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2. Stock-Based Compensation and Warrants

3 Months Ended

Sep. 30, 2013

The Company has stock-based compensation plans and reports stock-based compensation expense for all stock-based compensation awards based on the estimated grant date fair value. The value of the compensation cost is amortized on a straight-line basis over the requisite service periods of the award (generally the option vesting term).

The Company estimates fair value using the Black-Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows:

·	Expected term is determined under the simplified method using an average of the contractual term and vesting period of the award as appropriate statistical data required to properly estimate the expected term was not available;

·	Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of the Company’s common stock over the expected term of the award and contemplation of future activity;

·	Risk-free interest rate is the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and,

·	Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential future forfeitures.

The Company has several employee stock option and officer and director stock option plans that have been approved by the shareholders of the Company. The plans require that options be granted at a price not less than market on the date of grant and are more fully discussed in our Form 10-K for the year ended June 30, 2013.

The following table summarizes the Company’s stock option activity during the first three months of fiscal 2014:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate			Aggregate
				Exercise Price		Contractual		Fair			Instrinsic
	Shares			Per Share		Term (1)		Value (3)			Value (2)

Outstanding July 1, 2013		1,084,100		$	0.67		4.18	$	296,100		$	-
Granted		-			-		-		-			-
Exercised		-			-		-		-			-
Forfeited or expired		(7,500	)	$	1.50		-		(4,000	)		-
Outstanding September 30, 2013		1,076,600		$	0.66		3.96	$	292,100		$	-
Exercisable September 30, 2013		1,076,600		$	0.66		3.96	$	292,100		$	-

(1)	Remaining contractual term presented in years.
(2)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company's common stock as of September 30, 2013, for those awards that have an exercise price currently below the closing price as of September 30, 2013 of $.50.
(3)	Aggregate Fair Value is calculated using the Black Scholes option pricing model to estimate fair value of stock-based compensation.

As of September 30, 2013, there were no unamortized Black Scholes values related to stock option grants made in prior periods. There were no new grants during the three months ended September 30, 2013.

As of September 30, 2013, the Company had no outstanding warrants. All warrants that were previously outstanding expired during the three months ended September 30, 2013. The following table summarizes the Company’s warrant activity during the first three months of fiscal 2014:

				Weighted
	Number of			Average
	Shares			Exercise Price
Warrants Outstanding, June 30, 2013		95,100		$	2.64
Granted		-			-
Exercised		-			-
Canceled/Expired		(95,100	)		2.64
Warrants Outstanding, September 30, 2013		-		$	-