Note

–Stock Based Compensation

The Company recorded share-based compensation associated with outstanding stock options and restricted stock grants during the

twelve

months ended

December

31,

2016

and

2015(unaudited);

the

six

months ended

December

31,

2015

and the year ended

June

30,

2015

of approximately

,000,

$62

,000

(unaudited),

$22,000

and

$96,000

respectively.

income tax benefit was recognized in the statements of comprehensive loss for share-based arrangements in any period presented.

Stock Option Plan

The Company has

two

share-based compensation plans as described below.

Qualstar adopted the

1998

Stock Incentive Plan, (the

“1998

Plan”) under which incentive and nonqualified stock options and restricted stock could be granted for shares of common stock. Under the terms of the

1998

Plan, options could be issued at an exercise price of not less than

100%

of the fair market value of common stock on the date of grant. These option awards typically vest based upon

four

years of continuous service at a rate of

25%

per year and terminate as specified in each option agreement, but terminate no later than

ten

years after the date of grant. The

1998

Plan expired in

2008

and no additional options

may

be granted under that plan. However, options previously granted under the

1998

Plan will continue under their terms.

Qualstar adopted the

2008

Stock Incentive Plan (the

“2008

Plan”) under which incentive and nonqualified stock options and restricted stock

may

be granted for an aggregate of no more than

83,333

shares of common stock. Under the terms of the

2008

Plan, options

may

be issued at an exercise price of not less than

100%

of the fair market value of common stock on the date of grant, or in the case of incentive stock options granted to a person who owns

10%

or more of the total combined voting power of all classes of Qualstar stock, the exercise price must be at least equal to

110%

of the fair market value of common stock on the date of grant. These option awards typically vest based on

years of continuous service at a rate of

25%

per year and terminate as specified in each option agreement, but terminate no later than

ten

years after the date of grant. Under the

2008

Plan, there were

options granted during the years ended

December

31,

2016

and

2015;

and

six

months ended

December

31,

2015,

and

33,333

options were granted during fiscal year ending

June

30,

2015.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions, such as volatility, expected term and risk-free interest rate. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination in determining forfeiture rates and evaluates separate groups of employees by functional area that have similar historical exercise behavior. The expected term of options granted is estimated based on the vesting term of the award, historical employee exercise behavior, expected volatility of the Company’s stock and an employee’s average length of service. The risk-free interest rate used in this model correlates to a U.S. constant rate Treasury security with a contractual life that approximates the expected term of the option award.

The following table summarizes all stock option activity; the amounts shown have been retrospectively restated for the

one

for

six

reverse split, effective

June

14,

2016:

Options	Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at July 1, 2014		12,333		$	17.34		25.86	$	—
Granted		33,333			7.50		—		—
Exercised		—			—		—		—
Forfeited or expired		(2,666	)		22.26		—		—
Outstanding at June 30, 2015		43,000			9.42		48.54		—
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited or expired		(3,000	)		18.60		—		—
Outstanding at December 31, 2015		40,000			8.70		47.94		—
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited, canceled or expired		(16,667	)		7.62		—		—
Outstanding at December 31, 2016		23,333			9.49		6.43		—
Exercisable at December 31, 2016		23,333		$	9.49		6.43	$	—

December

31,

2016,

there is

unrecognized compensation cost related to non-vested share-based compensation awards granted. The total fair value of shares vested for the year ended

December

31,

2016

and

2015

was

$12

,000

and

$29,000

(unaudited), respectively and for the

six

months ended

December

31,

2015

and the year ended

June

30,

2015,

was

and

$29,000,

respectively

Restricted Stock Awards

The following table summarizes all restricted stock awards activity:

Restricted Stock Awards	Shares			Weighted Average Fair Value Price per Share
Nonvested at July 1, 2015		16,667		$	9.66
Granted (1)		—
Vested		—
Forfeited or expired (2)		(16,667	)		(9.66	)
Nonvested at December 31, 2015		—		$	—
Granted (1)		—			—
Vested		—			—
Forfeited or expired (2)		—			—
Nonvested at December 31, 2016		—		$	—

(1)	Restricted stock was granted on April 1, 2014 to Daniel K. Jan of 16,667 shares to vest beginning on April 1, 2017. The award was part of his employment agreement and the grant price is the closing price of the stock on April 1, 2014 of $9.66. The unvested shares are forfeited upon termination of his employment.
(2)	Daniel K. Jan was terminated as of December 31, 2015, all unvested shares were forfeited.