NOTE 7 - Stock Options

The Company follows ASC 718 (“Share-Based Payment”), which requires that all share based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period. For the three months ended December 31, 2016 and 2015, the Company recorded non-cash compensation expense of $65,000 ($.00 per basic and diluted share) and $60,000 ($.00 per basic and diluted share), respectively, relating to stock-based compensation. For the six months ended December 31, 2016 and 2015, the Company recorded non-cash compensation expense of $98,000 ($.01 per basic and diluted share) and $92,000 ($.00 per basic and diluted share), respectively, relating to stock-based compensation.

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee Plan). The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 950,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options (ISOs), to valued employees. Any plan participant who is granted ISOs and possesses more than 10% of the voting rights of the Company's outstanding common stock must be granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2012 Employee Plan, stock options may be granted to valued employees with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable, in whole or in part, at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At December 31, 2016, 117,500 stock options were granted, 74,500 stock options were exercisable and 832,900 stock options were available for grant under this plan.

The following table reflects activity under the 2012 Plan for the six months ended December 31,:

	2016				2015
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of year		112,500	$	5.54		112,500	$	5.30
Granted		5,000		8.15		—		—
Terminated/Lapsed		(400)		6.31		(15,000)		4.29
Exercised		(1,500)		6.31		—		—

Outstanding, end of period		115,600	$	5.64		97,500	$	5.46

Exercisable, end of period		74,500	$	5.57		53,500	$	5.54

Weighted average fair value at grant date of options granted	$	26,000				n/a

Total intrinsic value of options exercised	$	9,000				n/a
Total intrinsic value of options outstanding	$	331,000			$	61,000
Total intrinsic value of options exercisable	$	218,000			$	30,000

1,500 and 0 stock options were exercised during the three and six months ended December 31, 2016 and 2015, respectively. $9,000 and $0 was received from option exercises during the three months ended December 31, 2016 and 2015, respectively and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at December 31, 2016:

		Options outstanding						Options exercisable
Range of exercise prices		Number outstanding		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable		Weighted average exercise price
	$4.88-$8.15		115,600		7.5	$	5.64		74,500	$	5.57
			115,600		7.5	$	5.64		74,500	$	5.57

As of December 31, 2016, there was $154,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 5,000 options were granted during the three and six months ended December 31, 2016. The total fair value of the options vesting during the three months ended December 31, 2016 and 2015 under this plan was $59,000 and $94,000, respectively. The total fair value of the options vesting during the six months ended December 31, 2016 and 2015 under this plan was $75,000 and $110,000, respectively.

2012 Non-Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Non-Employee Stock Option Plan (the 2012 Non-Employee Plan). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

Under the 2012 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At December 31, 2016, 35,000 stock options were granted, 20,800 stock options were exercisable and 15,000 stock options were available for grant under this plan.

The following table reflects activity under the 2012 Non-Employee Plan for the six months ended December 31,:

	2016				2015
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of year		35,000	$	4.73		35,000	$	4.73
Granted		—		—		—		—
Terminated/Lapsed		—		—		—		—
Exercised		(5,200)		4.76		—		—

Outstanding, end of period		29,800	$	4.73		35,000	$	4.73

Exercisable, end of period		20,800	$	4.76		19,000	$	4.77

Weighted average fair value at grant date of options granted		n/a				n/a

Total intrinsic value of options exercised	$	25,000				n/a
Total intrinsic value of options outstanding	$	112,000			$	41,000
Total intrinsic value of options exercisable	$	78,000			$	21,000

5,200 and 0 options were exercised during the three and six months ended December 31, 2016 and 2015, respectively. All of the 5,200 exercises were settled by exchanging 3,056 shares of the Company’s common stock which were retired and returned to authorized. No cash was received from option exercises during the three and six months ended December 31, 2016 and 2015 and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at December 31, 2016:

		Options outstanding						Options exercisable
Range of exercise prices		Number outstanding		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable		Weighted average exercise price
	$4.37 - $4.88		29,800		7.0	$	4.73		20,800	$	4.76
			29,800		7.0	$	4.73		20,800	$	4.76

As of December 31, 2016, there was $28,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. No options were granted during the six months ended December 31, 2016. The total fair value of the options vesting during each of the three months ended December 31, 2016 and 2015 under this plan was $6,000. The total fair value of the options vesting during each of the six months ended December 31, 2016 and 2015 under this plan was $22,000.

2002 Employee Stock Option Plan

In December 2002, the stockholders approved the 2002 Employee Stock Option Plan (the 2002 Employee Plan). This plan expired in October 2012. This plan authorized the granting of awards, the exercise of which would allow up to an aggregate of 1,836,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may have granted stock options, which were intended to qualify as incentive stock options (ISOs), to key employees. Any plan participant who was granted ISOs and possessed more than 10% of the voting rights of the Company's outstanding common stock must have been granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2002 Employee Plan, stock options have been granted to key employees with a term of 10 years at an exercise price equal to the fair market value on the date of grant and are exercisable in whole or in part at 20% per year from the date of grant. At December 31, 2016, 1,471,480 stock options had been granted and 40,000 stock options were exercisable. No further stock options were available for grant under this plan after the plans expiration in October 2012.

The following table reflects activity under the 2002 Employee plan for the six months ended December 31,:

	2016				2015
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of year		102,500	$	6.04		208,500	$	6.86
Granted		—		—		—		—
Terminated/Lapsed		(10,500)		6.02		(1,000)		6.02
Exercised		(52,000)		6.31		(67,500)		5.73

Outstanding, end of period		40,000	$	5.69		140,000	$	7.41

Exercisable, end of period		40,000	$	5.69		140,000	$	7.41

Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised	$	114,000			$	11,000
Total intrinsic value of options outstanding	$	113,000			$	9,000
Total intrinsic value of options exercisable	$	113,000			$	9,000

52,000 and 67,500 stock options were exercised during the three and six months ended December 31, 2016 and 2015, respectively. 45,500 of the 52,000 exercises were settled by exchanging 40,655 shares of the Company’s common stock which were retired and returned to authorized. The remaining 6,500 exercises were paid for in cash. $40,000 and $0 was received from option exercises during the three and six months ended December 31, 2016 and 2015, respectively and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

The following table summarizes information about stock options outstanding under the 2002 Employee Plan at December 31, 2016:

		Options outstanding and exercisable
Range of exercise prices		Number outstanding		Weighted average remaining contractual life		Weighted average exercise price

	$5.35 - $5.89		40,000		0.8	$	5.69

			40,000		0.8	$	5.69