2. STOCK-BASED COMPENSATION AND WARRANTS

12 Months Ended

Jun. 30, 2016

The Company has several employee stock option and officer and director stock option plans that have been approved by the shareholders of the Company. The plans require that options be granted at a price not less than market on the date of grant.

The Company uses the Black-Scholes option pricing model to estimate fair value of stock-based awards.

No options were granted during the year ended June 30, 2016. Assumptions for the award of options granted during the year ended June 30, 2015 were:

	Awards Granted in the Year Ended
Assumption	June 30, 2015
Dividend yield	0%
Expected volatility	62%
Risk-free interest rate	2%
Expected life of options (in years)	3.75
Weighted average grant-date Black Scholes calculated fair value	$0.18

The following table summarizes the Company’s stock option activity during fiscal years 2016 and 2015:

				Weighted Average
			Weighted Average	Remaining		Aggregate		Aggregate
	Number of		Exercise Price	Contractual		Fair		Instrinsic
	Options		Per Share	Term (1)		Value (3)		Value (2)
Outstanding July 1, 2014	823,400	$	0.63	3.35	$	212,600	$	-
Granted	390,000		0.50	4.35		69,500		-
Exercised	-		-	-		-		-
Forfeited, expired or cancelled	(10,200)		1.50	-		(6,300)		-
Outstanding June 30, 2015	1,203,200	$	0.58	3.03	$	275,800	$	-
Exercisable June 30, 2015	1,047,200	$	0.59	2.83	$	248,100	$	-

Outstanding July 1, 2015	1,203,200	$	0.58	3.03	$	275,800	$	-
Granted	-		-	-		-		-
Exercised	-		-	-		-		-
Forfeited, expired or cancelled	(3,200)		1.50	-		(2,300)		-
Outstanding June 30, 2016	1,200,000	$	0.58	2.03	$	273,500	$	-
Exercisable June 30, 2016	1,200,000	$	0.58	2.03	$	273,500	$	-


(1) Remaining contractual term presented in years.
(2) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards
and the closing price of the Company's common stock as of June 30, 2016 and 2015, for those awards that have an
exercise price currently below the closing price as of June 30, 2016 and 2015 of $0.22 and $0.28, respectively.
(3) Aggregate Fair Value is calculated using the Black Scholes option pricing model to estimate the initial fair value of
stock-based compensation.

The Company recognized approximately $27,800 of stock-based compensation expense during the fiscal year ended June 30, 2016, which was for options granted during the fiscal year ended June 30, 2015 that vested in the fiscal year ended June 30, 2016. There is no unamortized stock-based compensation expense related to these options as of June 30, 2016.

All options granted had an exercise price of not less than the market price on date of grant, as stipulated in the stock option plans, of the Company’s common stock. There are no unvested options at June 30, 2016. If not previously exercised, options outstanding at June 30, 2016 will expire as follows:

Calendar Year	Number of		Weighted Average
of Expiration	Shares		Exercise Price
2017	385,000	$	0.75
2018	425,000		0.50
2019	390,000		0.50
	1,200,000	$	0.58

Additional information about outstanding options to purchase the Company’s Common Stock as of June 30, 2016 is as follows:

	Options Outstanding & Exercisable
		Weighted Avg.	Weighted
	Number	Remaining	Average
Exercise	of	Contractual	Exercise
Price	Shares	Life (in years)	Price
$0.50	815,000	2.63	$0.50
$0.75	385,000	0.78	$0.75
Totals	1,200,000	2.03	$0.58

The Company’s Stock Option Plans are administered by the Compensation/Administration Committee, currently comprised of two independent members of the Company’s Board of Directors. Company stock options are issued to employees and directors at an exercise price of not less than the fair market value, as determined under the option plan on the date of grant and must be granted within 10 years from the effective date of the Plan, with the term of the option not exceeding 10 years. Options granted to employees under the Stock Option Plans, which are terminated prior to exercise, are considered to be available for grant to subsequent employees. Total issued stock options for any plan may exceed those authorized due to termination of prior non-exercised grants. Under the Employee Incentive Stock Option Plans, incentive and non-qualified stock options may be granted with the incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended. Stock options issued during the fiscal year ended June 30, 2015 vested 20% on December 31, 2014 and 20% each quarter thereafter and there were no options issued during the fiscal year ended June 30, 2016.

Alanco Stock Option Summary (1)
as of June 30, 2016
			Options	Issued and	Options	Options	Balance	Exercise
Plan		Authorized	Granted	Exercised	Cancelled	Outstanding	to Issue (6)	Price Range (5)
2002	(2)	75,000	156,000	27,000	94,200	34,800	--	$0.75
2002 D&O	(3)	25,000	40,800	5,200	16,600	19,000	--	$0.75
2004	(2)	100,000	188,500	67,600	88,500	32,400	--	$0.75
2004 D&O	(3)	50,000	83,100	13,200	36,300	33,600	--	$0.75
2005	(2)	150,000	310,108	81,971	160,108	68,029	--	$0.50 - $0.75
2005 D&O	(3)	50,000	142,000	4,000	92,000	46,000	--	$0.50
2006	(2)	375,000	851,769	82,003	476,769	292,997	--	$0.50 - $0.75
2006 D&O	(3)	125,000	261,924	23,750	136,924	101,250	--	$0.50
2011	(4)	750,000	777,948	291,024	30,000	456,924	2,052	$0.50 - $0.75
2014	(7)	500,000	115,000	-	-	115,000	385,000	$0.50

Totals		2,200,000	2,927,149	595,748	1,131,401	1,200,000	387,052

(1) Only includes plans with options currently outstanding or having a balance available to issue.
(2) Employee Incentive Stock Option Plan.
(3) Directors and Officers Stock Option Plan.
(4) Employee Incentive Stock Option Plan which permits granting of stock or stock options. Grants include 291,000
Common Shares issued under the plan as payment of deferred employee compensation.
(5) Range of exercise prices for outstanding options only.
(6) Any options not issued under the 2002, 2002 D&O, 2004, 2004 D&O, 2005, 2005 D&O, 2006, and
2006 D&O Plans are no longer available for issue as those plans were 10 year plans and have expired.
(7) Stock Incentive Plan which permits granting of stock options and awards. All grants are stock options.

As of June 30, 2016, the Company had 140,000 outstanding warrants. The following table summarizes the Company’s warrant activity during the year ended June 30, 2016:

		Warrants Outstanding			Warrants Exercisable
				Weighted			Weighted
		Number of		Average	Number of		Average
		Shares		Exercise Price	Shares		Exercise Price
Warrants Outstanding, June 30, 2015		-	$	-	-	$	-
	Granted	140,000		0.75	20,000		0.75
	Exercised	-		-	-		-
	Canceled/Expired	-		-	-		-
Warrants Outstanding, June 30, 2016		140,000	$	0.75	20,000	$	0.75

The remaining 120,000 outstanding and unexercisable warrants will vest monthly throughout fiscal 2017 in the amount of 10,000 per month on the anniversary date of the Anderson Family Trust Credit Line as long as some portion of the credit line remains outstanding. Refer to Note 7 – Note Payable for more information on the note and detachable warrants.