5. STOCK-BASED COMPENSATION

On January 31, 2013, the Company issued 10,000 stock options to a member of the audit committee, to purchase the Company’s common stock. On January 1, 2013, 46,000 options were cancelled due to resignation of one employee and one member of the audit committee from the Company. Accordingly, the Company reversed the unvested amount of $66,354 from unearned stock-based compensation.

A summary of the options is presented in the table below:

	June 30, 2013			June 30, 2012
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price

Options outstanding, beginning of year	138,000	$	7.43	138,000	$	7.43
Granted	10,000		2.01	-		-
Canceled, forfeited or expired	(46,000)		7.43	-		-

Options outstanding, end of year	102,000	$	6.90	138,000	$	7.43

Options exercisable, end of year	92,000	$	7.43	100,400	$	7.49

Following is a summary of the status of options outstanding and exercisable at June 30, 2013:

Outstanding Options				Exercisable Options
Exercise Price		Number	Average Remaining Contractual Life	Average Exercise Price		Number	Average Remaining Contractual Life
$	7.75	92,000	-	$	7.75	92,000	-
$	2.01	10,000	4.6 year	$	2.01	-	4.6 year
		102,000				92,000

The issuance of the Options is exempted from registration under the Securities Act of 1933, as amended (the “Act”). The Options will vest at a rate of 20% per year, with 20% vesting initially when granted. The Common Stock underlying the Options granted may be sold in compliance with Rule 144 under the Act. The term of the Options is 10 years and the exercise price of the 2013 options is $2.01 (10,000 options). Each Option may be exercised to purchase one share of Common Stock. Payment for the Options may be made in cash or by exchanging shares of Common Stock at their Fair Market Value. The Fair Market Value will be equal to the average of the highest and lowest registered sales prices of Company Stock on the date of exercise.

The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. The aggregate fair value of $15,520 and $202,089 at June 30, 2013 and 2012, respectively, is presented as “Unearned Stock-based Compensation”. The Company amortized stock option expenses of $139,615 and $195,469 for the years ended June 30, 2013 and 2012 respectively.

The fair value of 10,000 stock options granted in 2013 was calculated at the grant date using the Black-Scholes option-pricing model with the following assumptions:

Black-Scholes Option Pricing Model for 2013 options
Assumptions:
Stock Price	$	1.94
Strike Price	$	2.01
Volatility		452.04	%
Risk-free Rate		0.88	%
Expected life		5 yrs
Dividend Yield		0.00	%
Number of Options		10,000

Following is a summary of the status of warrants outstanding and exercisable at June 30, 2013:

Warrants Outstanding		Warrants Exercisable			Weighted Aaverage Exercise Price		Average Remaining Contractual Life
139,032		139,032		$	9.30		5.0 years