NOTE 7 - Stock Options

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Plan). The 2012 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 the 2012 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 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 the 2012 Plan shall vest in full upon a “change in control” as defined in the 2012 Plan. At June 30, 2013, no stock options were granted or exercisable and 950,000 stock options were available for grant under this plan.

In December 2012, the stockholders approved the 2012 Non-Employee Stock Option Plan (the 2012 Non-Employee Plan). The 2012 Non-Employee 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 the 2012 Non-Employee 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 the 2012 Non-Employee Plan shall vest in full upon a “change in control” as defined in the 2012 Non-Employee Plan. At June 30, 2013, no stock options were granted or exercisable and 50,000 stock options were available for grant under this plan.

In December 2002, the stockholders approved the 2002 Employee Stock Option Plan (the 2002 Plan). The 2002 Plan expired in October 2012. The 2002 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 the 2002 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 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. Upon expiration of the 2002 Plan in October 2012, 1,471,480 stock options were granted, 651,140 stock options were exercisable and no further stock options were available for grant under this plan.

No options were granted under the 2002 Plan during the years ended June 30, 2013 or 2012.

The following table reflects activity under the 2002 Plan for the years ended June 30,:

	2013				2012
	Options		Weighted average exercise price		Options		Weighted average exercise price

Outstanding, beginning of year		1,380,140	$	2.95		1,380,140	$	2.95
Granted		--		--		--		--
Terminated		--		--		--		--
Exercised		729,000		1.85		--		--
Outstanding, end of year		651,140	$	4.18		1,380,140	$	2.95
Exercisable, end of year		651,140	$	4.18		1,380,140	$	2.95
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised	$	1,301,000				n/a
Total intrinsic value of options outstanding	$	853,867			$	1,066,760
Total intrinsic value of options exercisable	$	853,867			$	1,066,760

729,000 options were exercised during fiscal 2013 and no options were exercised during fiscal 2012. These exercises were paid for with 399,790 shares of the Company’s common stock, 27,900 of which were retired upon receipt. Cash received from option exercises for fiscal 2013 and 2012 was $0 and the actual tax benefit realized for the tax deductions from option exercises totaled $26,000 and $0 for these periods, respectively

The following table summarizes information about stock options outstanding under the 2002 Plan at June 30, 2013:

		Options outstanding						Options exercisable
Range of exercise prices		Number outstanding at June 30, 2013		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable at June 30, 2013		Weighted average exercise price

$	1.62 - $ 4.00		285,390		0.8	$	1.97		285,390	$	1.97

$	4.01 - $ 7.50		328,250		3.8		5.29		328,250		5.29

$	7.51 - $11.16		37,500		3.0		11.16		37,500		11.16

			651,140		2.4	$	4.18		651,140	$	4.18

As of June 30, 2013, there was no unearned stock-based compensation cost related to non-vested share-based compensation arrangements granted under the 2002 Plan. All options outstanding under the 2002 Plan were vested as of the beginning of the current period; therefore, the total fair value of the options vested during the twelve months ended June 30, 2013 under the 2002 Plan was $0.

In September 2000, the stockholders approved a 10 year extension of the already existing 1990 non-employee stock option plan (the 2000 Plan) to encourage non-employee directors and consultants of the Company to invest in the Company's stock. This plan expired in September 2010. No further options may be granted under the 2000 Plan. The 2000 Plan provided for the granting of non-qualified stock options, the exercise of which would allow up to an aggregate of 270,000 shares of the Company's common stock to be acquired by the holders of the stock options. The 2000 Plan provided that the option price will not be less than 100% of the fair market value of the stock at the date of grant. Outstanding options are exercisable at 20% per year and expire five years after the date of grant. Compensation cost was recognized for the fair value of the options granted to non-employee directors and consultants as of the date of grant.

The following table reflects activity under the 2000 Plan for the years ended June 30,

	2013				2012
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of period		30,000	$	5.03		30,000	$	5.03
Granted		--		--		--		--
Terminated		--		--		--		--
Exercised		--		--		--		--
Outstanding, end of period		30,000	$	5.03		30,000	$	5.03
Exercisable, end of period		30,000	$	5.03		30,000	$	5.03
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	0			$	0
Total intrinsic value of options exercisable	$	0			$	0

As of June 30, 2013, there was no unearned stock-based compensation cost related to non-vested share-based compensation arrangements granted under the 2000 Plan. All options outstanding under the 2000 Plan were vested as of the beginning of the current period; therefore, the total fair value of the options vested during the twelve months ended June 30, 2013 under the 2000 Plan was $0.