9. LONG-TERM INCENTIVE PLAN AWARDS

3 Months Ended

Sep. 30, 2013

Notes to Financial Statements

NOTE 9 - LONG-TERM INCENTIVE PLAN AWARDS

We apply the provisions of ASC 718, “Compensation – Stock Compensation,” using a modified prospective application, and the Black-Scholes model. Under this application, we are required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Compensation costs will be recognized over the period that an employee provides service in exchange for the award.

We adopted the 2009 Stock Incentive Plan (“2009 Plan”) on June 11, 2009, which provided for the grant of incentive stock options and non-qualified stock options to our employees and directors. Options granted under the 2009 Plan generally have a term of ten years and generally vest and become exercisable at the rate of 33% after one year and 33% on the second and third anniversaries of the option grant dates. Historically, some stock option grants have included shorter vesting periods ranging from one to two years.

The estimated forfeiture rate considers historical turnover rates stratified into employee pools in comparison with an overall employee turnover rate, as well as expectations about the future. We periodically revise the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. Compensation expense recorded under this method for the three months ended September 30, 2013 was $65,266 and reduced operating income and income before income taxes by the same amount by increasing compensation expense recognized in selling and administrative expense. The recognized tax benefit related to the compensation expense for the three months ended September 30, 2013 was $0.

A summary of the status of our stock options is presented below:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2013		1,153,170		$	1.16		5.49	$	627,422
Granted		–
Exercised		–
Cancelled		–
Forfeited or Expired		(60,000	)	$	1.34		8.71
Outstanding as of September 30, 2013		1,093,170		$	1.15		5.07	$	671,412
Exercisable as of September 30, 2013		816,499		$	1.07		4.20	$	560,308

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $1.76 as of September 30, 2013, which would have been received by the option holders had all option holders exercised their options as of that date. The weighted-average grant-date fair value of stock options outstanding as of September 30, 2013 in the amount of 1,093,170 shares was $1.02 per share.

As of September 30, 2013, there was $377,394 of total unrecognized compensation cost related to non-vested stock options granted. That cost is expected to be recognized over a weighted-average period of 1.17 years.