NOTE 7 – STOCK BASED COMPENSATION PLANS

The Company follows Accounting Standard Codification (ASC) Topic 718 “Compensation – Stock Compensation”, which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.

Please refer to Note 17 – Stock Based Compensation Plans in the Company's Form 10-K for the year ended June 30, 2013 for more detail information on the Company’s stock-based compensation plans.

On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan, the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting annually commencing on the first anniversary of the grant date.

During the three months ended March 31, 2014 and 2013, the Company recorded stock option compensation cost of $135,000 and $80,000, respectively, related to stock options that were previously issued. During the nine months ended March 31, 2014 and 2013, the Company recorded stock option compensation cost of $239,000 and $271,000, respectively, related to stock options that were issued. As of March 31, 2014, there was a total of $1,714,000 of unamortized compensation related to stock options which is expected to be recognized over the weighted-average period of 4.40 years.

Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of the Company’s stock price history. The Company has selected to use the simplified method for estimating the expected term. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. No dividend yield is included as the Company has not issued any dividends and does not anticipate issuing any dividends in the future.

The following table summarizes the stock options activity from June 30, 2012 through March 31, 2014:

		Number of		Weighted Average		Weighted Average	Aggregate
		Shares		Exercise Price		Remaining Life	Intrinsic Value

Oustanding at	June 30, 2012		242,000	$	14.55	7.46 years	$	2,050,000
Granted			-		-	-		-
Exercised			(5,000)		10.30	-		-
Forfeited			-		-
Exchanged			(15,000)		9.52	-		-
Oustanding at	June 30, 2013		222,000	$	14.98	6.89 years	$	1,353,000
Exercisable at	June 30, 2013		105,000	$	13.01	5.69 years	$	838,000
Vested and Expected to vest at	June 30, 2013		222,000	$	14.98	6.89 years	$	1,353,000

Oustanding at	June 30, 2013		222,000	$	14.98	6.89 years	$	1,353,000
Granted			160,000		18.96	9.75 years		-
Exercised			-		-	-		-
Forfeited			-		-	-		-
Exchanged			-		-	-		-
Oustanding at	March 31, 2014		382,000	$	16.65	7.65 years	$	915,000
Exercisable at	March 31, 2014		107,000	$	11.37	4.63 years	$	753,000
Vested and Expected to vest at	March 31, 2014		382,000	$	16.65	7.65 years	$	915,000

The table below summarizes the restricted stock units (RSUs) granted and outstanding.

				Weighted Average
				Grant Date
		Number of RSUs		Fair Value
RSUs outstanding as of	June 30, 2012		8,245	$	24.94
Granted			8,195		20.99
Converted to common stock			(8,245)		24.94
RSUs outstanding as of	June 30, 2013		8,195		20.99
Granted			-		-
Converted to common stock			(4,100)		20.99
RSUs outstanding as of	March 31, 2014		4,095	$	20.99

On July 1 of every year, as part of the Stock Compensation Plan for Non-employee Directors, each non-employee director received an automatic grant of a number of shares of Company’s Common Stock equal in value to $22,000 ($88,000 total recorded as stock compensation expense) based on 100% of the fair market value of the Company’s stock on the day of grant. During the nine months ended March 31, 2014 and 2013, the four non-employee directors of the Company received a total grant of 4,100 and 3,528 shares of common stock.