Note 3. Stock-based Compensation

9 Months Ended

Mar. 31, 2016

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 $51,453 and $16,265 in stock-based compensation expense during the three months ended March 31, 2016 and 2015, respectively, and recognized $81,075 and $50,176 in stock-based compensation expense during the nine months ended March 31, 2016 and 2015, respectively.  These expenses were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

Stock Options.  The Company maintained a 2005 equity incentive plan (“2005 Plan”) for the benefit of employees. On June 29, 2015 the shareholders approved a new 2015 equity incentive plan (“2015 Plan”) setting aside 500,000 shares. No additional shares or awards will be granted under the 2005 Plan. The 2015 Plan was filed with the SEC on September 3, 2015.   Incentive and nonqualified stock options, restricted common stock, stock appreciation rights, and other stock-based awards may be granted under the 2015 Plan.  Awards granted under the 2015 Plan may be performance-based.  As of March 31, 2016, there were 380,404 shares of common stock authorized and reserved for issuance available for future grants under the terms of the 2015 Plan.

The Company granted 39,596 shares under its 2015 Plan during the nine months ended March 31, 2016.  There were no equity awards granted under its 2005 Plan during that period.

The following table summarizes the Company’s stock option activity for the 2005 and 2015 Plans during the nine-month period ended March 31, 2016.

	Number of Options		Weighted-Average Exercise Price
Outstanding at beginning of period	91,152	$	5.07
Granted	80,000		3.34
Exercised	-		-
Cancelled	(23,395)		7.10
Outstanding at end of period	147,757		3.81
Exercisable at end of period	64,337		4.76

The Black-Scholes option-pricing model is used to estimate the fair value of options granted under the Company’s stock option plans.

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 on common stock and there are no plans to do so.

As of March 31, 2016, there was $377,903 of unrecognized stock-based compensation cost related to grants under the 2005 and 2015 Plans that is expected to be expensed over a weighted-average period of four to ten years. There was $2,166 of intrinsic value for options outstanding as of March 31, 2016.