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2. Stock-Based Compensation and Warrants

6 Months Ended

Dec. 31, 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 six 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 December 31, 2013		1,076,600	$0.66	3.70	$	292,100	$	-
Exercisable December 31, 2013		1,076,600	$0.66	3.70	$	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 December 31, 2013, for those awards that
	have an exercise price currently below the closing price as of December 31, 2013 of $.45.
(3)	Aggregate Fair Value is calculated using the Black Scholes option pricing model to estimate fair value of stock-based
	compensation.

As of December 31, 2013, there were no unamortized Black Scholes values related to stock option grants made in prior periods. There were no new grants during the six months ended December 31, 2013.

As of December 31, 2013, the Company had no outstanding warrants. All warrants that were outstanding as of June 30, 2013 expired during the three months ended September 30, 2013. The following table summarizes the Company’s warrant activity during the first six 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, December 31, 2013		-	$	-