 per share based on various service and performance based vesting terms from July 2012 through September 2015 and exercisable at various dates through September 2020.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical data to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the three months ended September 30, 2013 and 2012 using the Black-Scholes option-pricing model:

	Three months ended September 30,
	2013	2012
Expected life of option (years)	4	4
Risk-free interest rate	0.95 - 1.20%	0.46 - 0.54%
Assumed volatility	94 - 95%	104%
Expected dividend rate	0%	0%
Expected forfeiture rate	5.55 - 5.62%	4.19 - 6.66%

Time-vested and performance-based stock awards, including stock options, restricted stock and restricted stock units, are accounted for at fair value at date of grant.  Compensation expense is recognized over the requisite service and performance periods.

A summary of the status unvested employee stock options as of September 30, 2013 and June 30, 2013 and changes during the three months and year then ended is presented below:

	Number of  Options			Weighted Average Grant Date Fair Value Per Share
Balance at July 1, 2012		449,499		$	4.70
Granted		142,710			1.90
Vested		(158,372	)		4.75
Forfeited		(171,134	)		4.20
Balance at June 30, 2013		262,704			3.45
Granted		200			1.90
Vested		(48,836	)		2.50
Forfeited		(3,033	)		2.06
Balance at September 30, 2013		211,035		$	3.68

Total fair value of options granted in the three months ended September 30, 2013 and 2012 was $124 and $151,642, respectively.  At September 30, 2013, there was $95,530 in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over the next three years.

The Company compensates its directors with restricted stock units (“RSUs”) and cash.  On November 9, 2011, 109,610 RSUs were granted to the Company’s directors in payment of directors fees through November 2012 under the Omnibus Plan.  As of November 2012, all 109,610 shares had vested.  On November 7, 2012, an additional 220,000 shares were granted to the Company’s directors in payment of directors fees through November 2013 under the 2012 Director Equity Plan.  As of September 30, 2013, 220,000 of the shares had vested and there were $60,500 in directors’ fees expense settled with RSUs for the three months ended September 30, 2013.

On May 6, 2011, the Company’s President and CEO was awarded 40,000 RSUs that vested ratably over a three year period.  On March 23, 2012, the Company’s President and CEO was awarded 100,000 RSUs which vested based on the satisfaction of certain performance targets for the six-month period ending September 30, 2012.  As of September 30, 2012, 90,000 shares had vested and the remaining shares were cancelled.

In January of 2013, the Company issued 8,000 shares related to RSUs issued as compensation for services to a consultant in November of 2010.

On May 1, 2013, the Company’s President and CEO and Chief Operating Officer were awarded 200,000 RSUs each which will vest on the satisfaction of certain performance targets for the eight-month period ending December 31, 2013.

As of September 30, 2013 there were 458,334 unvested RSUs outstanding which will vest through January 15, 2016 and $740,834 in unrecognized compensation cost related to unvested RSUs which are expected to be recognized through January 15, 2016.  Shares of common stock related to vested RSUs are to be issued six months after the holder’s separation from service with the Company.

The table below summarizes the status of restricted stock unit balances:

	Number of Restricted Stock Units			Weighted Average Valuation Price Per Unit
Balance at July 1, 2012		489,687		$	3.60
RSUs granted		970,000			1.30
RSUs forfeited		(320,000	)		1.30
Shares issued		(8,000	)		1.70
Balance at June 30, 2013		1,131,687			2.27
RSUs granted		5,000			1.00
RSUs forfeited		-			-
Shares issued		-			-
Balance at September 30, 2013		1,136,687		$	2.27