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10. LONG-TERM INCENTIVE PLAN AWARDS
 12 Months Ended
Jun. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
NOTE 10 - 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 year ended June 30, 2013 was $286,104 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 year ended June 30, 2013 was $58,444.

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option; the expected term represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and using the simplified method; the expected volatility is based upon historical volatilities of the Company’s common stock; and the expected dividend yield is based upon the Company’s current dividend rate and future expectations.

 

The fair value of each stock option is estimated using a Black-Scholes option valuation model, consistent with the provisions of ASC Topic 718, based on the following assumptions:

 

    Year ended June 30,  
    2013     2012  
Weighted average estimated per share fair value of grant   $ –     $ 1.33  
Risk-free interest rate     –       .06% - .37%  
Expected life     –       2.75 - 6.50 years  
Expected volatility     –       148% - 223%  
Dividend yield     –       0%  

 

The volatility assumption is based on historical volatility of the Company for the period equal to the expected life of the option. The expected life assumption is based upon the Company’s consideration of the historical life of options, the vesting period of the option granted, and the contractual period of the option granted. The historical life of the Company’s options is 10 years, the vesting period of options granted is generally 3 years and the contractual period of options granted is 10 years. Some stock option grants have included shorter vesting periods ranging from one to two years.

 

The dividend yield assumption is based on the Company’s history of not paying, nor intending to pay, dividends.

 

The risk free interest rate assumption is based on the U.S. Treasury yield with terms equivalent to the expected life of the option in effect at the time of the grant. 

 

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, 2011     930,836        1.40        7.2       978,470   
Granted     970,000        1.34        8.14        53,900   
Exercised     (70,000)       (0.52)               (60,350)   
Cancelled     (485,000)       (2.07)                  
Forfeited or Expired     (17,666)       (1.35)                  
Outstanding as of June 30, 2012     1,328,170      $ 1.16        7.09     $ 305,395   
Granted     -        -       -       -  
Exercised     (30,000)       (0.75)       -        (28,500)  
Cancelled     -        -                  
Forfeited or Expired     (145,000)       (1.34)       -        -  
                                 
Outstanding as of June 30, 2013     1,153,170      $ 1.16        5.49     $ 627,422   
                                 
Exercisable as of June 30, 2013     836,496      $ 0.68        3.91     $ 513,420   

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $1.70 as of June 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 June 30, 2013 in the amount of 1,153,170 shares was $1.03 per share.

 

As of June 30, 2013, there was $442,660 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 1.4 years.