Note 3. Stock-based Compensation

3 Months Ended

Sep. 30, 2014

Notes

Note 3. Stock-based Compensation

NOTE 3. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the employee’s requisite service period. The Company recognized $17,454 and $17,919 in stock-based compensation expense during the three months ended September 30, 2014 and 2013, respectively.  These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options.  The Company maintains a 2005 equity incentive plan for the benefit of employees.  Incentive and nonqualified stock options, restricted common stock, stock appreciation rights, and other stock-based awards may be granted under the plan.  Awards granted under the plan may be performance-based.  As of September 30, 2014, there were 117,888 shares of common stock authorized and reserved for issuance, but not granted under the terms of the 2005 equity incentive plan, as amended.

The following table summarizes the Company’s stock option activity during the three-month period ended September 30, 2014.

	Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	155,604	$	6.45
Granted	-		-
Exercised	-		-
Cancelled	(437)		2.42
Outstanding at end of period	155,167		6.46
Exercisable at end of period	140,935		6.98

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company’s stock option plan. There were no options granted during the quarter ended September 30, 2014.

Expected option lives and volatilities are based on historical data of the Company. The risk-free interest rate is based on the U.S. Treasury Bills rate on the grant date for constant maturities that correspond with the option life. Historically, the Company has not declared dividends and there are no future plans to do so.

As of September 30, 2014, there was $371,901 of unrecognized stock-based compensation cost related to grants under the stock option plan that is expected to be expensed over a weighted-average period of four to ten years. There was $10,649 of intrinsic value for options outstanding as of September 30, 2014.