Stock-Based Compensation

3 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Stock-Based Compensation

F. STOCK-BASED COMPENSATION

Stock options

The Company has agreements with certain of its employees and independent contractor consultants that provide grants of options to purchase the Company’s common stock.

A summary of stock options as of December 31, 2011 is as follows:

	Number of	Weighted - Average
	Shares	Exercise Price
Outstanding at June 30, 2011	824,249		$0.47
Expired	(40,000)		$0.25
Outstanding at December 31, 2011	784,249		$0.48
Exercisable at December 31, 2011	784,249		$0.48

The weighted-average remaining contractual life of stock options outstanding and exercisable at December 31, 2011 is 2.3 years. The aggregate intrinsic value of stock options outstanding as of December 31, 2011 was $1,800.

The weighted-average fair value of options granted for the six months ended December 31, 2011 and 2010 was $0.00 and $0.14, respectively.

Stock-based compensation expense was $0 and $338 during the three months ended December 31, 2011 and 2010, respectively. Stock based compensation expense was $2 and $870 during the six months ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was no unrecognized compensation costs related to stock options.

Warrants

In connection with the issuance of certain convertible notes payable, the Company has outstanding 275,000 fully invested warrants to acquire its common stock at an exercise price of $2 per share. The warrants expire in 2014. The warrants have no intrinsic value at December 31, 2011.

G. LEGAL PROCEEDINGS

On February 15, 2011, the Company filed a complaint in U.S. District Court for the District of Minnesota against Aurora Financial Systems, Inc. (“Aurora”) for declaratory judgment, tortious interference and other related claims concerning assertions by Aurora regarding United States Patent No. 7,229,006. The complaint related to Aurora’s improper and unlawful assertions of patent against certain software owned by the Company which was lawfully acquired from the software’s owner and inventor before the purported assignment of any patent rights to Aurora. Even though Aurora was aware of the lawful acquisition yet they have made repeated claims about the Company’s purported patent infringement relating to the Company’s use and licensing of the software to various financial institutions with which the Company has sought business relationship. The Company is seeking a declaration of non-infringement based on legal estoppel and implied license as well as a judgment that Aurora has committed tortious interference with prospective economic advantage, false advertising under the Lanham Act and has violated Minnesota’s Deceptive Trade Practices Act. As of December 31, 2011 the case has been in discovery and Aurora has not countersued. In addition to the preceding lawsuit, the Company is subject to various legal proceedings from time to time in the ordinary course of business, none of which is required to be disclosed.