5. Stock Option Plan

12 Months Ended

Jun. 30, 2013

Notes to Financial Statements

Stock Option Plan

On September 22, 2011, the Board of Directors of the Company adopted the Company’s 2011 Stock Option Plan (the “2011 Plan”), which was approved by the shareholders of the Company on December 8, 2011. Under the Plan, options to purchase a maximum of 133,000 shares of common stock may be granted to any employee of the Company, including officers. Such options may be either incentive stock options or non-qualified options and must be granted with an exercise price no less than the fair market value of the stock on the date of the grant. No stock options have been granted under the plan.

On December 2, 1998, the Company adopted its Stock Option Plan of 1998 (the “1998 Plan”) which was amended and restated effective December 5, 2001, pursuant to which options to purchase a maximum of 85,000 shares of common stock may be granted to executives and key employees. Incentive stock options have been granted under the plan with an exercise price no less than fair market value of the stock on the date of grant. Outstanding options generally are exercisable for ten years from the date of grant, except for four grants totaling 13,500 options which are exercisable for a 5-year term. Outstanding options have expiration dates ranging from December 4, 2013 toSeptember 21, 2021. No additional options may be granted under this plan.

The following disclosures are based on stock options granted under the 1998 Plan to employees of the Company in the first quarter of fiscal 2012 (quarter ended September 30, 2011). No other stock options were granted in fiscal 2013 or fiscal 2012. For the fiscal year ended June 30, 2013, the Company recorded stock option compensation expense of $2,271. For the fiscal year ended June 30, 2012 the Company recorded stock option compensation expense of $20,112. As of June 30, 2013 the Company had no unrecognized stock compensation expense.

Estimating stock option compensation expense requires assumptions regarding a number of complex and subjective variables. Key assumptions used to estimate the fair value of stock options include the expected volatility of the Company’s stock price, expected employee option exercise behaviors, risk free interest rate over the option’s expected term, and the annual dividend yield. Compensation cost is recognized over the vesting period of the option using the straight line method.

The Company used its historical stock price volatility to compute the expected volatility for purposes of valuing stock options issued. The period used for the historical stock price corresponded to the expected term of the options and was between five and ten years. The expected dividend yield is based on the Company’s practice of not paying dividends. The risk-free rate of return is based on the yield of U.S. Treasury Strips with terms equal to the expected life of the options as of the grant date. The expected life in years is based on historical actual stock option exercise experience and assumes that no options will be forfeited.

The following weighted average assumptions were used in the valuation of stock options granted in the first quarter of fiscal 2012.

Expected dividend yield	--
Expected volatility	76.8	%
Risk-free interest rate	1.27	%
Expected life in years	6.0

Based on the assumptions in the table above, the grant date fair value of stock options granted in the first quarter of fiscal 2012 was $11,354.

The changes in the number of shares under option are as follows:

	Number of Shares			Weighted Average Exercise Price
Balance at June 30, 2011		52,700		$	2.66
Granted during 2012		9,800			1.63
Expired		--			--
Balance at June 30, 2012		62,500			2.50
Granted during 2013		--
Expired		(16,000	)		3.93
Balance at June 30, 2013		46,500		$	2.00
Exercisable at June 30, 2013		46,500		$	2.00

At the Annual Meeting of Stockholders on December 5, 2001, the Company adopted a Stock Option Plan for Non-Employee Directors (the “Directors Plan”). The number of shares issuable upon exercise of options which may be granted under this plan shall not exceed 50,000 shares of common stock. No options have been granted under this plan.

Listed below is a summary of the stock options outstanding and exercisable at June 30, 2013:

Outstanding and Exercisable

				Weighted Average		Weighted Average
Exercise Price		Options		Exercise Price		Remaining Life-Years
	1.76		800	$	1.76		0.5
	1.60		3,900		1.60		5.5
	2.47		4,000		2.47		1.8
	2.24		12,000		2.24		6.8
	2.20		4,000		2.20		2.5
	2.00		12,000		2.00		7.5
	1.71		4,700		1.71		3.3
	1.55		5,100		1.55		8.3
			46,500		2.00		5.8

As of June 30, 2013, stock options outstanding and exercisable had no intrinsic value.