STOCK OPTIONS

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

STOCK OPTIONS

On September 24, 2007, the Company’s Board of Directors unanimously adopted the 2007 Employee Stock Option Plan (the “2007 Employee Plan”) and the 2007 Directors Equity Incentive Plan (the “2007 Directors Plan”) each of which was approved by the shareholders on December 3, 2007. Each of those plans was amended by the Board in 2010 to increase the number of shares covered thereby, which amendments were approved by the shareholders on December 14, 2010. The Board also amended the 2007 Directors Plan in November 2013 to further increase the number of shares covered thereby from 400,000 shares to 500,000 shares, which amendment was approved by the shareholders on December 9, 2013. These two plans are administered by the Board, which also establishes the terms of the awards.

On September 14, 2017, the Company’s Board of Directors unanimously adopted the 2017 Employee Stock Option Plan (the “2017 Employee Plan”) and the 2017 Directors Equity Incentive Plan (the “2017 Directors Plan”) each of which was approved by the shareholders on December 4, 2017. At present, the 2017 Employee Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to its employees, consultants and advisors. At present, the 2017 Directors Plan provides for awards of up to 300,000 shares of the Company’s Common Stock to the members of the Company’s Board of Directors in the form of non-qualified options and restricted stock. These two plans are administered by the Board, which also establishes the terms of the awards.

Assumptions

The fair value for the options granted were estimated using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends: 

	Nine Months Ended
	March 31,
		2018		2017
Expected volatility		47.29% to 104.94%		47.29% to 104.94%
Risk-free interest rate		0.30% to 1.05%		0.30% to 1.05%
Expected life (years)			2.50 – 3.25		2.50 – 3.25

The expected volatilities are based on the historical volatility of the Company’s stock. Due to higher volatility, the observation is made on a daily basis. The observation period covered is consistent with the expected life of options. The expected life of the options granted to employees has been determined utilizing the “simplified” method as prescribed by ASC Topic 718 Stock Based Compensation, which, among other provisions, allows companies without access to adequate historical data about employee exercise behavior to use a simplified approach for estimating the expected life of a "plain vanilla" option grant. The simplified rule for estimating the expected life of such an option is the average of the time to vesting and the full term of the option. The risk-free rate is consistent with the expected life of the stock options and is based on the United States Treasury yield curve in effect at the time of grant.

2017 Employee Stock Option Plan

The Company’s 2017 Employee Plan permits the grant of stock options to its employees covering up to an aggregate of 300,000 shares of Common Stock. Under the 2017 Employee Plan, all options must be granted with an exercise price of not less than fair value as of the grant date and the options granted must be exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options may be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2017 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2017 Employee Plan).

On March 23, 2018, the Company granted options to purchase 60,000 shares of its Common Stock to employee directors pursuant to the 2017 Employee Plan during the nine month ended March 31, 2018. The Company recognized stock-based compensation expenses of $4 in the nine months ended March 31, 2018 under the 2017 Employee Plan. The balance of unamortized stock-based compensation of $11 based on fair value on the grant date related to options granted under the 2017 Employee Plan is to be recognized over a period of three years. No stock options were exercised during the three and nine months ended March 31, 2017.

As of March 31, 2018, there were vested employee stock options covering a total of 15,000 shares of Common Stock. The weighted-average exercise price was $5.98 and the weighted average contractual term was 4.98 years. The total fair value of vested employee stock options was $90 and remains outstanding as of March 31, 2018.

A summary of option activities under the 2017 Employee Plan during the Nine-month period ended March 31, 2018 is presented as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at July 1, 2017		—	$	—		—	$	—
Granted		60,000		5.98		4.98		—
Exercised		—		—		—		—
Forfeited or expired		—		—		—		—
Outstanding at March 31, 2018		60,000		5.98		4.98		—
Exercisable at March 31, 2018		60,000		5.98		4.98		—

A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2018 is presented below: 

	Options			Weighted Average Grant-Date Fair Value
Non-vested at July 1, 2017		-		$	-
Granted		60,000			5.98
Vested		(15,000	)		5.98
Forfeited		-			-
Non-vested at March 31, 2018		45,000		$	3.83

2007 Employee Stock Option Plan

The Company’s 2007 Employee Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The Employee Plan permitted the grant of stock options to its employees covering up to an aggregate of 600,000 shares of Common Stock. Under the 2007 Employee Plan, all options were required to be granted with an exercise price of not less than fair value as of the grant date and the options granted were required to exercisable within a maximum of ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreements. The options were permitted to be exercisable (a) immediately as of the effective date of the stock option agreement granting the option, or (b) in accordance with a schedule related to the date of the grant of the option, the date of first employment, or such other date as may be set by the Compensation Committee. Generally, options granted under the 2007 Employee Plan are exercisable within five years after the date of grant, and vest over the period as follows: 25% vesting on the grant date and the remaining balance vesting in equal installments on the next three succeeding anniversaries of the grant date. The share-based compensation will be recognized in terms of the grade method on a straight-line basis for each separately vesting portion of the award. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2007 Employee Plan).

The Company did not grant any options pursuant to the 2007 Employee Plan during the nine months ended March 31, 2018. There were no options exercised during the nine months ended March 31, 2018. The Company recognized stock-based compensation expenses of $3 in the nine months ended March 31, 2018 under the 2007 Employee Plan. The balance unamortized stock-based compensation of $2 based on fair value on the grant date related to options granted under the 2007 Employee Plan is to be recognized over a period of three years.

On March 30, 2017, the Company granted options to purchase 37,500 shares of its Common Stock to employee directors pursuant to the 2007 Employee Plan during the nine months ended March 31, 2017. The Company recognized stock-based compensation expenses of $4 in the nine months ended March 31, 2017 under the 2007 Employee Plan. The balance of unamortized stock-based compensation of $6 based on fair value on the grant date related to options granted under the 2007 Employee Plan is to be recognized over a period of three years. No stock options were exercised during the three and nine months ended March 31, 2017.

As of March 31, 2018, there were vested employee stock options covering a total of 98,750 shares of Common Stock. The weighted-average exercise price was $3.43 and the weighted average contractual term was 1.98 years.

As of March 31, 2017, there were vested employee stock options covering a total of 79,375 shares of Common Stock. The weighted-average exercise price was $3.36 and the weighted average contractual term was 2.61 years.

A summary of option activities under the 2007 Employee Plan during the Nine-month period ended March 31, 2018 is presented as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at July 1, 2017		127,500	$	3.52		3.10	$	187
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited or expired		-		-		-		-
Outstanding at March 31, 2018		127,500		3.52		2.35		285
Exercisable at March 31, 2018		98,750		3.43		1.98		230

A summary of option activities under the 2007 Employee Plan during the Nine-month period ended March 31, 2017 is presented as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at July 1, 2016		90,000	$	3.26		3.42	$	30
Granted		37,500		4.14		5.00		-
Exercised		-		-		-		-
Forfeited or expired		-		-		-		-
Outstanding at March 31, 2017		127,500	$	3.52		3.35	$	79
Exercisable at March 31, 2017		79,375	$	3.36		2.61	$	62

A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2018 is presented below: 

	Options			Weighted Average Grant-Date Fair Value
Non-vested at July 1, 2017		48,125		$	3.77
Granted		-			-
Vested		(19,375	)		(3.43	)
Forfeited		-			-
Non-vested at March 31, 2018		28,750		$	3.83

A summary of the status of the Company’s non-vested employee stock options during the nine months ended March 31, 2017 is presented below: 

	Options			Weighted Average Grant-Date Fair Value
Non-vested at July 1, 2016		38,750		$	3.22
Granted		37,500			4.14
Vested		(28,125	)		(3.19	)
Forfeited		-			-
Non-vested at March 31, 2017		48,125		$	3.77

2017 Directors Equity Incentive Plan

The 2017 Directors Plan permits the grant of options covering up to an aggregate of 300,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.

On March 23, 2018, the Company granted options to purchase 80,000 shares of its Common Stock to directors pursuant to the 2017 Directors Plan with an exercise price equal to the fair market value of Common Stock (as defined under the 2017 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair value of the options granted to purchase 80,000 shares of the Company’s Common Stock was approximately $478 based on the fair value of $5.98 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2017 Directors Plan vest immediately at the date of grant, there were no unvested stock options granted under the 2017 Directors Plan as of March 31, 2018. The Company recognized stock-based compensation expenses of $33 in the nine months ended March 31, 2018 under the 2017 Directors Plan.

A summary of option activities under the 2017 Directors Plan during the nine months ended March 31, 2018 is presented as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at July 1, 2017		—	$	—		—	$	—
Granted		80,000		5.98		4.98		—
Exercised		—		—		—		—
Forfeited or expired		—		—		—		—
Outstanding at March 31, 2018		80,000		5.98		4.98		—
Exercisable at March 31, 2018		80,000		5.98		4.98		—

2007 Directors Equity Incentive Plan

The 2007 Directors Plan terminated by its terms on September 24, 2017 and no further options may be granted thereunder. However, the options outstanding thereunder continue to remain outstanding and in effect in accordance with their terms. The Director Plan permitted the grant of options covering up to an aggregate of 500,000 shares of Common Stock to its directors in the form of non-qualified options and restricted stock. The exercise price of the non-qualified options is 100% of the fair value of the underlying shares on the grant date. The options have five-year contractual terms and are generally exercisable immediately as of the grant date.

The Company did not grant any options pursuant to the 2007 Director Plan during the nine months ended March 31, 2018. There were 20,000 worth of stock options exercised during the nine month period ended March 31, 2018. The Company did not recognize any stock based compensation expenses during the nine months ended March 31, 2018.

On March 30, 2017, the Company granted options to purchase 50,000 shares of its Common Stock to directors pursuant to the 2007 Directors Plan with an exercise price equal to the fair market value of Common Stock (as defined under the 2007 Directors Plan in conformity with Regulation 409A or the Internal Revenue Code of 1986, as amended) at the date of grant. The fair value of the options granted to purchase 50,000 shares of the Company’s Common Stock was approximately $207 based on the fair value of $4.14 per share determined by the Black Scholes option pricing model. As all of the stock options granted under the 2007 Directors Plan vest immediately at the date of grant, there were no unvested stock options granted under the 2007 Directors Plan as of March 31, 2017. The Company recognized stock-based compensation expenses of $12 in the nine months ended March 31, 2017 under the 2007 Directors Plan. No stock options were exercised during the nine months ended March 31, 2017. There were 80,000 shares of Common Stock available for grant under the 2007 Directors Plan.

A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2018 is presented as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at July 1, 2017		415,000		$	3.36		2.93	$	673
Granted		-			-		-		-
Exercised		(20,000	)		2.59		-		-
Forfeited or expired		(5,000	)		2.07		-		-
Outstanding at March 31, 2018		390,000			3.41		2.30		911
Exercisable at March 31, 2018		390,000			3.41		2.30		911

A summary of option activities under the 2007 Directors Plan during the nine months ended March 31, 2017 is presented as follows: 

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at July 1, 2016		415,000		$	3.14		3.29	$	198
Granted		50,000			4.14		5.00		-
Exercised		-			-		-		-
Forfeited or expired		(50,000	)		2.30		-		-
Outstanding at March 31, 2017		415,000		$	3.36		3.18	$	325
Exercisable at March 31, 2017		415,000		$	3.36		3.18	$	325