Note 7. Share-Based Payments

Employee options: The Company has historically granted stock options to employees as long-term incentive compensation. Options generally expire four to ten years from the grant date and vest over a period of up to five years. In November 2014, the Company's shareholders approved the 2014 Equity Incentive Plan (the "Plan") which supersedes the 2012 Stock Incentive Plan. The Plan allows the Board of Directors (the "Board") to grant non-qualified stock options or restricted stock to employees, directors, or consultants. The vesting schedule for options or restricted stock units and the term of the options are determined by the Board upon each grant. The maximum number of shares of common stock available for issuance under the Plan is 650,000. There were 450,800 options granted under the 2012 and prior plans outstanding as of June 30, 2015. There were no options issued under the Plan outstanding and 630,395 available for grant under the Plan as of June 30, 2015.

The Company recognizes compensation expense related to share-based payment transactions in the financial statements based on the estimated fair value of the award issued. The fair value of each option is estimated using the Black-Scholes pricing model at the time of award grant. The Company estimates the expected life of options based on the expected holding period by the option holder. The risk-free interest rate is based upon observed U.S. Treasury interest rates for the expected term of the options. The Company makes assumptions with respect to expected stock price volatility based upon the volatility of its stock price and the volatility of similar companies. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures are estimated based on the percentage of awards expected to vest, taking into consideration the seniority level of the award recipient.

Share-based compensation expense for the years ended June 30, 2015 and 2014 was approximately $110,000 and $82,000, respectively.

The following assumptions were used to estimate the fair value of options granted:


	Years Ended June 30,
	2015			2014

Risk-free interest rate		2.5	%		2.5	%
Expected term (years)		10			10
Expected volatility		57.0	%		57.1	%

The following table presents employee option activity for the years ended June 30, 2015 and 2014:



	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)
Options outstanding at June 30, 2013		365,800		$	1.97	$	3.27		5.98
Granted		25,000			0.88		1.31		-
Canceled or forfeited		(20,000	)		1.66		3.87		-
Options outstanding at June 30, 2014		370,800			1.91		3.11		5.32

Granted		80,000			0.95		1.40		-
Options outstanding at June 30, 2015		450,800			1.74		2.80		5.15
Options exercisable at June 30, 2015		389,134			1.87		3.03		4.56

There were no options exercised during the years ended June 30, 2015 and 2014.

At June 30, 2015, the Company had approximately $32,000 of unrecognized compensation expense, which is expected to be recognized over a weighted-average period of 1.4 years. The aggregate intrinsic value of options outstanding and options exercisable was insignificant at June 30, 2015.

Options issued in conjunction with the initial public offering: In connection with the Company's 2010 initial public offering and the exercise of the underwriter's over-allotment option, the Company issued to the underwriter options to purchase up to 190,000 additional shares of the Company's common stock at a price of $4.80 per share. These options became exercisable in August 2011 and expired in August 2015.

Warrants issued with convertible debt: In years prior to fiscal 2010, the Company issued convertible notes payable to certain individual creditors. In conjunction with the issuance of these convertible notes, creditors also received warrants to purchase common stock at an exercise price of $3.00 per share. At June 30, 2015, the Company had approximately 44,000 warrants outstanding and exercisable at an exercise price of $3.00 per share that will expire in September 2015. There were no warrants exercised during the years ended June 30, 2015 and 2014.

Restricted stock: Under the 2014 Equity incentive plan, the Company may issue restricted stock. The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. These shareholders do not have the ability to sell, transfer or otherwise encumber the restricted shares until they fully vest. During fiscal 2015, the Company granted restricted shares to directors under the plan that vested over a 6-month period based on continuation of service as a director. The Company recognizes compensation expense related to restricted stock awards based on the fair value of each restricted stock grant which is determined by the closing sale price of the Company's common stock on the date of the grant. Our restricted stock activity was as follows:


	Restricted Stock Units			Weighted-Average Grant Date Fair Value per Share

Outstanding at June 30, 2014		-			-
Granted		19,605			$2.55
Vested		(19,605	)		$2.55
Outstanding at June 30, 2015		-