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<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>1. </b>Description of Business</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Implant Sciences Corporation provides systems and sensors for the homeland security market and related industries.  We have developed and acquired technologies using ion mobility spectrometry to develop a product line for use in trace explosives and narcotics detection.  We currently market and sell our existing trace explosives and narcotics detector products while continuing to make significant investments in developing the next generation of these products.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Our fiscal year ends on June 30.  References herein to fiscal 2014 and fiscal 2013 refer to the fiscal years ended 6/30/14 and 6/30/13, respectively.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Liquidity, Going Concern and Management’s Plans</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>On 12/10/08, we entered into a note and warrant purchase agreement with DMRJ Group LLC (“DMRJ”) pursuant to which we issued a senior secured convertible promissory note in the principal amount of $5,600,000 and a warrant to purchase 1,000,000 shares of our common stock.  We have entered into a series of amendments, waivers and modifications with DMRJ.  On March 19, 2014, we amended our credit agreements with DMRJ </font></i></b><font style='font-weight:normal;font-style:normal'>pursuant to which, amongst other matters, we</font><font style='font-weight:normal;font-style:normal'> extended the maturity date of all of our indebtedness </font><font style='font-weight:normal;font-style:normal'>from 3/31/14 to 3/31/15 (see Note 13). </font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>On 3/19/14, we entered into a note purchase agreement with a group of institutional investors and BAM Administrative Services LLC (“BAM”), an administrative agent for the investors, pursuant to which we issued senior secured promissory notes in the aggregate principal amount of $20,000,000. The notes bear interest at 15% per annum and mature on 3/31/15.  We used all of the proceeds from the sale of the notes to repay (i) $17,624,000 of our outstanding indebtedness to DMRJ under revolving promissory note (ii) $1,809,000 of interest outstanding under that facility and (iii) $567,000 of interest outstanding under our senior secured convertible promissory note.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>Despite our current sales, expense and cash flow projections and $17,512,000 in cash available from our line of credit with DMRJ, at 9/23/2014, we will require additional capital in the third quarter of fiscal 2015 to fund operations and continue the </font></i></b><font style='font-weight:normal;font-style:normal'>development, commercialization and marketing of our products.</font><font style='font-weight:normal;font-style:normal'> Our failure to achieve our projections and/or obtain sufficient additional capital on acceptable terms would have a material adverse effect on our liquidity and operations and could require us to file for protection under bankruptcy laws.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Our common stock was delisted by the NYSE Amex LLC in June 2009 as result of our failure to comply with certain continued listing requirements.  Our common stock has been quoted on the OTC Bulletin Board since May 2009 and is also quoted on the OTC Markets Group’s OTCQB tier under the symbol “IMSC”. We believe that trading ‘over the counter’ has limited our stock’s liquidity and has impaired our ability to raise capital.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>In addition, while we strive to bring new products to market, we are subject to a number of risks similar to the risks faced by other technology-based companies, including risks related to: (a) our dependence on key individuals and collaborative research partners; (b) competition from substitute products and larger companies; (c) our ability to develop and market commercially usable products and obtain regulatory approval for our products under development; and (d) our ability to obtain substantial additional financing necessary to adequately fund the development, commercialization and marketing of our products.  For the year ended 6/30/14, we reported a net loss of $21,010,000 and used $9,989,000 in cash for operations.  As of 6/30/14, the Company had an accumulated deficit of approximately $167,886,000 and a working capital deficit of $62,045,000.  Management continually evaluates its operating expenses and its cash flow from operations.  Failure of the Company to achieve its projections will require that we seek additional financing or discontinue operations.<b><i><font style='font-weight:bold;font-style:italic'> </font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>As of 6/30/14, our obligations to DMRJ under four promissory notes and a revolving line of credit approximated $3,184,000, $12,000,000, $12,000,000, $1,000,000 and $2,995,000, respectively.  Further, as of 6/30/14, our obligation to DMRJ for accrued interest under these instruments approximated $8,283,000 and is included in current liabilities in the consolidated financial statements. </font></i></b><font style='font-weight:normal;font-style:normal'>As of 6/30/14, our obligations under the senior secured promissory notes for which BAM is the agent were $20,000,000.  Further, as of 6/30/14, our obligation under such notes for accrued interest amounted to approximately $867,000.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>As of 9/23/14, our obligations to DMRJ under the promissory notes and a revolving line of credit approximated $3,184,000, $12,000,000, $12,000,000, $1,000,000 and $5,253,000 respectively.  Further, as of 9/23/14, our obligation to DMRJ for accrued interest under these instruments approximated $9,235,000. </font></i></b><font style='font-weight:normal;font-style:normal'>As of 9/23/14, our obligations under the senior secured promissory notes for which BAM is the agent were $20,000,000.  Further, as of 9/23/14, our obligation under such notes for accrued interest amounted to approximately $717,000.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>These conditions raise substantial doubt as to our ability to continue as a going concern.</font></i></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Our ability to comply with our debt covenants in the future depends on our ability to generate sufficient sales and to control expenses, and will require that we seek additional capital through private financing sources.  There can be no assurances that we will achieve our forecasted financial results or that we will be able to raise additional capital to operate our business.  Any such failure would have a material adverse impact on our liquidity and financial condition and could force us to curtail or discontinue operations entirely.  Further, upon the occurrence of an event of default under certain provisions of our credit agreements, we could be required to pay default rate interest equal to the lesser of 2.5% per month and the maximum applicable legal rate per annum on the outstanding principal balance outstanding. The failure to refinance or otherwise negotiate further extensions of our obligations to our secured lenders would have a material adverse impact on our liquidity and financial condition and could force us to curtail or discontinue operations entirely and/or file for protection under bankruptcy laws.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>Based on current sales, operating expense and cash flow projections, and the cash available from our line of credit, management believes there are plans in place to sustain operations for the next several months.  These plans depend on a substantial increase in sales of our handheld trace explosives detector product and our desktop explosives and narcotics trade detector product.  However, there can be no assurances that sales will materialize as forecasted, and/or that management will be successful in refinancing or extending our obligations to our secured lenders, which mature on 3/31/15. To further sustain us, improve our cash position, and enable us to grow while reducing debt, management plans to continue to seek additional capital through private financing sources. However, there can be no assurance that management will be successful in executing these plans.  Management will continue to closely monitor and attempt to control our costs and actively seek needed capital through sales of our products, equity infusions, government grants and awards, strategic alliances, and through our lending institutions.</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>We have suffered recurring losses from operations.  Our consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. </font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>There can be no assurances that our forecasted results will be achieved or that we will be able to raise additional capital necessary to operate our business.  These conditions raise substantial doubt about our ability to continue as a going concern.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>Security product sales tend to have a long sales cycle, and are often subject to export controls.  In an effort to identify new opportunities and stimulate sales, we have hired additional sales personnel during fiscal 2013 who have specific industry experience. However, there can be no assurance that these efforts will increase revenue.  </font></i></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>We have a history of being active in submitting proposals for government sponsored grants and contracts and successful in being awarded grants and contracts from government agencies. However, we have recorded no revenues from government contracts, due to the expiration of several contracts and our inability to secure new contracts.  Management will continue to pursue these grants and contracts to support our research and development efforts primarily in the areas of trace explosives detection. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We are currently expending significant resources to develop the next generation of our current products and to develop new products.  We will require additional funding in order to continue the advancement of the commercial development and manufacturing of the explosives detection system.  We will attempt to obtain such financing by: (i) government grants, (ii) private financing, or (iii) strategic partnerships.  However, there can be no assurance that we will be successful in our attempts to raise such additional financing.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We will require substantial funds for further research and development, regulatory approvals, and the marketing of our explosives detection products.  Our capital requirements depend on numerous factors, including but not limited to the progress of our research and development programs; the cost of filing, prosecuting, defending and enforcing any intellectual property rights; competing technological and market developments; changes in our development of commercialization activities and arrangements; and the hiring of additional personnel, and acquiring capital equipment. Our failure to achieve our projections and/or obtain sufficient additional capital on acceptable terms would have a material adverse effect on our liquidity and operations and could require us to file for protection under bankruptcy laws.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;text-align:justify'><i><font style='font-style:italic'>Equity Transactions</font></i>  </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>We evaluate the proper classification of our equity instruments that embody an unconditional obligation requiring the issuer to redeem it by transferring assets at a determinable date or that contain certain conditional obligations, typically classified as equity, be classified as a liability. We record financing costs associated with our capital raising efforts in our statements of operations.  These include amortization of debt issue costs such as cash, warrants and other securities issued to finders and placement agents, and amortization of preferred stock discount created by in-the-money conversion features on convertible debt and the allocation of the proceeds amongst the securities based on relative fair values or based upon the residual method.  We based our estimates and assumptions on the best information available at the time of valuation, however, changes in these estimates and assumptions could have a material effect on the valuation of the underlying instruments.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:.25in;text-align:justify;text-indent:-.25in'><b><i><font style='font-style:normal'>2. </font></i></b><font style='font-style:normal'>Summary of Significant Accounting Policies</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.25in;margin-bottom:.0001pt;text-indent:-.25in;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Principles of Consolidation</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.25in;margin-bottom:.0001pt;text-indent:-.25in;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The accompanying consolidated financial statements include our operations in Massachusetts, California and Shanghai, China, and those of our wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal'>Accounting Principles</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin:0in;margin-bottom:.0001pt;text-indent:0in'><b><i><font style='font-weight:normal;font-style:normal'>The consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal'>Use of Accounting Estimates</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Some of the more significant estimates include allowance for doubtful accounts, allowance for sales returns, inventory valuation, warranty reserves, accounting for derivatives, and impairment of intangibles and long-lived assets.  Management's estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends and management's assessments of the probable future outcome of these matters.  Consequently, actual results could differ from such estimates.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-indent:.25in'><i><font style='font-style:italic'>Foreign Currency Translation</font></i></p> <p style='margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The assets and liabilities of our Shanghai representative office are translated into U.S. dollars at current exchange rates as of the balance sheet date, expenses are translated at average monthly exchange rates. Net unrealized translation gains or losses associated with the Shanghai office are recorded directly to other comprehensive income. Realized gains and losses from foreign currency transactions were not material for any of the periods presented. We have short-term inter-company receivables from our Shanghai office which are adjusted each period for changes in foreign currency exchange rates with a corresponding entry recorded as a component of the consolidated statement of operations. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Retroactive Adjustment</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'>In January 2013, we filed Articles of Amendment to our Restated Articles of Organization with the Commonwealth of Massachusetts to effect an increase in the total number of shares of common stock we are authorized to issue to 200,000,000 shares and to reduce the par value of our common stock from $0.10 per share to $0.001 per share.  All share information has been retroactively adjusted to reflect the change in the par value of our common stock.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><i>Cash and Cash Equivalents</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We consider any securities with original maturities of 90 days or less at the time of investment to be cash equivalents.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Fair Value Measurements</font></i></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Accounting Standards Codification (“ASC”) ASC 820, “Fair Value Measurements and Disclosures,” establishes a three level fair value hierarchy to classify the inputs used in measuring fair value, which are as follows:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Level 1 inputs to the valuation methodology are based on quoted prices (unadjusted) in active markets for identical assets or liabilities; </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Level 2 inputs to the valuation methodology are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Level 3 inputs to the valuation methodology are based on unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-indent:.25in;background:white'>Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Fair Value of Financial Instruments</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Our financial instruments at 6/30/14 and 6/30/13 include cash equivalents, restricted cash, accounts receivable accounts payable and borrowings under our senior secured convertible promissory note, senior secured promissory note and a revolving line of credit. The carrying amounts of cash and cash equivalents, restricted cash, receivables and accounts payable are representative of their respective fair values because of the short-term maturities or expected settlement dates of these instruments. The fair value of debt, included in Note 13, is based on the fair value of similar instruments.  These instruments are short-term in nature and there is no known trading market for our debt. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The following table provides the non-recurring fair value measurements of assets and liabilities as of 6/30/14:</p> <table border="0" cellspacing="0" cellpadding="0" width="720" style='width:7.5in;margin-left:-1.4pt;border-collapse:collapse'> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .7pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'></td> <td width="317" colspan="3" valign="bottom" style='width:237.75pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Fair Value Measurements as of 6/30/14</font></b></p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Description </font></b><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:71.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Carrying Value at 6/30/14</font></b></p> </td> <td width="93" valign="bottom" style='width:69.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Quoted Prices in Active Markets for Identical Asset</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Level 1</font></b></p> </td> <td width="106" valign="bottom" style='width:79.8pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Significant Other Observable Inputs</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Level 2</font></b></p> </td> <td width="118" valign="bottom" style='width:88.3pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Significant Unobservable Inputs</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Level 3</font></b></p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Certificates of deposit</p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$624 </p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$624</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Senior secured promissory note </p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>21,000</p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>21,000</p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Senior secured convertible promissory notes</p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>27,184 </p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>27,184</p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>]Line of credit</p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,995</p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,995</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:.25in'> </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-indent:.25in'>The following table provides the non-recurring fair value measurements of assets and liabilities as of 6/30/13:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="720" style='width:7.5in;margin-left:-.7pt;border-collapse:collapse'> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .7pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'></td> <td width="317" colspan="3" valign="bottom" style='width:237.75pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Fair Value Measurements as of 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Description </font></b><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:71.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Carrying</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Value at</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> <td width="93" valign="bottom" style='width:69.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Quoted Prices in Active Markets for Identical Asset</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Level 1</font></b></p> </td> <td width="106" valign="bottom" style='width:79.8pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Significant Other Observable Inputs</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Level 2</font></b></p> </td> <td width="118" valign="bottom" style='width:88.3pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Significant Unobservable Inputs</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Level 3</font></b></p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;border:none;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Certificates of deposit</p> </td> <td width="96" valign="bottom" style='width:71.85pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$624 </p> </td> <td width="93" valign="bottom" style='width:69.65pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$624</p> </td> <td width="106" valign="bottom" style='width:79.8pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Senior secured convertible promissory note</p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>27,184 </p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>27,184</p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Senior secured promissory note</p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,000</p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,000</p> </td> </tr> <tr align="left"> <td width="307" valign="bottom" style='width:3.2in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Line of credit</p> </td> <td width="96" valign="bottom" style='width:71.85pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12,403</p> </td> <td width="93" valign="bottom" style='width:69.65pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="106" valign="bottom" style='width:79.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="118" valign="bottom" style='width:88.3pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12,403</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Inventories</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Inventories consist of raw materials, work-in-process and finished goods. Work-in-process and finished goods includes labor and overhead, and are stated at the lower of cost (first in, first out) or market.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Property and Equipment</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Property and equipment are stated at cost, less accumulated depreciation and amortization, are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years.  Equipment purchased under capital leases and leasehold improvements are amortized based upon the lesser of the term of the lease or the useful life of the asset and such expense is included in depreciation expense.  Expenditures for repairs and maintenance are charged to expense as incurred.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Warranty Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We accrue warranty costs in the period the related revenue is recognized and adjust the reserve balance as needed to address potential future liabilities. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The following table presents the activity in our warranty reserve for the years ended 6/30/14 and 6/30/13:</p> <table border="0" cellspacing="0" cellpadding="0" width="435" style='width:326.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Beginning balance</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$517</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$118 </p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warranty provision </p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>93 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>416 </p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warranty expenditures</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(63) </p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(17) </p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Ending Balance, June 30</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$547</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$517</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Income Taxes</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>The liability method is used to account for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities as well as net operating loss and tax credit carry forwards and are measured using the enacted tax rates and laws that will be in effect when the differences reverse. Deferred tax assets may be reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Patent Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, there were fifteen active patents issued.  We expense legal costs and fees associated with patent applications and patent maintenance as incurred.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:.25in;text-align:justify;text-indent:0in'><i>Intangible Assets and Impairment of Long-Lived Assets</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We evaluate finite-lived intangible assets for impairment as events and circumstances indicate that the carrying amount may not be recoverable and at a minimum at each balance sheet date in accordance with Accounting Standards Codification (“ASC”) 350 “Intangibles – Goodwill and Other” (“ASC 350”).  Long-lived assets, which includes property and equipment are evaluated for impairment as events and circumstances indicated that the carrying amount may not be recoverable and at a minimum at each balance sheet date in accordance with ASC 360 “Property, Plant and Equipment.”  We evaluate the realizability of our long-lived assets based on profitability and undiscounted cash flow expectations for the related asset or subsidiary.  </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;background:white'>ASC 350 requires that intangible assets with indefinite lives be measured for impairment at least annually or whenever events indicate that there may be an impairment. We recognize an impairment of a long-lived asset if the carrying value of the long-lived asset is not recoverable from its estimated future cash flows. We measure an impairment loss as the difference between the carrying amount of the asset and its estimated fair value.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-indent:.25in'><i><font style='font-style:italic'>Concentration of Credit Risk and Major Customers</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Financial instruments that potentially subject us to concentration of credit risk consist of trade receivables.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>We grant credit to our customers, primarily large corporations, foreign governments and the U.S. government.  We perform periodic evaluations of customer’s payment history and generally do not require collateral.  Receivables are generally due within thirty days.  Credit losses have historically been minimal, which is consistent with our expectations.  Allowances are provided for estimated amounts of accounts receivable which may not be collected. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, we had two irrevocable standby letters of credit outstanding in the approximate amount of $595,000.  These letters of credit (1) provide performance security equal to 5% of the amount of our contract with the India Ministry of Defence, and (2) provide warranty performance security equal to 5% of the contract amount, under the terms of the contract.  We have amended each of the letters of credit, extending the expiration dates to 11/4/14 and 5/4/15, respectively.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>We have no other significant off-balance sheet risk such as foreign-exchange contracts, option contracts or other foreign hedging arrangements.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We place our cash with financial institutions which we believe are of high credit quality.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Our revenues are derived from both domestic and international sales.  During the fiscal years ended 6/30/14 and 6/30/13, international sales represented approximately 76% and 88%, respectively, of our revenue.  During the fiscal year ended 6/30/14, a customer from Japan and a Taiwanese customer represented 18% and 11%, respectively, of our revenue. For the fiscal year ended 6/30/13, a customer from India and a customer from France represented approximately 48% and 10% of our revenue, respectively.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>At 6/30/14, three customers accounted for approximately $341,000 of accounts receivable, or 63% of accounts receivable outstanding as of that date.  At 6/30/13, three customers accounted for approximately $1,029,000 of accounts receivable, or 85% of accounts receivable outstanding as of that date. We rely on a single contract manufacturer to provide manufacturing services for our handheld explosives detection product.  If these services become unavailable, we would be required to identify and enter into an agreement with a new contract manufacturer or take the manufacturing in-house.  From time to time in fiscal 2014, this manufacturer has limited the number of detectors it would manufacture due to our inability to pay for the detectors on a timely basis.  In addition, this manufacturer has required that we prepay for materials and component parts in advance of procurement. The refusal to manufacture detectors for a substantial period, or the loss of our contract manufacturer altogether, could significantly disrupt production as well as increase the cost of production, thereby increasing the prices of our products.  These changes could have a material adverse effect on our business and results of operations.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><i>Stock-Based Compensation</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>For the fiscal years ended 6/30/14 and 6/30/13, we recorded stock-based compensation expense for options that vested of approximately $2,649,000 and $13,908,000, respectively, as follows:</p> <table border="0" cellspacing="0" cellpadding="0" width="561" style='width:420.85pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Cost of revenues</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$131 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$795 </p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Research and development</p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>387 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,013 </p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Selling, general and administrative</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,131 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12,100 </p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Total</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$2,649</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$13,908</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, the Company has approximately $1,207,000 of unrecognized compensation cost related to stock options that is expected to be recognized as expense over a weighted average period of 1.1 years.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The valuation of employee stock options is an inherently subjective process, since market values are generally not available for long-term, non-transferable employee stock options.  Accordingly, an option pricing model is utilized to derive an estimated fair value.  The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.  In calculating the estimated fair value of our stock options we use the Black-Scholes pricing model, which requires the consideration of the following six variables for purposes of estimating fair value:</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the stock option exercise price;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the expected term of the option;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the grant price of the our common stock, which is issuable upon exercise of the option;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the expected volatility of our common stock;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the expected dividends on our common stock; and</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-left:.75in;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the risk free interest rate for the expected option term.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The fair value of each option granted during fiscal years 2014 and 2013 is estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions:</p> <table border="0" cellspacing="0" cellpadding="0" width="557" style='width:5.8in;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dividend yield</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.0%</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Expected volatility</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>73% - 123%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>127% - 145%</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Range of risk-free interest rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>1.11% - 1.84%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.34% - 0.93%</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Expected life (years)</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>5.6 years</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>5.8 years</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Forfeiture rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>6.6%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>6.3%</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><u>Stock Option Exercise Price and Grant Date Price of Common Stock.</u>  The closing market price of our common stock on the date of grant.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><u>Expected Term.</u>  The expected term of options granted is calculated using our historical option exercise transactions and reflects the period of time that options granted are expected to be outstanding. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><u>Expected Volatility.</u>  The expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the expected term of options granted.  We determine the expected volatility solely based upon the historical volatility of our common stock over a period commensurate with the option’s expected term.  We do not believe that the future volatility of our common stock over an option’s expected term is likely to differ significantly from the past.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><u>Expected Dividends.</u>  We have never declared or paid any cash dividends on any of our capital stock and do not expect to do so in the foreseeable future.  Accordingly, we use an expected dividend yield of zero to calculate the grant-date fair value of a stock option.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><u>Risk-Free Interest Rate.</u>  The risk-free interest rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the option’s expected term on the grant date.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We were also required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest.  This requirement applies to all awards that are not yet vested.  We have determined, based on actual forfeitures, that our forfeiture rate is approximately 10%. We revisit this assumption periodically and as changes in the composition of our option pool dictate.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Changes in the inputs and assumptions as described above can materially affect the measure of estimated fair value of share-based compensation.  We anticipate the amount of stock-based compensation will increase in the future as additional options are granted.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Revenue Recognition</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We recognize revenue when there is persuasive evidence of an arrangement with the customer which states a fixed or determinable price and terms, delivery of the product has occurred or the service has been performed in accordance with the terms of the sale, and collectibility of the related receivable is reasonably assured. We provide for estimated returns at the time of shipment based on historical data. Shipping costs charged to the customer are included in revenues and are not significant. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>We allocate consideration for each deliverable as a separate unit of accounting based on its relative selling price. We determine selling price using vendor specific objective evidence (“VSOE”), if it exists, and otherwise third party evidence (“TPE”).  If neither VSOE nor TPE of selling price exists for a unit of accounting, we use estimated selling price (“ESP”).  We generally expect that we will not be able to determine TPE due to the nature of the markets in which we compete, and, as such, we typically determine selling price using VSOE or if not available, ESP. VSOE is the price charged when the same or similar product or service is sold separately.  If a product or service is seldom sold separately, it is unlikely that we can determine VSOE for the product or service.  TPE is determined based on prices charged by competitors of us for a similar deliverable when sold separately.  Generally we are not able to use TPE, as we are usually not able to obtain sufficient information on competitor pricing to substantiate TPE.  The objective of ESP is to determine the price at which we would transact if the product or service were sold on a standalone basis. We determine ESP for product or services based on the specific facts and circumstances of the arrangement.  Maintenance or service revenues are recognized over the term of the contract.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>Contract revenue under fixed price and cost-plus agreements with the Department of Defense and the Department of Homeland Security are recognized as eligible research and development expenses are incurred. Our obligation with respect to these agreements is to perform the research on a best-efforts basis.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>Deferred revenues are recorded when we receive payments for product or services for which we have not yet completed our obligation to deliver product or have not completed services required by contractual agreements. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Accounts Receivable </font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Contract revenue under cost sharing research and development agreements is recognized as eligible expenses are incurred. Invoicing of research and development contracts occurs in accordance with the terms of the contract. Revenue recognized but unbilled is recorded as unbilled accounts receivable.  At 6/30/14 and 6/30/13, there were no unbilled accounts receivable. Generally, there are no prerequisites necessary to invoice.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We grant credit to domestic and foreign customers and perform ongoing credit evaluations of our customers’ financial condition.  We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon specific customer collection issues.  </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Research and Development Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>All costs of research and development activities are expensed as incurred. We spent approximately $4,787,000 and $4,754,000 on internally funded research and development in the fiscal years ended 6/30/14 and 6/30/13, respectively.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Software Development Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The development costs of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized.  We believe technological feasibility has been established at the time at which a working model of the software has been completed. Costs eligible for capitalization have been immaterial.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Advertising Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Advertising costs are expensed when incurred and are included in selling, general and administrative expense.  Advertising costs were immaterial for the years ended 6/30/14 and 6/30/13.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Shipping and Handling</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We account for shipping and handling cost within our cost of revenues.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Basic and Diluted Earnings Per Share</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period plus additional weighted average common equivalent shares outstanding during the period.  Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method and assumed conversion of certain convertible promissory notes and convertible preferred stock.  In addition, the numerator is adjusted for any changes in income or loss that would result from the assumed conversion of potential shares. As of 6/30/14 and 6/30/13, potentially dilutive shares would have been excluded from the earnings per share calculation, because their effect would be antidilutive.  Shares deemed to be antidilutive include stock options, warrants, convertible debt and convertible preferred stock. </p> <table border="0" cellspacing="0" cellpadding="0" width="551" style='width:413.45pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands, except share and per share amounts)</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;border:none;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Basic loss per share:</font></b></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Numerator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Net loss</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(21,010)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(27,354)</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Denominator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted average shares</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>60,753,054 </p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>49,124,942 </p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Basic loss per share</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.35)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.56)</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt'> </p> <table border="0" cellspacing="0" cellpadding="0" width="551" style='width:413.45pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Diluted loss per share:</font></b></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Numerator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Net loss</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(21,010)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(27,354)</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Denominator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted average shares</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>60,753,054 </p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>49,124,942 </p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Effect of dilutive securities:</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Stock options</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Warrants</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible debt</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible preferred stock</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted average shares and equivalents</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>60,753,054 </p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>49,124,942 </p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Diluted loss per share</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.35)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.56)</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Common stock equivalents excluded from the earnings per share calculation for the years ended 6/30/14 and 6/30/13 were as follows:</p> <table border="0" cellspacing="0" cellpadding="0" width="557" style='width:5.8in;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Common stock equivalents excluded:</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Stock options</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,690,757</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,582,322 </p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Warrants</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>293,213</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>742,248 </p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible debt</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>39,800,000</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>52,981,368 </p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible preferred stock</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>407,500</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>9,140,500</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>42,191,470</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>65,446,438 </p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><i>Recent Accounting Pronouncements</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In May 2014, the FASB issued Accounting Standards Update 2014-09, <i><font style='font-style:italic'>Revenue from Contracts with Customers </font></i>(“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, “<i><font style='font-style:italic'>Revenue Recognition”.</font></i> The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The core principle of this updated guidance <font style='background:white'>is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. </font>This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods therein, which is effective for our fiscal year beginning 7/1/17, the first day of our 2018 fiscal year<font style='background:white'>. We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.</font> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In June 2014, the FASB issued Accounting Standards Update 2014-12, <i><font style='font-style:italic'>Compensation-Stock Compensation </font></i>(“ASU 2014-12”). The FASB issued ASU 2014-12 to provide specific guidance on share-based payment awards that provide for achievement of a specific performance target that could be achieved after the requisite service period. ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it become probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This guidance is effective for annual periods and interim periods within those annual periods beginning after 12/15/15, which is effective for our fiscal year beginning 7/1/16, the first day of our 2017 fiscal year. Earlier adoption is permitted. ASU 2014-12 may be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this guidance should be recognized in the financial statements as an adjustment to the opening retained earnings balance at that date. <font style='background:white'>We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In August 2014, the FASB issued Accounting Standards Update 2014-15, <i><font style='font-style:italic'>Presentation of Financial Statements-Going Concern (Subtopic 205-40)</font></i> (“ASU 2014-15”). ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This new rule requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles currently in U.S. auditing standards. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plan, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance is effective for annual periods ending after December 15, 2016, which is effective for our fiscal year beginning July 1, 2016, the first day of our 2017 fiscal year. We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>3. </b>Restricted Cash and Investments – Current and Long-Term</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>As of both 6/30/14 and 6/30/13, we had restricted cash and investments, with maturities of less than one year, of $312,000 and $433,000, respectively, and restricted investments with maturities of more than one year, of $312,000.  Restricted cash and investments consisted of the following:</font></b></p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Current assets</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Certificates of deposit</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Blocked account deposit</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>- </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>121 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$433 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Long-term assets</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .7pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Certificates of deposit</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Pursuant to our September 2009 credit agreement with DMRJ, we agreed to cause all of our receivables and collections to be deposited in a bank deposit account pledged to DMRJ pursuant to a blocked account agreement. All funds deposited in the blocked collections account are applied towards the repayment of our obligations to DMRJ under the revolving line of credit. Until the line of credit and all of our obligations thereunder have been paid and satisfied in full, we will have no right to access or make withdrawals from the blocked account without DMRJ’s consent.   As of 6/30/14 and 6/30/13, the balance in the blocked collections account was $0 and $121,000, respectively.  </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The restricted investments of $624,000 held in certificates of deposit collateralize our performance under irrevocable letters of credit issued in April 2010, aggregating to $595,000, in connection with our contract with the India Ministry of Defence, plus the bank required collateralization deposit of $19,000.  These letters of credit (1) provide performance security equal to 5% of the amount of our contract with the India Ministry of Defence; and (2) provide warranty performance security equal to 5% of the contract amount the terms of the contract.  We have amended each of the letters of credit, extending the expiration dates to 11/4/14 and 5/4/15, respectively. On 5/1/13, a third letter of credit providing security for the advance deposit was cancelled, resulting in the release of $937,000 held in a certificate of deposit. The funds had been applied to reduce our obligation for accrued interest and borrowings under the credit facility with DMRJ.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>4. </b>Inventories, net</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>We value our inventories at lower of cost or market.  Cost is determined by the first-in, first-out (FIFO) method, including material, labor and factory overhead.</font></b>  <font style='font-weight:normal'>The components of inventories, net of reserves for excess and slow-moving inventories, consist of the following:</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Raw materials</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,897 </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,811 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Work in progress</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>616</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>279</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Finished goods</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>355 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>55 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Total inventories</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$2,868 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$2,145 </p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>As of 6/30/14 and 6/30/13, our reserves for excess and slow-moving inventories were $213,000 and $73,000, respectively. </font></b></p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>5. </b>Prepaid Expenses and Other Current Assets</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Prepaid expenses and other current assets consist of the following:</font></b></p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:13.0pt;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Insurance</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$61</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$83</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Other prepaid expenses</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>254</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>312</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$315 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>395 </p> </td> </tr> </table>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>6. </b>Property, Plant and Equipment, net</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Property and equipment consist of the following:</font></b></p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:13.7pt;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Machinery, equipment, computers and software</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$897</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$734</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Furniture and fixtures</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>69</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>28</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Leasehold improvements</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>151</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>30</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Equipment under capital lease</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>157</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>182</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,274</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>974</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Less: accumulated depreciation and amortization</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>655</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>579</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$619</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$395</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;text-align:justify'>«DVJH3S3W|</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='letter-spacing:-.1pt;font-weight:normal'>Depreciation expense for the fiscal years ended 6/30/14 and 6/30/13 was approximately $154,000 and $84,000, respectively. </font></b><font style='font-weight:normal'>During the fiscal year ended 6/30/13, we recognized a gain of $9,000 on the disposition of property, plant and equipment with a cost of approximately $161,000 and no net book value. During the fiscal year ended 6/30/14, we recognized a $56,000 loss on the disposition of property, plant and equipment with a cost of approximately $135,000 and a net book value of $57,000.</font></p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>7. </b>Accrued Expenses</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Accrued expenses consist of the following:</font></b></p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'> (In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued interest</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$9,149</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$5,103</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued compensation and benefits</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>862</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>746</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued warranty costs</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>547</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>517</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued legal and accounting</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>187</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>163</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued taxes</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>106</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>9</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Other accrued liabilities</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>243</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>216</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$11,094 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$6,754 </p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin:0in;margin-bottom:.0001pt;text-indent:0in'> </p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>8. </b>Income Taxes</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;margin-left:0in'>We are required to file federal and state income tax returns in the United States.  The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. In consultation with our tax advisors, we base our tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various federal and state taxing authorities in the jurisdictions in which we file tax returns. As part of these reviews, a taxing authority may disagree with respect to the income tax positions taken by us (“uncertain tax positions”) and, therefore, may require us to pay additional taxes. As required under applicable accounting rules, we accrue an amount for our estimate of additional income tax liability, including interest and penalties, which we could incur as a result of the ultimate or effective resolution of the uncertain tax positions. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>We account for uncertain income tax positions by accruing for the estimated additional amount of taxes for the uncertain tax positions when the uncertain tax position does not meet the more likely than not standard for sustaining the position. We review and update our accrual as more definitive information becomes available from taxing authorities, upon completion of tax audits, upon expiration of statutes of limitation, or upon occurrence of other events. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Reconciliation between our effective tax rate and the United States statutory rate is as follows: </p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Expected federal tax rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-34.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-34.0%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>State income taxes, net of federal tax benefit</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-2.8%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-3.7%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Non-deductible expenses</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2.5%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Credits and other, net</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-0.9%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-0.6%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Changes in valuation allowance</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34.7%</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>35.8%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Effective tax rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.0% </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.0% </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of the assets and liabilities using the enacted tax rate in effect in the years in which the differences are expected to reverse.  A valuation allowance has been recorded against the deferred tax asset as it is more likely than not, based upon our analysis of all available evidence, that the tax benefit of the deferred tax asset will not be realized.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Significant components of our deferred tax assets and deferred tax liabilities as of 6/30/14 and 6/30/13 consists of the following:</p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.6pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Deferred tax assets:</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Net operating loss and tax credit carryforwards</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$35,966</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$29,463</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Accrued expenses deductible when paid</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>705</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>523</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Stock-based compensation</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>5,472</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>4,864</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Financial statement over tax amortization</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Financial statement over tax depreciation</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>6</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.2in'>Deferred tax assets</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>42,149</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34,862</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.2in'> </p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Deferred tax liabilities</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Tax over financial statement depreciation</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>33</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>28</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Deferred tax liabilities</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>33</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>28</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Net deferred tax assets</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>42,116</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34,834</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.2in'>Valuation allowance</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(42,116)</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(34,834)</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.3in'>Net deferred tax assets</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>A valuation allowance has been established for our tax assets as their use is dependent on the generation of sufficient future taxable income, which cannot be predicted at this time.  Included in the valuation allowance is approximately $2,006,000 related to certain operating loss carryforwards resulting from the exercise of employee stock options, the tax benefit of which, when recognized, will be accounted for as a credit to additional paid-in capital rather than a reduction in income tax.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The following table summarizes the changes in our deferred tax valuation allowance for the years ended 6/30/14 and 6/30/13:</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="672" style='width:7.0in;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="144" valign="bottom" style='width:1.5in;padding:.75pt .75pt 0in .75pt'></td> <td width="130" valign="bottom" style='width:97.4pt;padding:.75pt .7pt 0in .7pt'></td> <td width="398" colspan="3" valign="bottom" style='width:298.6pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Deferred Tax Valuation Allowance</font></b></p> </td> </tr> <tr align="left"> <td width="144" valign="bottom" style='width:1.5in;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="130" valign="bottom" style='width:97.4pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Balance at Beginning of Year</font></b></p> </td> <td width="129" valign="bottom" style='width:96.4pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Current Year Additions</font></b></p> </td> <td width="145" valign="bottom" style='width:109.0pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Expired Loss Carryforwards</font></b></p> </td> <td width="124" valign="bottom" style='width:93.2pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Balance at End of Year</font></b></p> </td> </tr> <tr align="left"> <td width="144" valign="bottom" style='width:1.5in;border:none;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>2014</p> </td> <td width="130" valign="bottom" style='width:97.4pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$34,834 </p> </td> <td width="129" valign="bottom" style='width:96.4pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$7,762</p> </td> <td width="145" valign="bottom" style='width:109.0pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(480)</p> </td> <td width="124" valign="bottom" style='width:93.2pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$42,116</p> </td> </tr> <tr align="left"> <td width="144" valign="bottom" style='width:1.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>2013</p> </td> <td width="130" valign="bottom" style='width:97.4pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,230 </p> </td> <td width="129" valign="bottom" style='width:96.4pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>9,986   </p> </td> <td width="145" valign="bottom" style='width:109.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(382)   </p> </td> <td width="124" valign="bottom" style='width:93.2pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34,834</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, the Company has the following unused net operating loss and tax credit carryforwards available to offset future federal and state taxable income, both of which expire at various times as noted below:</p> <table border="0" cellspacing="0" cellpadding="0" width="576" style='width:6.0in;margin-left:13.65pt;border-collapse:collapse'> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'></td> <td width="110" valign="bottom" style='width:82.5pt;padding:.75pt .7pt 0in .7pt'></td> <td width="114" valign="bottom" style='width:85.35pt;padding:.75pt .7pt 0in .7pt'></td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'> (In thousands)</font></i></p> </td> <td width="110" valign="bottom" style='width:82.5pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Net Operating Losses</font></b></p> </td> <td width="114" valign="bottom" style='width:85.35pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Investment AMT & Research Credits</font></b></p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Expiration Dates</font></b></p> </td> </tr> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Federal</p> </td> <td width="110" valign="bottom" style='width:82.5pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$90,501</p> </td> <td width="114" valign="bottom" style='width:85.35pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,275</p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>2022 to 2034</p> </td> </tr> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>State</p> </td> <td width="110" valign="bottom" style='width:82.5pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$61,378</p> </td> <td width="114" valign="bottom" style='width:85.35pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$877</p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>2015 to 2029</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'>We have recorded a full valuation allowance against our net deferred tax assets of $42,116,000 as of 6/30/14, due to uncertainties related to our ability to utilize these assets. The valuation allowance is based on our estimates of taxable income and the period over which our deferred tax assets will be recoverable.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Potential 382 Limitation</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Our net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service.  Our ability to utilize our net operating loss (“NOL”) and alternative minimum tax (“AMT”) and research and development credit (“R&D”) carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions.  These ownership changes may limit the amount of NOL, AMT and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.  In general, an ownership change, as defined in Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders or public groups.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We have not completed a study to assess whether one or more ownership changes have occurred since we became a loss corporation as defined in Section 382 of the Code, but we believe that it is likely that an ownership change has occurred.  If we have experienced an ownership change, utilization of the NOL, AMT and R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of our common stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required.  Any such limitation may result in the expiration of a portion of the NOL, AMT or R&D credit carryforwards before utilization.  Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under ASC 740.  Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding adjustment to the valuation allowance.  Due to the existence of the valuation allowance, it is not expected that any potential limitation will have a material impact on our operating results.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>From time to time we may be assessed interest or penalties by major tax jurisdictions, namely the states of Massachusetts and California.  We adopted the accounting standards related to accounting for uncertainty in income taxes recognized in an enterprise’s financial statements on April 1, 2007. At the adoption date and as of 6/30/14, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. No interest and penalties have been recognized by the Company to date.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Tax years 2011 through 2014 are subject to examination by the federal and state taxing authorities.  There are no income tax examinations currently in process.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>For the years ended 6/30/14 and 6/30/13, we provided for no taxes in our consolidated statement of operations as we have significant net loss carryforwards.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Our net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and are subject to certain limitations in the event of cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>9. </b>Commitments and Contingencies</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Capital and Operating Leases</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>On 4/1/13, we entered into a lease for manufacturing, research and office space in Wilmington, Massachusetts, the lease of which expires on 6/30/20.  Under the terms of the lease, we are responsible for our proportionate share of real estate taxes and operating expenses relating to this facility.  We lease research and office space in San Diego, California, lease expires on 3/31/16 and lease 300 square feet of office space in Shanghai, China, under a lease expiring on 11/30/14. Total rent expense, including assessments for maintenance and real estate taxes for the years ended 6/30/14 and 6/30/13, was $919,000 and $395,000, respectively.</p> <p style='margin:0in;margin-bottom:.0001pt;text-align:justify;layout-grid-mode:line;margin-bottom:6.0pt;text-indent:.25in'>In April 2007, in conjunction with our plans to conduct research, development and minor manufacturing work in New Mexico, we executed an operating lease which was initially to expire on 5/1/10.  The lease allowed for early termination, which we elected in February 2008.  As a result of the early termination, we are responsible for reimbursing the landlord for certain leasehold improvements over a 24-month period.  As of 6/30/14, the balance due is approximately $27,000 and is included in current liabilities.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Future minimum rental payments required under capital and operating leases with non-cancelable terms in excess of one year at 6/30/14, together with the present value of net minimum lease payments, are as follows:</p> <table border="0" cellspacing="0" cellpadding="0" width="439" style='width:329.4pt;margin-left:13.0pt;border-collapse:collapse'> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Capital Lease Payments</font></b></p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Years ending:</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/15</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$58</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/16</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>51</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/17</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>16</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/18</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/19 and thereafter</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'></td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>133</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Less: Amounts representing interest</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(22)</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Present value of future minimum lease payments</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>111</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Less: Current portion</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(45)</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Long-term obligation under capital leases</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$66</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt'> </p> <table border="0" cellspacing="0" cellpadding="0" width="439" style='width:329.4pt;margin-left:11.6pt;border-collapse:collapse'> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Operating Lease Payments</font></b></p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Years ending:</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/15</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$593</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/16</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>593</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/17</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>583</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/18</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>613</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/19 and thereafter</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,298</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'></td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$3,680</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt'> </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>License Agreements</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We are obligated under one license agreement, assumed in connection with the acquisition of Ion Metrics, whereby we were granted rights to use certain intellectual property for safety, security and narcotic applications, which we intend to incorporate into future security product offerings.  </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'>For the years ended 6/30/14 and 6/30/13, payments under a license agreement amounted to $150,000 and $125,000, respectively.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>10. </b>Financial Information by Segment</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker or decision making group, in determining how to allocate resources and in accessing performance.  Our chief operating decision making group is composed of the chief executive officer and members of senior management.  Based on qualitative and quantitative criteria we have determined that we operate within one reportable segment, which is the Security Products Segment.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>During the fiscal years ended 6/30/14 and 6/30/13, international sales represented approximately 76% and 88%, respectively, of our revenue.  During the fiscal year ended 6/30/14, a customer from Japan and a Taiwanese customer represented 18% and 11%, respectively, of our revenue. For the fiscal year ended 6/30/13, a customer from India and a customer from France represented approximately 48% and 10% of our revenue, respectively.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>11. </b>Related Party Transactions</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Robert Liscouski, a member of our Board of Directors, had served as a partner at Secure Strategy Group, a homeland security-focused banking and strategic advisory firm that has been retained by us to assist with our efforts to acquire additional capital.  During the years ended 6/30/14 and 6/30/13, this advisory firm was paid $0 and $66,000, respectively. We terminated our relationship with Secure Strategy Group on 3/31/13. On 3/5/14, we executed a settlement agreement and release with Secure Strategy Group and recognized a non-cash benefit of $118,000 in our consolidated statement of operations and comprehensive income and, as of 6/30/14, our obligation to Secure Strategy Group was $0. </font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>In April 2011, we entered into an advisory and consulting agreement with Mr. Liscouski to assist our U.S. government sales and marketing team with our efforts to advance our interests with the U.S. government.  During the years ended 6/30/14 and 6/30/13, Mr. Liscouski was paid $180,000 and $180,000, respectively. As of 6/30/14, we had no obligation to Mr. Liscouski. </font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Mr. Liscouski also serves as a senior partner at Edge360, a leading security technology and situational awareness solutions provider to the homeland security marketplace that has been retained by us.  During the fiscal years ended 6/30/14 and 6/30/13, this advisory firm was paid $4,000 and $27,000, respectively.  On August 31, 2013, we terminated our relationship with Edge360 and, as of 6/30/14, we had no obligation to Edge360.</font></b></p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>12. </b>Notes Payable</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-left:.25in;text-align:justify;text-indent:0in'>In June 2009, Michael Turmelle, a member of our Board of Directors, loaned $100,000 to us. As of 6/30/14 and 6/30/13, we had no obligation under the note for borrowed funds.  As of 6/30/14 and 6/30/13, our obligation to Mr. Turmelle for accrued interest approximated $0 and $11,000, respectively.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>13. </b>Long-Term Debt and Credit Arrangements</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:italic'>Med-Tec Payment Obligation</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>In July 2003, we entered into an asset purchase agreement with Med-Tec Iowa, Inc. (“Med-Tec”), our former exclusive distributor of prostate seeds, to purchase Med-Tec’s customer lists and to release each other from further obligations under an earlier distribution agreement.  The purchase price of $1,250,000, which was payable in varying amounts over 28 months, with the final payment payable on December 1, 2005, was recorded at the present value of the future payment stream, using a rate of 10.24%, which equaled $1,007,000.  This amount was recorded as an intangible asset and was fully amortized over an estimated useful life of 29 months.  The outstanding and past due principal balance, as of 6/30/14 and 6/30/13, was approximately $15,000 and $19,000, respectively.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:italic'>Term Debt and Revolving Credit Facility with DMRJ Group, LLC</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>We are a party to several loan and credit agreements with DMRJ Group LLC (“DMRJ”), an accredited institutional investor. In December 2008, we entered into a note and warrant purchase agreement with DMRJ pursuant to which we issued a senior secured convertible promissory note in the principal amount of $5,600,000 and a warrant to purchase 1,000,000 shares of our common stock.  Thereafter, we entered into a series of amendments, waivers and modifications of this facility.</font></i></b> <font style='font-weight:normal;font-style:normal'>The note, which is collateralized by all of our assets, originally bore interest at 11.0% per annum.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>The note contains restrictions and financial covenants including: (i) restrictions against declaring or paying dividends or making any distributions; against creating, assuming or incurring any liens; against creating, assuming or incurring any indebtedness; against merging or consolidating with any other company, </font></i></b><font style='font-weight:normal'>provided, however</font><font style='font-weight:normal;font-style:normal'>, that a merger or consolidation is permitted if we are the surviving entity; against the sale, assignment, transfer or lease of our assets, other than in the ordinary course of business and excluding inventory and certain asset sales expressly permitted by the note purchase agreement; against making investments in any company, extending credit or loans, or purchasing stock or other ownership interest of any company; and (ii) covenants that we have authorized or reserved for the purpose of issuance, 150% of the aggregate number of shares of our common stock issuable upon exercise of  the warrant; that we maintain a minimum cash balance of at least $500,000; that the aggregate dollar amount of all accounts payable be no more than 100 days past due; and that we maintain a current ratio, defined as current assets divided by current liabilities, of no less than 0.60 to 1.00.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>In September 2011, we amended each of our credit instruments with DMRJ. Pursuant to those amendments: (i) the maturity of our indebtedness to DMRJ was extended from 9/30/11 to 3/31/13; (ii) DMRJ waived our compliance with certain financial covenants in the notes and all related credit agreements through maturity; (iii) our line of credit under the September 2009 credit agreement was increased from $15,000,000 to $23,000,000; and (iv) we were required to repay sufficient amounts of our outstanding indebtedness under the notes and related credit agreements and other amounts owing to DMR such that as of December 31, 2011, the outstanding obligations to DMRJ shall not exceed $15,000,000.</font></i></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In October 2011, we further amended each of our credit instruments with DMRJ, to eliminate the obligation to repay any portion of our outstanding indebtedness to DMRJ by 12/31/11.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In February 2012, we amended each of our credit instruments with DMRJ, to extend the maturity of all of our indebtedness to DMRJ to September 30, 2012.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>In September 2012, we further amended each of our credit instruments with DMRJ. Pursuant to those amendments: (i) we extended the maturity date of all of our indebtedness from 9/30/12 to 3/31/13 and (ii) issued to DMRJ a second senior secured convertible promissory note in the principal amount of $12,000,000 (the “September 2012 Note”). </font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>The second senior secured convertible promissory note bears interest at the rate of 15% per annum. The principal balance of this note, together with all outstanding interest and all other amounts owed thereunder, was due and payable on 3/31/13. The second senior secured convertible promissory note is convertible in whole or in part, at DMRJ’s option, into shares of Series H Convertible Preferred Stock at an initial conversion rate of $1,000 per share (as adjusted i</font></i></b><font style='font-weight:normal;font-style:normal'>n the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series H Preferred Stock, </font><font style='font-weight:normal;font-style:normal'>the “</font><font style='font-weight:normal;font-style:normal'>Series H Original Issue Price”).</font></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The second senior secured convertible promissory note originally gave DMRJ the option to require us to repurchase any or all of the shares of Series H Preferred Stock owned by DMRJ, at the Series H Original Issue Price per share, if we did not (i) by 3/31/13, have at least one of our products receive qualified or approved status on the “Transportation Security Administration Air Cargo Screening Technology List (ACSTL) – For Passenger Aircraft” or placed on the Transportation Security Administration’s “Explosive Trace Detector Qualified Product List (QPL)”; or (ii) achieve revenues of at least $7,500,000 per fiscal quarter, commencing with fiscal quarter ending 6/30/13. As described below, the note was subsequently amended to eliminate this option.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The holders of the Series H Preferred Stock will be entitled to receive, prior to the payment of any dividends with respect to our Common Stock and/or Series G Convertible Preferred Stock, cumulative dividends on each share of Series H Preferred Stock at a rate equal to 15% of the Series H Original Issue Price per annum, (i) when, as and if declared by our Board of Directors, (ii) upon a liquidation, dissolution or winding up of the Company (a “Liquidation Event”), or (iii) upon the repurchase or conversion of the Series H Preferred Stock All dividends accruing on the Series H Preferred Stock are payable by the issuance of additional shares of Series H Preferred Stock.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Upon a Liquidation Event, the holders of shares of Series H Preferred Stock then outstanding will be entitled to be paid out of the assets of the company available for distribution to its stockholders, before any payment is made to the holders of Common Stock and/or Series G Preferred Stock in respect of such stock, an amount per share equal to the Series H Original Issue Price, plus any accrued but updated dividends thereon, whether or not declared. At the option of holders of a majority of the outstanding Series H Preferred Stock, (i) a consolidation or merger of us with or into another entity or person, or any other corporate reorganization, in which our stockholders immediately prior to such consolidation, merger or reorganization do not hold at least a majority of the resulting or surviving entities’ voting power immediately following such consolidation, merger or reorganization, or (ii) a sale or transfer of all or substantially all of our assets for cash, securities or other property, will be deemed to be a Liquidation Event.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Each share of Series H Preferred Stock will be convertible, at the option of the holder, into that number of shares of Common Stock as is determined by (i) dividing the Series H Original Issue Price by the Series H Conversion Price (as defined below) in effect at the time of conversion and (ii) multiply the result by 1,000. The “Series H Conversion Price” will initially be equal to $1,090, and is subject to adjustment in the event that (a) we issue additional shares of Common Stock as a dividend or other distribution on outstanding shares of Common Stock, (b) there is a split or subdivision of outstanding shares of Common Stock, or (c) there is a combination or reverse stock split of outstanding shares of Common Stock into a smaller number of shares of Common Stock. Assuming no adjustments to the Series H Original Issue Price or the Series H Conversion Price, the New Note will be convertible indirectly, at DMRJ’s option, into shares of Common Stock at an effective conversion price of $1.09 per share, which represents a discount of approximately 20% from the daily volume weighted average price of the Common Stock over the 20 trading days preceding the date of the amendment.</p> <p style='margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The holders of the Series H Preferred Stock will have no voting rights except as required by applicable law. However, without the consent of the holders of a majority of the outstanding Series H Preferred Stock, we may not (i) amend, alter or repeal any provision of its Articles of Organization or By-laws in a manner that adversely affects the powers, preferences or rights of the Series H Preferred Stock; (ii) authorize or issue any equity securities (or any equity or debt securities convertible into equity securities) ranking prior and superior to the Series H Preferred Stock with respect to dividends, distributions, redemption rights or rights upon liquidation, dissolution or winding up; or (iii) consummate any capital reorganization or reclassification of any of its equity securities (or debt securities convertible into equity securities) into equity securities ranking prior and superior to the Series H Preferred Stock with respect to dividends, distributions, redemption rights or rights upon liquidation, dissolution or winding up. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>On 2/28/13, we further amended each of our credit instruments with DMRJ. Pursuant to those amendments:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.75in;text-align:justify;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>the maturity of all of our indebtedness to DMRJ was extended from 3/31/13 to 3/31/14;</p> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.75in;text-align:justify;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>DMRJ waived our compliance with certain financial covenants in each of our promissory notes and all related credit agreements through the new maturity date; </p> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.75in;text-align:justify;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>DMRJ’s option to require us to repurchase any or all of the shares of Series H Convertible Preferred Stock ) which may be issued upon conversion of the September 2012 Note was eliminated; </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-align:justify;text-indent:1.0in;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-indent:-.25in'><font style='font-family:Symbol'>· </font>we issued to DMRJ a third senior secured convertible promissory note dated 2/28/13, in the aggregate principal amount of $12,000,000. Payment for the February 2013 Note was made by the cancellation of $12,000,000 of principal of the outstanding indebtedness under our credit agreement;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-align:justify;text-indent:1.0in;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-indent:-.25in'><font style='font-family:Symbol'>· </font>DMRJ acquired the option to convert the amended and restated senior secured convertible promissory note dated 3/12/12 (the “March 2012 Note”) into shares of Series J Convertible Preferred Stock in lieu of shares of Common Stock; and</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-align:justify;text-indent:1.0in;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:.75in;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the March 2012 Note and the September 2012 Note were amended to permit us to prepay any or all of our indebtedness thereunder on 30 days’ prior notice. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The third senior secured convertible promissory note bears interest at the rate of 15% per annum. The principal balance of this note, together with all outstanding interest and all other amounts owed thereunder, will be due and payable on 3/31/15. The third senior secured convertible promissory note is convertible in whole or in part, at DMRJ’s option, into shares of Series I Convertible Preferred Stock at an initial conversion rate of $1,000 per share (as adjusted in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series I Preferred Stock, the “Series I Original Issue Price”). We may prepay this note on 30 days prior notice.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>As amended, the March 2012 Note is convertible in whole or in part, at DMRJ’s option, into shares of Series J Convertible Preferred Stock at an initial conversion rate of $1,000 per share (as adjusted in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series J Preferred Stock, the “Series J Original Issue Price”). </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The holders of the Series I Preferred Stock will be entitled to receive, prior to the payment of any dividends with respect to our Common Stock and/or Series G Preferred Stock, cumulative dividends on each share of Series I Preferred Stock at a rate equal to 15% of the Series I Original Issue Price per annum, (i) when, as and if declared by our Board of Directors, (ii) upon a “Liquidation Event”, or (iii) upon the conversion of the Series I Preferred Stock All dividends accruing on the Series I Preferred Stock are payable by the issuance of additional shares of Series I Preferred Stock.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The holders of Series J Preferred Stock will be entitled to participate on an “as converted” basis in all dividends or distributions declared or paid on our Common Stock. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>Upon a Liquidation Event, the holders of shares of Series I Preferred Stock and Series J Preferred Stock then outstanding will be entitled to be paid out of the assets of the company available for distribution to its stockholders, <i><font style='font-style:italic'>pari passu</font></i> with distributions made with respect to the Series H Preferred Stock but before any payment is made to the holders of Common Stock and /or Series G Preferred Stock in respect of such stock, (i) an amount per share of Series I Preferred Stock equal to the Series I Original Issue Price, plus any accrued but updated dividends thereon, whether or not declared, and (ii) an amount per share of Series J Preferred Stock equal to the Series J Original Issue Price, plus any dividends declared but unpaid thereon. At the option of holders of a majority of the outstanding Series I Preferred Stock, (i) a consolidation or merger of the company with or into another entity or person, or any other corporate reorganization, in which the stockholders of the company immediately prior to such consolidation, merger or reorganization do not hold at least a majority of the resulting or surviving entities’ voting power immediately following such consolidation, merger or reorganization, or (ii) a sale or transfer of all or substantially all of our assets for cash, securities or other property, will be deemed to be a Liquidation Event.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>Upon any such Liquidation Event, and after all payments described in the preceding paragraph are made in full in respect of the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock, the holders of the Series G Preferred Stock will be entitled to be paid out of the assets of the company available for distribution to its stockholders an amount equal to $8.00 per share of Series G Preferred Stock, plus any declared but unpaid dividends, prior to the payment of any amounts to the holders of our Common Stock by reason of their ownership of such stock.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>Each share of Series I Preferred Stock will be convertible, at the option of the holder, into that number of shares of Common Stock as is determined by (i) dividing the Series I Original Issue Price by the Series I Conversion Price (as defined below) in effect at the time of conversion and (ii) multiplying the result by 1,000. The “Series I Conversion Price” will initially be equal to $1,180.00, and is subject to adjustment in the event that (a) we issue additional shares of Common Stock as a dividend or other distribution on outstanding shares of Common Stock, (b) there is a split or subdivision of outstanding shares of Common Stock, or (c) there is a combination or reverse stock split of outstanding shares of Common Stock into a smaller number of shares of Common Stock. Assuming no adjustments to the Series I Original Issue Price or the Series I Conversion Price, the February 2013 Note will be convertible indirectly, at DMRJ’s option, into shares of Common Stock at an effective conversion price of $1.18 per share, which represents premium of approximately 3% over the closing price of the Common Stock on the trading day preceding the date of the 2/28/13 amendments.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Each share of Series J Preferred Stock will be convertible, at the option of the holder, into that number of shares of Common Stock as is determined by dividing the Series J Original Issue Price by the Series J Conversion Price (as defined below) in effect at the time of conversion. The “Series J Conversion Price” will initially be equal to $.08, and is subject to adjustment in the event that (a) the Company issues additional shares of Common Stock as a dividend or other distribution on outstanding shares of Common Stock, (b) there is a split or subdivision of outstanding shares of Common Stock, or (c) there is a combination or reverse stock split of outstanding shares of Common Stock into a smaller number of shares of Common Stock. Assuming no adjustments to the Series J Original Issue Price or the Series J Conversion Price, the March 2012 Note will be convertible indirectly, at DMRJ’s option, into shares of Common Stock at an effective conversion price of $.08 per share. Prior to the execution of the amendment, the March 2012 Note was convertible directly into shares of Common Stock at a conversion price of $.08 per share. Accordingly, we do not believe this change to be material.</p> <p style='margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The holders of the Series I Preferred Stock and the Series J Preferred Stock will have no voting rights except as required by applicable law. However, without the consent of the holders of a majority of the outstanding Series I Preferred Stock or Series J Preferred Stock, as the case may be, with each such series voting as a separate class, we may not (i) amend, alter or repeal any provision of our Articles of Organization or By-laws in a manner that adversely affects the powers, preferences or rights of the Series I Preferred Stock or Series J Preferred Stock, as the case may be; (ii) authorize or issue any equity securities (or any equity or debt securities convertible into equity securities) ranking prior and superior to the Series I Preferred Stock or Series J Preferred Stock, as the case may be, with respect to dividends, distributions, redemption rights or rights upon liquidation, dissolution or winding up; or (iii) consummate any capital reorganization or reclassification of any of its equity securities (or debt securities convertible into equity securities) into equity securities ranking prior and superior to the Series I Preferred Stock or Series J Preferred Stock, as the case may be, with respect to dividends, distributions, redemption rights or rights upon liquidation, dissolution or winding up.</p> <p style='margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, there were no shares of Series H Preferred Stock, Series I Preferred Stock or Series J Preferred Stock outstanding.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>On 11/14/13, we amended each of our credit agreements with DMRJ to extend the maturity date of all of our indebtedness to DMRJ from 3/31/14 to 9/30/14.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>On 3/19/14, we further amended each of our credit instruments with DMRJ. Pursuant to those amendments:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.75in;text-align:justify;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>the maturity of all of our indebtedness to DMRJ was extended from 9/30/14 to 3/31/15;</p> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.75in;text-align:justify;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>DMRJ waived our compliance with certain financial covenants in each of our promissory notes and all related credit agreements through the new maturity date; </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-align:justify;text-indent:.5in;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>DMRJ consented to the execution and delivery of the note purchase agreement with BAM and agreed to waive all prepayment limitations and prepayment notice requirements set forth in any of the credit documents to which DMRJ and the company are parties with respect to the repayments and prepayments financed by the sale of the notes.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-align:justify;text-indent:.5in;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-indent:-.25in;text-autospace:none'><font style='font-family:Symbol'>· </font>DMRJ agreed to subordinate its first position security interest in all of our assets to BAM.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>Further, upon the occurrence of an event of default under certain provisions of our agreements with DMRJ, we could be required to pay default rate interest equal to the lesser of 2.5% per month and the maximum applicable legal rate per annum on the outstanding principal balance outstanding.</font></i></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, our obligations to DMRJ under the promissory notes and a revolving line of credit approximated $3,184,000, $12,000,000, $12,000,000, $1,000,000 and $2,995,000, respectively.  Further, as of 6/30/14, our obligation to DMRJ for accrued interest under these instruments approximated $8,283,000 and is included in current liabilities in the consolidated financial statements.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>As of 9/23/14, our obligations to DMRJ under the promissory notes and a revolving line of credit approximated $3,184,000, $12,000,000, $12,000,000, $1,000,000 and $5,253,000 respectively.  Further, as of 9/23/14, our obligation to DMRJ for accrued interest under these instruments approximated $9,235,000. </font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal'>Term Debt with BAM</font></i></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:27.0pt'>On 3/19/14, we entered into a note purchase agreement with a group of institutional investors and BAM Administrative Services LLC (“BAM”), an administrative agent for the investors, pursuant to which we issued senior secured promissory notes in the aggregate principal amount of $20,000,000. The notes bear interest at 15% per annum and mature on 3/31/15.  The proceeds from the sale of the notes were used to repay (i) $17,624,000 of our outstanding indebtedness to DMRJ under the amended and restated revolving promissory note dated 9/29/11 (ii) $1,809,000 of interest outstanding under the amended and restated promissory note and (iii) $567,000 of interest outstanding under our senior secured convertible promissory note dated September 5, 2012. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>The notes purchase agreement contains restrictions and financial covenants including: (i) restrictions against declaring or paying dividends or making any distributions; against creating, assuming or incurring any liens; against creating, assuming or incurring any indebtedness; against merging or consolidating with any other company, against the sale, assignment, transfer or lease of our assets, other than in the inventory ordinary course of business ; against making investments in any company, extending credit or loans, or purchasing stock or other ownership interest of any company; and (ii) covenants that  we maintain a minimum cash balance of at least $500,000; that the weighted average age of all accounts payable be no more than 100 days past due; and that we maintain a current ratio, defined as current assets divided by current liabilities, of no less than 0.60 to 1.00. BAM waived our compliance with certain financial covenants in our promissory notes through the maturity date, consistent with the financial covenants which have been waived in each of our promissory notes and all related credit agreements with DMRJ.</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>Further, upon the occurrence of an event of default under certain provisions of our agreements with BAM, we could be required to pay default rate interest equal to the lesser of 2.5% per month and the maximum applicable legal rate per annum on the outstanding principal balance outstanding.</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>As of 6/30/14, our obligations under these promissory notes were $20,000,000.  Further, as of 6/30/14, our obligation under such notes for accrued interest amounted to $867,000 </font></i></b><font style='font-weight:normal;font-style:normal'>and is included in current liabilities in the consolidated financial statements</font><font style='font-weight:normal;font-style:normal'>.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:normal'>As of 9/23/14, our obligations under these promissory notes were $20,000,000. Further, as of 9/23/14, our obligation under such notes for accrued interest approximated $717,000.</font></i></b></p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-align:justify;text-indent:-.25in'><b>14. </b>Stock Options and Warrants</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:italic'>Common Stock Options and Stock Purchase Warrants</font></i></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In connection with various financing agreements and services provided by consultants, we have issued warrants to purchase shares of our common stock.  The fair value of warrants issued is determined using a binomial option pricing model.  </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:italic'>Common Stock Options</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>In December 2000, we adopted the 2000 Incentive and Non-Qualified Stock Option Plan (the “2000 Plan”). The 2000 Plan provides for the grant of incentive stock options and non-qualified stock options to employees and affiliates. The exercise price of the options equal 100% of the fair market value on the date of the grant or 110% of the fair market value for beneficial owners of more than 5% of our stock. Options expire between five and ten years from the date of the option grant and have various vesting periods. Options may be exercised by delivering to the company cash in an amount equal to such aggregate exercise price of the options exercised, or with the consent of the Committee, shares of our common stock having a fair market value equal to such aggregate exercise price, a personal recourse note issued to the company in a principal amount equal to such aggregate exercise price, other acceptable consideration including a cashless exercise/resale procedure, or any combination of the foregoing. The Committee may in its discretion provide upon the grant of any option that we may repurchase, upon terms and conditions determined by the Committee, all or any number of shares purchased upon exercise of such option. A total of 600,000 shares were originally reserved for issuance under the 2000 Plan. In December 2003, our stockholders approved an increase in the 2000 Plan from 600,000 shares to 1,000,000 shares. In December 2004, our stockholders approved an increase in the 2000 Plan from 1,000,000 shares to 1,500,000 shares. The 2000 Plan expired in October 2010, as such no further options grants may be issued under this plan.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>In December 2004, we adopted the 2004 Stock Option Plan (the “2004 Plan”). The 2004 Plan provides for the grant of incentive stock options and non-qualified stock options to employees and affiliates. The exercise price of the options equa1 100% of the fair market value on the date of the grant or 110% of the fair market value for beneficial owners of more than 10% of our stock. Options expire between five and ten years from the date of the option grant and have various vesting periods. Options may be exercised by delivering to the company cash in an amount equal to such aggregate exercise price of the options exercised, or with the consent of the Committee, shares of our common stock having a fair market value equal to such aggregate exercise price, a personal recourse note issued to the company in a principal amount equal to such aggregate exercise price, other acceptable consideration including a cashless exercise/resale procedure, or any combination of the foregoing. A total of 500,000 shares were originally reserved for issuance under the 2004 Plan. In December 2005, our stockholders approved an increase in the 2004 Plan from 500,000 shares to 1,000,000 shares.  In December 2007, our stockholders approved an increase in the 2004 Plan from 1,000,000 shares to 2,000,000 shares. In March 2012, our stockholders approved an increase in the 2004 Plan from 2,000,000 shares to 4,000,000. The 2004 Plan expired in May 2014, as such no further options grants may be issued under this plan.</font></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In September 2012, our Board of Directors adopted an amendment to our 2004 Stock Option increasing the total number of shares of our common stock issuable thereunder from 4,000,000 shares to 20,000,000 shares and approved the following grants of options under the amended plan:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="361" style='width:270.95pt;margin-left:46.5pt;border-collapse:collapse'> <tr align="left"> <td valign="top" style='border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Named Executives and Directors</font></b></p> </td> <td width="129" valign="bottom" style='width:96.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares Granted</font></b></p> </td> </tr> <tr align="left"> <td valign="top" style='border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Glenn D. Bolduc</p> </td> <td width="129" valign="top" style='width:96.8pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>5,442,490 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dr. William J. McGann</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,498,972 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Roger P. Deschenes</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,058,498 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dr. Darryl K. Jones</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,258,498 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Michael C. Turmelle</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>640,949 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Howard Safir</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>303,399 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Robert P. Liscouski</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>806,798 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>John A. Keating</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>303,399 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Todd A. Silvestri</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>730,949 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Brenda L. Baron</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>730,949 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Estate of Joseph E. Levangie</p> </td> <td width="129" valign="top" style='width:96.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>525,099 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'></td> <td width="129" valign="top" style='width:96.8pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>13,300,000 </p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The September 2012 amendment has not been approved by our stockholders.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:23.0pt;text-indent:-23.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>Each of the options has an exercise price of $1.40 per share. One-half of options granted to each of Messrs. Bolduc, Deschenes, Silvestri and Ms. Baron were immediately exercisable and the other one-half became exercisable on 9/7/13. One-third of the new options granted to each of Dr. McGann and Dr. Jones were immediately exercisable, one-third became exercisable on 9/7/13, and the remaining one-third became exercisable on 9/7/14, subject to acceleration of vesting upon a “Change in Control.” Options granted to Messrs. Turmelle, Safir, Liscouski, Keating and the Estate of Mr. Levangie are immediately exercisable in full. All of the options will expire on 9/6/22, subject to earlier expiration with respect to Messrs. Bolduc, McGann, Deschenes, Jones, Silvestri and Ms. Baron in connection with the termination or cessation of their respective employment with the company.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>On 9/7/12, the Board of Directors adopted the Implant Sciences Corporation Change of Control Payment Plan, the purpose of which is to reward management for the increases in shareholder value generated between January 2009 and the present.  </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>On 1/2/09, the closing price of our common stock on the NYSE Amex LLC was $0.18 per share. On the date the plan was adopted, the closing price of the common stock on the OTC Markets Group’s OTCPK tier was $1.40. Our Board of Directors believes that this increase in shareholder value is directly attributable to the dedication and hard work of our management team, employees and directors. Accordingly, our management and directors have not significantly benefitted from the increase in shareholder value between January 2009 and the present, and the plan is intended to provide value to our management and directors equivalent to the value they would have earned had they owned a more significant portion of our equity.  </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Pursuant to the plan, the Board established a target level of stock ownership for each officer as a percentage of our fully diluted capitalization, and a corresponding ownership percentage for directors. To reflect the increase in shareholder value between January 2009 and the adoption of the plan, the Board determined that each officer and director should be allocated a “Change of Control Payment” equal to the product of (x) the closing price of our common stock on 9/7/12 (<i><font style='font-style:italic'>i.e</font></i>., $1.40) less a “floor price,” multiplied by (y) the number of additional stock options granted to each participant on the same date. The floor price applicable to directors and officers who served us at the beginning of the turn-around is $0.20, <i><font style='font-style:italic'>i.e</font></i>., slightly above the closing price of the common stock on 1/2/09. The floor prices for Dr. McGann and Dr. Jones are $0.51 and $0.67, respectively, reflecting the closing prices of the common stock on the dates those officers joined us. The benefits under the plan are payable upon, and only upon, a “Change of Control,” as defined in the plan, involving the company.  Accordingly, the payment of the benefits allocated under the plan will be further deferred until such time that all shareholders receive payments for or in respect of their common stock in a transaction constituting a Change of Control.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>On 3/6/14, our Board of Directors approved the following grant of options:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="361" style='width:270.95pt;margin-left:46.5pt;border-collapse:collapse'> <tr align="left"> <td valign="top" style='border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Named Executives and Directors</font></b></p> </td> <td width="129" valign="top" style='width:96.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares Granted</font></b></p> </td> </tr> <tr align="left"> <td valign="top" style='border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Glenn D. Bolduc</p> </td> <td width="129" valign="top" style='width:96.8pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>75,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dr. William J. McGann</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>75,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Roger P. Deschenes</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>50,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dr. Darryl K. Jones</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>50,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Michael C. Turmelle</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Howard Safir</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Robert P. Liscouski</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>John A. Keating</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Todd A. Silvestri</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>50,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Brenda L. Baron</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>50,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'></td> <td width="129" valign="top" style='width:96.8pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:double windowtext 1.5pt;border-right:none;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>450,000 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>Each of the options has an exercise price of $0.79 per share and all of the options will expire on 3/5/24.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The options shall vest and become exercisable in full upon the later of (i) the addition of our QS-B220 product to the Transportation Security Administration Qualified Product List for passenger checkpoint screening and (ii) our receipt of an initial order under an indefinite delivery / indefinite quantity contract with the Transportation Security Administration. ASC718 “Compensation – Stock Compensation” requires that recognition of compensation expense for an award with a performance condition shall be based on the probable outcome of that performance condition. We have determined that it is probable that both performance conditions will be satisfied within one year from the date of grant and have accrued stock-based compensation in our consolidated statements of operations and comprehensive loss for the year ended 6/30/14.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>On 7/2/14, our Board of Directors adopted the 2014 Stock Option Plan (the “2014 Plan”). The 2014 Plan provides for the grant of incentive stock options and non-qualified stock options to employees and affiliates. The exercise price of the options equa1 100% of the fair market value on the date of the grant or 110% of the fair market value for beneficial owners of more than 10% of our stock. Options expire between five and ten years from the date of the option grant and have various vesting periods. Options may be exercised by delivering to the company cash in an amount equal to such aggregate exercise price of the options exercised, or with the consent of the Committee, shares of our common stock having a fair market value equal to such aggregate exercise price, a personal recourse note issued to the company in a principal amount equal to such aggregate exercise price, other acceptable consideration including a cashless exercise/resale procedure, or any combination of the foregoing. A total of 15,000,000 shares were originally reserved for issuance under the 2014 Plan. At 6/30/14, no option awards have been granted under the 2014 Plan. The 2014 Plan has not been approved by our stockholders.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>As of 6/30/14, there were options outstanding to purchase 18,420,316 shares of our common stock at exercise prices ranging from $0.08 to $10.00.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>We issued 407,066 and 1,421,183 shares of common stock during the years ended 6/30/14 and 6/30/13, respectively, as a result of the exercise of options by employees and consultants.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The following table presents the activity of the 2000 and 2004 Stock Option Plans for the year ended 6/30/14:</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="562" style='width:421.45pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'></td> <td width="69" valign="bottom" style='width:51.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="83" valign="bottom" style='width:62.35pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="84" valign="bottom" style='width:62.95pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Remaining Contractual Life in Years</font></b></p> </td> <td width="83" valign="bottom" style='width:62.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Aggregate Intrinsic Value</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><i><font style='font-style:italic'>(in thousands)</font></i></p> </td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Options outstanding as of July 1, 2013</p> </td> <td width="69" valign="bottom" style='width:51.7pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>17,905,001</p> </td> <td width="83" valign="bottom" style='width:62.35pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.22</p> </td> <td width="84" valign="bottom" style='width:62.95pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.9</p> </td> <td width="83" valign="bottom" style='width:62.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Issued</p> </td> <td width="69" valign="bottom" style='width:51.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,164,654</p> </td> <td width="83" valign="bottom" style='width:62.35pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.99</p> </td> <td width="84" valign="bottom" style='width:62.95pt;padding:.75pt .7pt 0in .7pt'></td> <td width="83" valign="bottom" style='width:62.3pt;border:none;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Exercised</p> </td> <td width="69" valign="bottom" style='width:51.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(407,066)</p> </td> <td width="83" valign="bottom" style='width:62.35pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.14</p> </td> <td width="84" valign="bottom" style='width:62.95pt;padding:.75pt .7pt 0in .7pt'></td> <td width="83" valign="bottom" style='width:62.3pt;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Cancelled</p> </td> <td width="69" valign="bottom" style='width:51.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(1,242,273)</p> </td> <td width="83" valign="bottom" style='width:62.35pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.06</p> </td> <td width="84" valign="bottom" style='width:62.95pt;padding:.75pt .7pt 0in .7pt'></td> <td width="83" valign="bottom" style='width:62.3pt;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Options outstanding as of 6/30/14</p> </td> <td width="69" valign="bottom" style='width:51.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>18,420,316</p> </td> <td width="83" valign="bottom" style='width:62.35pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.22</p> </td> <td width="84" valign="bottom" style='width:62.95pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.1</p> </td> <td width="83" valign="bottom" style='width:62.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Options exercisable as of 6/30/14</p> </td> <td width="69" valign="bottom" style='width:51.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,385,445</p> </td> <td width="83" valign="bottom" style='width:62.35pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.25</p> </td> <td width="84" valign="bottom" style='width:62.95pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.2</p> </td> <td width="83" valign="bottom" style='width:62.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="243" valign="bottom" style='width:182.15pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in;text-indent:-.1in'>Options vested or expected to vest as of 6/30/14</p> </td> <td width="69" valign="bottom" style='width:51.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>18,048,715</p> </td> <td width="83" valign="bottom" style='width:62.35pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.23</p> </td> <td width="84" valign="bottom" style='width:62.95pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.1</p> </td> <td width="83" valign="bottom" style='width:62.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The following table presents the activity of the 2000 and 2004 Stock Option Plans for the year ended 6/30/13:</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="672" style='width:7.0in;margin-left:13.65pt;border-collapse:collapse'> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'></td> <td width="97" valign="bottom" style='width:72.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="92" valign="bottom" style='width:69.25pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="101" valign="bottom" style='width:75.55pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Remaining Contractual Life in Years</font></b></p> </td> <td width="94" valign="bottom" style='width:70.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Aggregate Intrinsic Value</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><i><font style='font-style:italic'>(in thousands)</font></i></p> </td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Options outstanding as of July 1, 2012</p> </td> <td width="97" valign="bottom" style='width:72.9pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>4,986,000</p> </td> <td width="92" valign="bottom" style='width:69.25pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.43</p> </td> <td width="101" valign="bottom" style='width:75.55pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>5.0</p> </td> <td width="94" valign="bottom" style='width:70.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$4,861</p> </td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Issued</p> </td> <td width="97" valign="bottom" style='width:72.9pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>14,565,000</p> </td> <td width="92" valign="bottom" style='width:69.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.38</p> </td> <td width="101" valign="bottom" style='width:75.55pt;padding:.75pt .7pt 0in .7pt'></td> <td width="94" valign="bottom" style='width:70.3pt;border:none;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Exercised</p> </td> <td width="97" valign="bottom" style='width:72.9pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(1,421,183)</p> </td> <td width="92" valign="bottom" style='width:69.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.16</p> </td> <td width="101" valign="bottom" style='width:75.55pt;padding:.75pt .7pt 0in .7pt'></td> <td width="94" valign="bottom" style='width:70.3pt;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Cancelled</p> </td> <td width="97" valign="bottom" style='width:72.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(224,816)</p> </td> <td width="92" valign="bottom" style='width:69.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.98</p> </td> <td width="101" valign="bottom" style='width:75.55pt;padding:.75pt .7pt 0in .7pt'></td> <td width="94" valign="bottom" style='width:70.3pt;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Options outstanding as of 6/30/13</p> </td> <td width="97" valign="bottom" style='width:72.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>17,905,001</p> </td> <td width="92" valign="bottom" style='width:69.25pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.22</p> </td> <td width="101" valign="bottom" style='width:75.55pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.8</p> </td> <td width="94" valign="bottom" style='width:70.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Options exercisable as of 6/30/13</p> </td> <td width="97" valign="bottom" style='width:72.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>9,924,140</p> </td> <td width="92" valign="bottom" style='width:69.25pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.17</p> </td> <td width="101" valign="bottom" style='width:75.55pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.9</p> </td> <td width="94" valign="bottom" style='width:70.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> <tr align="left"> <td width="288" valign="bottom" style='width:3.0in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in;text-indent:-.1in'>Options vested or expected to vest as of 6/30/13</p> </td> <td width="97" valign="bottom" style='width:72.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>17,181,792</p> </td> <td width="92" valign="bottom" style='width:69.25pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.22</p> </td> <td width="101" valign="bottom" style='width:75.55pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.9</p> </td> <td width="94" valign="bottom" style='width:70.3pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The weighted average grant date fair value of options granted for the years ended 6/30/14 and 6/30/13 were $0.72 and $1.22, respectively.  See Note 2 for further discussion on the methods and assumptions used in determining the fair value of our options.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The following table sets forth information regarding outstanding options at 6/30/14:</font></b></p> <p style='margin:0in;margin-bottom:.0001pt'> </p> <table border="0" cellspacing="0" cellpadding="0" width="588" style='width:441.05pt;border-collapse:collapse'> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'></td> <td width="272" colspan="3" valign="bottom" style='width:204.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Outstanding Options</font></b></p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:0in .85pt 0in .85pt'></td> <td width="176" colspan="2" valign="bottom" style='width:132.25pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Options Exercisable</font></b></p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Range of Exercise Prices</font></b></p> </td> <td width="76" valign="bottom" style='width:57.1pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="109" valign="bottom" style='width:81.6pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Remaining Contractual Life in Years</font></b></p> </td> <td width="87" valign="bottom" style='width:65.3pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:0in .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="109" valign="bottom" style='width:81.6pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$0.08 - $0.49</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,701,150</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3.2</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.27</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,513,267</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.25</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$0.52 - $1.00</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,450,833</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>5.1</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.80</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,098,001</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.74</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$1.15 - $2.30</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>14,208,333</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.9</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.39</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> </td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12,714,177</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.40</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$3.07 - $3.89</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>45,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.0</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$3.71</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>45,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$3.71</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$9.92 - $10.00</p> </td> <td width="76" valign="bottom" style='width:57.1pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.4</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$9.97</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$9.97</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'></td> <td width="76" valign="bottom" style='width:57.1pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>18,420,316</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.1</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.22</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,385,445</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.25</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>As of 6/30/14 there was $1,207,000 of total unrecognized compensation expense related to unvested share based compensation arrangements under the various share-based compensation plans.  This expense is expected to be recognized as follows:</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="505" style='width:378.4pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="82" valign="bottom" style='width:61.6pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Year ending 6/30/15</p> </td> <td width="82" valign="bottom" style='width:61.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$909</p> </td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Year ending 6/30/16</p> </td> <td width="82" valign="bottom" style='width:61.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>267</p> </td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Year ending 6/30/17</p> </td> <td width="82" valign="bottom" style='width:61.6pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>31</p> </td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'></td> <td width="82" valign="bottom" style='width:61.6pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,207</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>As of 6/30/14, the unrecognized compensation expense related to stock option awards is expected to be recognized as expense over a weighted-average period of 1.1 years.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing price of the common stock on 6/30/14 of $1.04 and the exercise price of each in-the-money option) that would have been received by the option holders had all option holders exercised their options on 6/30/14.  Total intrinsic value of stock options exercised under the stock option plans for the years ended 6/30/14 and 6/30/13 was $233,000 and $1,557,000, respectively.  The total fair value of stock options that vested during the years ended 6/30/14 and 6/30/13 was $460,000 and $9,622,000, respectively.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:italic'>Stock Purchase Warrants and Stock Issuances</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>In April 2013, we issued 600,000 shares of common stock having a value of $660,000 and warrants to purchase an aggregate of 2,000,000 shares of our common stock to two advisors, in consideration of services rendered to us under two advisory and consulting services agreements. The issued shares were valued at the closing stock price of $1.10 per share at April 1, 2013.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, there were warrants outstanding to purchase 3,568,860, shares of our common stock at exercise prices ranging from $0.54 to $1.22 expiring at various dates between 6/26/15 and 4/1/21.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>We estimated the fair value of the warrants issued during fiscal 2014 and fiscal 2013 using the Black Scholes</font></b> <font style='font-weight:normal'>option pricing model with the following input assumptions:</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:0in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="566" style='width:5.9in;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="374" valign="bottom" style='width:3.9in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="374" valign="bottom" style='width:3.9in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dividend yield</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.0%</p> </td> </tr> <tr align="left"> <td width="374" valign="bottom" style='width:3.9in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted-average volatility</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>124.2%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>80.9%</p> </td> </tr> <tr align="left"> <td width="374" valign="bottom" style='width:3.9in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted-average risk-free interest rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>1.52%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.79%</p> </td> </tr> <tr align="left"> <td width="374" valign="bottom" style='width:3.9in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted-average life of warrants</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>4.7 years</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>4.8 years</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>We issued one warrant in fiscal 2014 and eight warrants in fiscal 2013. For the years ended 6/30/14 and 6/30/13, we recorded non-cash charges for warrants that vested of $1,058,000 and $696,000, respectively, in our consolidated statements of operations. </font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The following table presents the weighted average exercise price of warrants outstanding at 6/30/14:</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="518" style='width:388.4pt;margin-left:14.45pt;border-collapse:collapse'> <tr align="left"> <td width="199" valign="bottom" style='width:149.6pt;padding:.75pt .75pt 0in .75pt'></td> <td width="318" colspan="3" valign="bottom" style='width:238.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Warrants Outstanding and Exercisable</font></b></p> </td> </tr> <tr align="left"> <td width="199" valign="bottom" style='width:149.6pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Range of Exercise Prices</font></b></p> </td> <td width="89" valign="bottom" style='width:66.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Number of Shares</font></b></p> </td> <td width="110" valign="bottom" style='width:82.25pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="120" valign="bottom" style='width:89.75pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Intrinsic Value</font></b></p> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>per Share</font></b></p> </td> </tr> <tr align="left"> <td width="199" valign="bottom" style='width:149.6pt;padding:.75pt .75pt 0in .75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$0.54 - $0.54</p> </td> <td width="89" valign="bottom" style='width:66.8pt;border:none;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>200,000</p> </td> <td width="110" valign="bottom" style='width:82.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.54</p> </td> <td width="120" valign="bottom" style='width:89.75pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.50</p> </td> </tr> <tr align="left"> <td width="199" valign="bottom" style='width:149.6pt;padding:.75pt .75pt 0in .75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$0.79 - $1.00</p> </td> <td width="89" valign="bottom" style='width:66.8pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,125,000</p> </td> <td width="110" valign="bottom" style='width:82.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.81</p> </td> <td width="120" valign="bottom" style='width:89.75pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.23</p> </td> </tr> <tr align="left"> <td width="199" valign="bottom" style='width:149.6pt;padding:.75pt .75pt 0in .75pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$1.10 - $1.22</p> </td> <td width="89" valign="bottom" style='width:66.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,243,860</p> </td> <td width="110" valign="bottom" style='width:82.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.11</p> </td> <td width="120" valign="bottom" style='width:89.75pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.07)</p> </td> </tr> <tr align="left"> <td width="199" valign="bottom" style='width:149.6pt;padding:.75pt .75pt 0in .75pt'></td> <td width="89" valign="bottom" style='width:66.8pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,568,860</p> </td> <td width="110" valign="bottom" style='width:82.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.98</p> </td> <td width="120" valign="bottom" style='width:89.75pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.06</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>The following table presents the warrant activity for the years ended 6/30/14 and 6/30/13:</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="529" style='width:396.65pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'></td> <td width="154" colspan="2" valign="bottom" style='width:115.4pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year ended 6/30/14</font></b></p> </td> <td width="154" colspan="2" valign="bottom" style='width:115.4pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'></td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warrants outstanding as of July 1</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,780,352</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.99</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,555,352</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.59</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Issued</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,000</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.79</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,400,000</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.12</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Exercised</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(36,492)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.30</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(1,104,204)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.08</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Expired</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(200,000)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.20</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(1,070,796)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.92</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warrants outstanding as of June 30</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,568,860</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.93</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,780,352</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.99</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warrants exercisable as of June 30</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,093,859</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.96</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,958,688</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.88</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in;text-indent:-.1in'>Weighted-average fair value of warrants granted during the year</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;padding:.75pt .7pt 0in .7pt'></td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.66</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;padding:.75pt .7pt 0in .7pt'></td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.71</p> </td> </tr> </table> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal;font-style:italic'>Employee Stock Purchase Plan</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>In December 2006, we adopted the 2006 Employee Stock Purchase Plan. This plan provides a method whereby our employees have an opportunity to acquire an ownership interest in the company through the purchase of shares of our common stock through payroll deductions. After 12 months of employment, an employee is eligible to participate and can defer up to 10% of their wages into this plan, with a maximum of $25,000 in any calendar year. The purchase price of the common stock is calculated at the lower of 85% of the closing price of the stock on the first day of the plan period or the last day of the plan period. The plan periods are January 1 to June 30 and July 1 to December 31. Fractional shares are not issued. Participants may withdraw at any time by giving written notice to us and will be credited the amounts of deferrals in their account. The maximum number of shares eligible to be issued under the 2006 Plan is 500,000. As of 6/30/14 and 6/30/13, a total of 380,543 shares are available for issuance under the 2006 Plan.</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>We issued no shares of common stock during the years ended 6/30/14 and 6/30/13, under the employee stock purchase plan. </font></b></p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:.25in;text-indent:-.25in'><b>15. </b>Benefit Plans and Employment Agreements of Executive Officers</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We have a defined contribution plan, the Implant Sciences Corporation 401(k) Profit Sharing Plan, established under Section 401(k) of the Internal Revenue Code. All full-time employees who are 21 years of age are eligible to participate on the beginning of the first month after 30 days of employment. The company’s contributions are discretionary. We made no matching contributions during either fiscal 2014 or 2013.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In February 2009, we entered into a new three-year employment agreement with Mr. Glenn D. Bolduc our President and Chief Executive Officer, pursuant to which Mr. Bolduc initially received a base salary of $275,000 per year, commencing on 1/1/09.  After the third year, the agreement will automatically renew for additional one-year periods. The agreement also provided for Mr. Bolduc to be eligible to receive incentive compensation in an amount of up to 50% of his base salary, upon the achievement of certain performance milestones established by the Board of Directors and a car allowance.  Incentive compensation, if any, for subsequent fiscal years was based on performance milestones to be established by mutual agreement between us and Mr. Bolduc. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>On 6/25/13, we amended and restated the employment agreement with Mr. Bolduc. The new agreement will remain in effect through 6/30/16, after which, the agreement will automatically renew for additional one-year periods unless notice of non-renewal is given by either party. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The agreement establishes Mr. Bolduc’s base salary at the rate of $400,000 per year, which amount is equal to Mr. Bolduc’s annualized base salary immediately prior to the agreement. Mr. Bolduc’s base salary is subject to annual review, and any increases will be made in the discretion of the Board of Directors upon the recommendation of the Compensation Committee. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The new agreement also provides that Mr. Bolduc is eligible to receive cash bonuses of up to 50% of his annualized base salary for the fiscal year ended 6/30/14 and for subsequent fiscal years. The amount of the bonus payable with respect to any fiscal year, if any, will be determined by the Board, in its sole discretion, provided that no bonus will be payable unless we achieve certain revenue and adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets established by the Board for the respective fiscal year .  We did not achieve these targets and no bonus was payable to Mr. Bolduc for the fiscal year ended 6/30/14. In August 2013, however, the Board agreed to pay Mr. Bolduc a bonus of $50,000 with respect to the fiscal year ended 6/30/13 if the company receives certain governmental approvals for its QS-B220 desktop explosives and narcotics detector by 12/31/13 and enters into a procurement contract with a specific agency of the United States government on or before February 1, 2014 (the “Bonus Milestones”). We did not achieve these milestones and no bonus was payable to Mr. Bolduc for the fiscal year ended 6/30/13. During the year ended 6/30/13, Mr. Bolduc was paid bonuses of $136,250 and $162,500, representing bonuses earned in our fiscal years ended 6/30/09 and 6/30/12, respectively.</p> <p style='margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>Mr. Bolduc received no additional long-term and/or equity incentive compensation in connection with the agreement. He will be eligible to receive such additional compensation as the Board may, in its sole discretion, award from time to time. In addition, Mr. Bolduc may participate in our employee fringe benefit programs or programs readily available to employees of comparable status and position.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>We may terminate the agreement at any time without cause, on 30 days’ prior written notice. The agreement provides, however, for the payment of 18 months’ salary and a pro rata portion of any bonus compensation earned during the year of termination, as well as the continuation of certain benefits for 12 months, as separation payments in the event that Mr. Bolduc’s employment is terminated by us without “cause” or Mr. Bolduc resigns for “good reason” (as those terms are defined in the agreement). The agreement also provides that, if Mr. Bolduc resigns for “good reason,” all stock options and shares of restricted stock then held by Mr. Bolduc will become fully vested and exercisable as of the date of such resignation.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In the event that, within 12 months after a “change of control” (as that term is defined in the Company’s Change of Control Plan, as adopted by the Board on 9/7/12), Mr. Bolduc’s employment is terminated without cause, or Mr. Bolduc resigns for good reason, the agreement provides (i) for the payment of 36 months’ salary and a pro rata portion of any bonus compensation earned during the year of termination, and (ii) that all stock options and shares of restricted stock then held by Mr. Bolduc will become fully vested and exercisable as of the date of such termination or resignation. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;line-height:200%;text-autospace:none;text-align:justify;text-indent:.25in;line-height:normal'>We will not be required to continue to pay any amounts to Mr. Bolduc or to continue to provide certain benefits following termination of the agreement unless Mr. Bolduc executes a general release in favor of us substantially in the form annexed to the agreement and the period during which Mr. Bolduc may revoke the release has expired without any such revocation.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;line-height:200%;text-autospace:none;text-align:justify;text-indent:.25in;line-height:normal'>The Agreement includes certain restrictions against competition and solicitation of our employees and customers for a period of one year after Mr. Bolduc’s resignation or termination.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In March 2012, we entered into a three-year employment agreement with Dr. William J. McGann, our Chief Operating Officer, pursuant to which Dr. McGann receives a base salary of $250,000 per year, commencing on 4/2/12. After the third year, the agreement will automatically continue unless notice of termination is given by either party.  We may terminate the agreement at any time without cause, on 30 days’ written notice.  The agreement, however, provides for payment of twelve months’ salary and a pro rata portion of any bonus compensation earned during the year of termination, as well as the continuation of certain benefits, as separation payments in the event that Dr. McGann employment is terminated by us without “cause” or Dr. McGann resigns for “good reason” (as those terms are defined in the agreement).  Dr. McCann’s base salary is subject to annual review, and any increases will be made in the discretion of the Board of Directors upon the recommendation of the Compensation Committee.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The agreement provides for Dr. McGann to be eligible to receive incentive compensation in an amount of up to $137,500 for the fiscal year ended 6/30/14 upon the achievement of certain performance milestones to be established by the Board of Directors.  We did not achieve these milestones and no bonus was payable to Dr. McGann for the fiscal year ended 6/30/14. In August 2013, however, the Board agreed to pay Dr. McGann a bonus of $41,250 with respect to the fiscal year ended 6/30/13 if the company achieves the Bonus Milestones described above. We did not achieve these milestones and no bonus was payable to Dr. McGann for the fiscal year ended 6/30/13. Incentive compensation, if any, for subsequent fiscal years will be based on performance milestones to be established by mutual agreement between the Company and Dr. McGann within 60 days after commencement of each such fiscal year.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The agreement also provides that within 30 days after the completion of an equity financing, the gross proceeds of which to the Company are not less than $15,000,000, the Company will grant Dr. McGann an incentive stock option to purchase that number of shares of common stock of the Company which, together with all other option and equity awards previously issued by the Company, will equal approximately 1% of the Company’s fully diluted equity.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In May, 2012, we entered into a three-year employment agreement with Dr. Darryl Jones, our Vice President of Sales and Marketing, pursuant to which Dr. Jones will receive a base annual salary of $235,000 per year, commencing on 5/7/12.  After the third year, the agreement will automatically continue unless notice of termination is given by either party.   We may terminate the agreement at any time without cause, on 30 days’ written notice.  The agreement, however, provides for payment of twelve months’ salary and a pro rata portion of any bonus compensation earned during the year of termination, as well as the continuation of certain benefits, as separation payments in the event that Dr. Jones employment is terminated by us without “cause” or Dr. Jones resigns for “good reason” (as those terms are defined in the agreement).  Dr. Jones’s base salary is subject to annual review, and any increases will be made in the discretion of the Board of Directors upon the recommendation of the Compensation Committee.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The agreement provides for Dr. Jones to be eligible to receive incentive compensation in an amount of up to $122,500 for the fiscal year ended 6/30/14 upon the achievement of certain performance milestones to be established by the Board of Directors. We did not achieve these milestones and no bonus was payable to Dr. Jones for the fiscal year ended 6/30/14.  In August 2013, however, the Board agreed to pay Dr. Jones a bonus of $29,375 with respect to the fiscal year ended 6/30/13 if the company achieves the Bonus Milestones described above. We did not achieve these milestones and no bonus was payable to Dr. Jones for the fiscal year ended 6/30/13. Incentive compensation, if any, for subsequent fiscal years will be based on performance milestones to be established by mutual agreement between the Company and Dr. Jones within 60 days after commencement of each such fiscal year.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>The agreement also provides that within 30 days after the completion of an equity financing, the gross proceeds of which to the Company are not less than $15,000,000, the Company will grant Dr. Jones an incentive stock option to purchase that number of shares of common stock of the Company which, together with all other option and equity awards previously issued by the Company, will equal approximately 1% of the Company’s fully diluted equity.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-left:.25in;text-align:justify;text-indent:-.25in'><b><font style='font-weight:bold'>16. </font></b><b><font style='font-weight:bold'>Legal Proceedings</font></b></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In January 2011, Fulong Integrated Technique, Ltd. filed a complaint against us in the Middlesex Superior Court of the Commonwealth of Massachusetts, alleging non-payment of amounts owed for services provided to us in connection with the sale of handheld explosives detection equipment to a customer in China in the first quarter of fiscal 2009. Fulong sought general monetary damages, other statutory damages, attorneys’ fees and costs. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>In March 2013, we entered into a settlement agreement with Fulong, which provided for the payment of $200,000 and the transfer of ownership of five QS-H150 detectors to Fulong.  We recognized a non-cash benefit of $295,000 in general and administrative expenses in the year ended 6/30/13 as a result of the settlement.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We are not currently a party to any legal proceedings, other than routine litigation incidental to our business that which we believe will not have a material effect on our business, assets or results of operations.  From time to time, we are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities.  Each of these matters may be subject to various uncertainties.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-left:.25in;text-align:justify;text-indent:-.25in'><b><font style='font-weight:bold'>17. </font></b><b><font style='font-weight:bold'>Subsequent Events</font></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.25in;margin-bottom:.0001pt;text-indent:-.25in;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>On 7/1/14, we remitted $858,333 in payment of interest accrued under our senior secured promissory note with BAM funding for which was obtained under our credit facility with DMRJ.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:.25in'>On 7/2/14, our Board of Directors adopted the Company’s 2014 Stock Option Plan, reserving 15,000,000 shares of the our common stock for issuance thereunder and approved stock option awards to non-employee directors, executive management and employees that aggregated to 4,210,000 shares. </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The following grants of options to our named executives and directors were approved by our Board of Directors:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="361" style='width:270.95pt;margin-left:46.5pt;border-collapse:collapse'> <tr align="left"> <td valign="top" style='border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Named Executives and Directors</font></b></p> </td> <td width="129" valign="top" style='width:96.8pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares Granted</font></b></p> </td> </tr> <tr align="left"> <td valign="top" style='border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Glenn D. Bolduc</p> </td> <td width="129" valign="top" style='width:96.8pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dr. William J. McGann</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Roger P. Deschenes</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dr. Darryl K. Jones</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Michael C. Turmelle</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Howard Safir</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Robert P. Liscouski</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>John J. Hassett</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>100,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>John A. Keating</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000</p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Todd A. Silvestri</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt'>Brenda L. Baron</p> </td> <td width="129" valign="top" style='width:96.8pt;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>300,000 </p> </td> </tr> <tr align="left"> <td valign="top" style='padding:0in 5.4pt 0in 5.4pt'></td> <td width="129" valign="top" style='width:96.8pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:double windowtext 1.5pt;border-right:none;padding:0in 5.4pt 0in 5.4pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,100,000 </p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:.25in'> </p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:.25in'>Each of these options has an exercise price of $1.10 per share. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'>On 9/2/14, DMRJ converted $212,000 of the accrued interest owed by us under a promissory note into 2,650,000 shares of our common stock, at an adjusted conversion price of $0.08 per share. The issuance of these securities to DMRJ is exempt from registration under the Securities Act of 1933, as amended, pursuant to an exemption provided by Section 3(a)(9) and/or Section 4(2) of the Securities Act.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:.25in'>We have evaluated subsequent events after the balance sheet date through the date these financial statements were issued, for appropriate accounting and disclosure and concluded that there were no other subsequent events requiring adjustment or disclosure in these financial statements.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.25in;margin-bottom:.0001pt;text-indent:-.25in;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Principles of Consolidation</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.25in;margin-bottom:.0001pt;text-indent:-.25in;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The accompanying consolidated financial statements include our operations in Massachusetts, California and Shanghai, China, and those of our wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal'>Accounting Principles</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin:0in;margin-bottom:.0001pt;text-indent:0in'><b><i><font style='font-weight:normal;font-style:normal'>The consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).</font></i></b></p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:30.0pt;text-indent:-10.0pt;font-weight:bold;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><b><i><font style='font-weight:normal'>Use of Accounting Estimates</font></i></b></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Some of the more significant estimates include allowance for doubtful accounts, allowance for sales returns, inventory valuation, warranty reserves, accounting for derivatives, and impairment of intangibles and long-lived assets.  Management's estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends and management's assessments of the probable future outcome of these matters.  Consequently, actual results could differ from such estimates.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:12.0pt;margin-left:0in;text-indent:.25in'><i><font style='font-style:italic'>Foreign Currency Translation</font></i></p> <p style='margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>The assets and liabilities of our Shanghai representative office are translated into U.S. dollars at current exchange rates as of the balance sheet date, expenses are translated at average monthly exchange rates. Net unrealized translation gains or losses associated with the Shanghai office are recorded directly to other comprehensive income. Realized gains and losses from foreign currency transactions were not material for any of the periods presented. We have short-term inter-company receivables from our Shanghai office which are adjusted each period for changes in foreign currency exchange rates with a corresponding entry recorded as a component of the consolidated statement of operations.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Retroactive Adjustment</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:6.0pt;text-align:justify;text-indent:.25in'>In January 2013, we filed Articles of Amendment to our Restated Articles of Organization with the Commonwealth of Massachusetts to effect an increase in the total number of shares of common stock we are authorized to issue to 200,000,000 shares and to reduce the par value of our common stock from $0.10 per share to $0.001 per share.  All share information has been retroactively adjusted to reflect the change in the par value of our common stock.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><i>Cash and Cash Equivalents</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We consider any securities with original maturities of 90 days or less at the time of investment to be cash equivalents.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Fair Value Measurements</font></i></p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Accounting Standards Codification (“ASC”) ASC 820, “Fair Value Measurements and Disclosures,” establishes a three level fair value hierarchy to classify the inputs used in measuring fair value, which are as follows:</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Level 1 inputs to the valuation methodology are based on quoted prices (unadjusted) in active markets for identical assets or liabilities; </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Level 2 inputs to the valuation methodology are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;text-autospace:none'>Level 3 inputs to the valuation methodology are based on unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-indent:.25in;background:white'>Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Inventories</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Inventories consist of raw materials, work-in-process and finished goods. Work-in-process and finished goods includes labor and overhead, and are stated at the lower of cost (first in, first out) or market.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Property and Equipment</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Property and equipment are stated at cost, less accumulated depreciation and amortization, are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years.  Equipment purchased under capital leases and leasehold improvements are amortized based upon the lesser of the term of the lease or the useful life of the asset and such expense is included in depreciation expense.  Expenditures for repairs and maintenance are charged to expense as incurred.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Warranty Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We accrue warranty costs in the period the related revenue is recognized and adjust the reserve balance as needed to address potential future liabilities.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Income Taxes</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>The liability method is used to account for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities as well as net operating loss and tax credit carry forwards and are measured using the enacted tax rates and laws that will be in effect when the differences reverse. Deferred tax assets may be reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Patent Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>As of 6/30/14, there were fifteen active patents issued.  We expense legal costs and fees associated with patent applications and patent maintenance as incurred.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:.25in;text-align:justify;text-indent:0in'><i>Intangible Assets and Impairment of Long-Lived Assets</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We evaluate finite-lived intangible assets for impairment as events and circumstances indicate that the carrying amount may not be recoverable and at a minimum at each balance sheet date in accordance with Accounting Standards Codification (“ASC”) 350 “Intangibles – Goodwill and Other” (“ASC 350”).  Long-lived assets, which includes property and equipment are evaluated for impairment as events and circumstances indicated that the carrying amount may not be recoverable and at a minimum at each balance sheet date in accordance with ASC 360 “Property, Plant and Equipment.”  We evaluate the realizability of our long-lived assets based on profitability and undiscounted cash flow expectations for the related asset or subsidiary.  </p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in;background:white'>ASC 350 requires that intangible assets with indefinite lives be measured for impairment at least annually or whenever events indicate that there may be an impairment. We recognize an impairment of a long-lived asset if the carrying value of the long-lived asset is not recoverable from its estimated future cash flows. We measure an impairment loss as the difference between the carrying amount of the asset and its estimated fair value.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-indent:.25in'><i><font style='font-style:italic'>Concentration of Credit Risk and Major Customers</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Financial instruments that potentially subject us to concentration of credit risk consist of trade receivables.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>We grant credit to our customers, primarily large corporations, foreign governments and the U.S. government.  We perform periodic evaluations of customer’s payment history and generally do not require collateral.  Receivables are generally due within thirty days.  Credit losses have historically been minimal, which is consistent with our expectations.  Allowances are provided for estimated amounts of accounts receivable which may not be collected.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The valuation of employee stock options is an inherently subjective process, since market values are generally not available for long-term, non-transferable employee stock options.  Accordingly, an option pricing model is utilized to derive an estimated fair value.  The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.  In calculating the estimated fair value of our stock options we use the Black-Scholes pricing model, which requires the consideration of the following six variables for purposes of estimating fair value:</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the stock option exercise price;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the expected term of the option;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the grant price of the our common stock, which is issuable upon exercise of the option;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the expected volatility of our common stock;</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.75in;margin-bottom:.0001pt;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the expected dividends on our common stock; and</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-left:.75in;text-align:justify;text-indent:-.25in'><font style='font-family:Symbol'>· </font>the risk free interest rate for the expected option term.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Revenue Recognition</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We recognize revenue when there is persuasive evidence of an arrangement with the customer which states a fixed or determinable price and terms, delivery of the product has occurred or the service has been performed in accordance with the terms of the sale, and collectibility of the related receivable is reasonably assured. We provide for estimated returns at the time of shipment based on historical data. Shipping costs charged to the customer are included in revenues and are not significant. </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>We allocate consideration for each deliverable as a separate unit of accounting based on its relative selling price. We determine selling price using vendor specific objective evidence (“VSOE”), if it exists, and otherwise third party evidence (“TPE”).  If neither VSOE nor TPE of selling price exists for a unit of accounting, we use estimated selling price (“ESP”).  We generally expect that we will not be able to determine TPE due to the nature of the markets in which we compete, and, as such, we typically determine selling price using VSOE or if not available, ESP. VSOE is the price charged when the same or similar product or service is sold separately.  If a product or service is seldom sold separately, it is unlikely that we can determine VSOE for the product or service.  TPE is determined based on prices charged by competitors of us for a similar deliverable when sold separately.  Generally we are not able to use TPE, as we are usually not able to obtain sufficient information on competitor pricing to substantiate TPE.  The objective of ESP is to determine the price at which we would transact if the product or service were sold on a standalone basis. We determine ESP for product or services based on the specific facts and circumstances of the arrangement.  Maintenance or service revenues are recognized over the term of the contract.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>Contract revenue under fixed price and cost-plus agreements with the Department of Defense and the Department of Homeland Security are recognized as eligible research and development expenses are incurred. Our obligation with respect to these agreements is to perform the research on a best-efforts basis.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;margin-bottom:0in;margin-bottom:.0001pt;text-indent:0in'>Deferred revenues are recorded when we receive payments for product or services for which we have not yet completed our obligation to deliver product or have not completed services required by contractual agreements.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Accounts Receivable </font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Contract revenue under cost sharing research and development agreements is recognized as eligible expenses are incurred. Invoicing of research and development contracts occurs in accordance with the terms of the contract. Revenue recognized but unbilled is recorded as unbilled accounts receivable.  At 6/30/14 and 6/30/13, there were no unbilled accounts receivable. Generally, there are no prerequisites necessary to invoice.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Research and Development Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>All costs of research and development activities are expensed as incurred. We spent approximately $4,787,000 and $4,754,000 on internally funded research and development in the fiscal years ended 6/30/14 and 6/30/13, respectively.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Software Development Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>The development costs of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized.  We believe technological feasibility has been established at the time at which a working model of the software has been completed. Costs eligible for capitalization have been immaterial.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Advertising Costs</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Advertising costs are expensed when incurred and are included in selling, general and administrative expense.  Advertising costs were immaterial for the years ended 6/30/14 and 6/30/13.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Shipping and Handling</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We account for shipping and handling cost within our cost of revenues.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Basic and Diluted Earnings Per Share</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period plus additional weighted average common equivalent shares outstanding during the period.  Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method and assumed conversion of certain convertible promissory notes and convertible preferred stock.  In addition, the numerator is adjusted for any changes in income or loss that would result from the assumed conversion of potential shares. As of 6/30/14 and 6/30/13, potentially dilutive shares would have been excluded from the earnings per share calculation, because their effect would be antidilutive.  Shares deemed to be antidilutive include stock options, warrants, convertible debt and convertible preferred stock.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-style:italic;margin-left:0in;text-align:justify;text-indent:.25in'><i>Recent Accounting Pronouncements</i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In May 2014, the FASB issued Accounting Standards Update 2014-09, <i><font style='font-style:italic'>Revenue from Contracts with Customers </font></i>(“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, “<i><font style='font-style:italic'>Revenue Recognition”.</font></i> The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The core principle of this updated guidance <font style='background:white'>is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. </font>This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods therein, which is effective for our fiscal year beginning 7/1/17, the first day of our 2018 fiscal year<font style='background:white'>. We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.</font> </p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In June 2014, the FASB issued Accounting Standards Update 2014-12, <i><font style='font-style:italic'>Compensation-Stock Compensation </font></i>(“ASU 2014-12”). The FASB issued ASU 2014-12 to provide specific guidance on share-based payment awards that provide for achievement of a specific performance target that could be achieved after the requisite service period. ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it become probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This guidance is effective for annual periods and interim periods within those annual periods beginning after 12/15/15, which is effective for our fiscal year beginning 7/1/16, the first day of our 2017 fiscal year. Earlier adoption is permitted. ASU 2014-12 may be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this guidance should be recognized in the financial statements as an adjustment to the opening retained earnings balance at that date. <font style='background:white'>We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.</font></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>In August 2014, the FASB issued Accounting Standards Update 2014-15, <i><font style='font-style:italic'>Presentation of Financial Statements-Going Concern (Subtopic 205-40)</font></i> (“ASU 2014-15”). ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This new rule requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles currently in U.S. auditing standards. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plan, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance is effective for annual periods ending after December 15, 2016, which is effective for our fiscal year beginning July 1, 2016, the first day of our 2017 fiscal year. We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'>We account for uncertain income tax positions by accruing for the estimated additional amount of taxes for the uncertain tax positions when the uncertain tax position does not meet the more likely than not standard for sustaining the position. We review and update our accrual as more definitive information becomes available from taxing authorities, upon completion of tax audits, upon expiration of statutes of limitation, or upon occurrence of other events. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'><i><font style='font-style:italic'>Potential 382 Limitation</font></i></p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>Our net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service.  Our ability to utilize our net operating loss (“NOL”) and alternative minimum tax (“AMT”) and research and development credit (“R&D”) carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions.  These ownership changes may limit the amount of NOL, AMT and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.  In general, an ownership change, as defined in Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders or public groups.</p> <p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-indent:20.0pt;text-align:justify;text-indent:.25in'>We have not completed a study to assess whether one or more ownership changes have occurred since we became a loss corporation as defined in Section 382 of the Code, but we believe that it is likely that an ownership change has occurred.  If we have experienced an ownership change, utilization of the NOL, AMT and R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of our common stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required.  Any such limitation may result in the expiration of a portion of the NOL, AMT or R&D credit carryforwards before utilization.  Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under ASC 740.  Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding adjustment to the valuation allowance.  Due to the existence of the valuation allowance, it is not expected that any potential limitation will have a material impact on our operating results.</p> <p style='margin:0in;margin-bottom:.0001pt;margin-bottom:6.0pt;text-align:justify;text-indent:.25in'>From time to time we may be assessed interest or penalties by major tax jurisdictions, namely the states of Massachusetts and California.  We adopted the accounting standards related to accounting for uncertainty in income taxes recognized in an enterprise’s financial statements on April 1, 2007. At the adoption date and as of 6/30/14, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. No interest and penalties have been recognized by the Company to date.</p>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'><b><font style='font-weight:normal'>Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker or decision making group, in determining how to allocate resources and in accessing performance.  Our chief operating decision making group is composed of the chief executive officer and members of senior management.  Based on qualitative and quantitative criteria we have determined that we operate within one reportable segment, which is the Security Products Segment.</font></b></p>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="435" style='width:326.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Beginning balance</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$517</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$118 </p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warranty provision </p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>93 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>416 </p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warranty expenditures</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(63) </p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(17) </p> </td> </tr> <tr align="left"> <td width="211" valign="bottom" style='width:158.2pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Ending Balance, June 30</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$547</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$517</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="561" style='width:420.85pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Cost of revenues</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$131 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$795 </p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Research and development</p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>387 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,013 </p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Selling, general and administrative</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,131 </p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12,100 </p> </td> </tr> <tr align="left"> <td width="337" valign="bottom" style='width:252.55pt;padding:0in .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Total</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$2,649</p> </td> <td width="112" valign="bottom" style='width:84.15pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$13,908</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="557" style='width:5.8in;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Dividend yield</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.0%</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Expected volatility</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>73% - 123%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>127% - 145%</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Range of risk-free interest rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>1.11% - 1.84%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>0.34% - 0.93%</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Expected life (years)</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>5.6 years</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>5.8 years</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Forfeiture rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>6.6%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>6.3%</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="551" style='width:413.45pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands, except share and per share amounts)</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;border:none;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Basic loss per share:</font></b></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Numerator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Net loss</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(21,010)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 1.5pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(27,354)</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Denominator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted average shares</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>60,753,054 </p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>49,124,942 </p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Basic loss per share</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.35)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.56)</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt'> </p> <table border="0" cellspacing="0" cellpadding="0" width="551" style='width:413.45pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Diluted loss per share:</font></b></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Numerator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Net loss</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(21,010)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(27,354)</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>Denominator:</font></i></p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted average shares</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>60,753,054 </p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>49,124,942 </p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Effect of dilutive securities:</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Stock options</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Warrants</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible debt</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible preferred stock</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'></td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Weighted average shares and equivalents</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>60,753,054 </p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>49,124,942 </p> </td> </tr> <tr align="left"> <td width="306" valign="bottom" style='width:229.65pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Diluted loss per share</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.35)</p> </td> <td width="123" valign="bottom" style='width:91.9pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$(0.56)</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="557" style='width:5.8in;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Common stock equivalents excluded:</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Stock options</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,690,757</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,582,322 </p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Warrants</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>293,213</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>742,248 </p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible debt</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>39,800,000</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>52,981,368 </p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Convertible preferred stock</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>407,500</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>9,140,500</p> </td> </tr> <tr align="left"> <td width="365" valign="bottom" style='width:3.8in;padding:.85pt .85pt 0in .85pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>42,191,470</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>65,446,438 </p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Current assets</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Certificates of deposit</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Blocked account deposit</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>- </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>121 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$433 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><b><font style='font-weight:bold'>Long-term assets</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .7pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Certificates of deposit</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$312 </p> </td> </tr> </table>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Raw materials</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,897 </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,811 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Work in progress</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>616</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>279</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Finished goods</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>355 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>55 </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Total inventories</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$2,868 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$2,145 </p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:13.0pt;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Insurance</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$61</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$83</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Other prepaid expenses</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>254</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>312</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$315 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>395 </p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'> (In thousands)</font></i></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued interest</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$9,149</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$5,103</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued compensation and benefits</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>862</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>746</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued warranty costs</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>547</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>517</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued legal and accounting</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>187</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>163</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Accrued taxes</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>106</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>9</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Other accrued liabilities</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>243</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>216</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$11,094 </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$6,754 </p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.5pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'></td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/14</font></b></p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year Ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Expected federal tax rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-34.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-34.0%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>State income taxes, net of federal tax benefit</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-2.8%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-3.7%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Non-deductible expenses</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3.0%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2.5%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Credits and other, net</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-0.9%</p> </td> <td width="96" valign="bottom" style='width:1.0in;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-0.6%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Changes in valuation allowance</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34.7%</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>35.8%</p> </td> </tr> <tr align="left"> <td width="345" valign="bottom" style='width:258.5pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Effective tax rate</p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.0% </p> </td> <td width="96" valign="bottom" style='width:1.0in;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.0% </p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="537" style='width:402.6pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/14</font></b></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Deferred tax assets:</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Net operating loss and tax credit carryforwards</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$35,966</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$29,463</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Accrued expenses deductible when paid</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>705</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>523</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Stock-based compensation</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>5,472</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>4,864</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Financial statement over tax amortization</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Financial statement over tax depreciation</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>6</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>-</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.2in'>Deferred tax assets</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>42,149</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34,862</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.2in'> </p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Deferred tax liabilities</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'> </p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Tax over financial statement depreciation</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>33</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>28</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Deferred tax liabilities</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>33</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>28</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Net deferred tax assets</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>42,116</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>34,834</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.2in'>Valuation allowance</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(42,116)</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(34,834)</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.3in'>Net deferred tax assets</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$-</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="576" style='width:6.0in;margin-left:13.65pt;border-collapse:collapse'> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'></td> <td width="110" valign="bottom" style='width:82.5pt;padding:.75pt .7pt 0in .7pt'></td> <td width="114" valign="bottom" style='width:85.35pt;padding:.75pt .7pt 0in .7pt'></td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'> (In thousands)</font></i></p> </td> <td width="110" valign="bottom" style='width:82.5pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Net Operating Losses</font></b></p> </td> <td width="114" valign="bottom" style='width:85.35pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Investment AMT & Research Credits</font></b></p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Expiration Dates</font></b></p> </td> </tr> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Federal</p> </td> <td width="110" valign="bottom" style='width:82.5pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$90,501</p> </td> <td width="114" valign="bottom" style='width:85.35pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,275</p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>2022 to 2034</p> </td> </tr> <tr align="left"> <td width="240" valign="bottom" style='width:2.5in;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>State</p> </td> <td width="110" valign="bottom" style='width:82.5pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$61,378</p> </td> <td width="114" valign="bottom" style='width:85.35pt;border:none;border-bottom:double windowtext 1.5pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$877</p> </td> <td width="112" valign="bottom" style='width:84.15pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>2015 to 2029</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="439" style='width:329.4pt;margin-left:13.0pt;border-collapse:collapse'> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Capital Lease Payments</font></b></p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Years ending:</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/15</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$58</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/16</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>51</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/17</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>16</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/18</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/19 and thereafter</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'></td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>133</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Less: Amounts representing interest</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(22)</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Present value of future minimum lease payments</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>111</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Less: Current portion</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(45)</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Long-term obligation under capital leases</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$66</p> </td> </tr> </table>
<!--egx--><table border="0" cellspacing="0" cellpadding="0" width="439" style='width:329.4pt;margin-left:11.6pt;border-collapse:collapse'> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Operating Lease Payments</font></b></p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt'>Years ending:</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:.85pt .7pt 0in .7pt'></td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/15</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$593</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/16</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>593</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/17</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>583</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/18</p> </td> <td width="98" valign="bottom" style='width:73.2pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>613</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>6/30/19 and thereafter</p> </td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,298</p> </td> </tr> <tr align="left"> <td width="342" valign="bottom" style='width:256.2pt;padding:0in .85pt 0in .7pt'></td> <td width="98" valign="bottom" style='width:73.2pt;border:none;border-bottom:double windowtext 2.25pt;padding:0in .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$3,680</p> </td> </tr> </table>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt'> </p> <table border="0" cellspacing="0" cellpadding="0" width="588" style='width:441.05pt;border-collapse:collapse'> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'></td> <td width="272" colspan="3" valign="bottom" style='width:204.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Outstanding Options</font></b></p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:0in .85pt 0in .85pt'></td> <td width="176" colspan="2" valign="bottom" style='width:132.25pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Options Exercisable</font></b></p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Range of Exercise Prices</font></b></p> </td> <td width="76" valign="bottom" style='width:57.1pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="109" valign="bottom" style='width:81.6pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Remaining Contractual Life in Years</font></b></p> </td> <td width="87" valign="bottom" style='width:65.3pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:0in .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="109" valign="bottom" style='width:81.6pt;border-top:solid windowtext 1.0pt;border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$0.08 - $0.49</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,701,150</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3.2</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.27</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,513,267</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.25</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$0.52 - $1.00</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,450,833</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>5.1</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.80</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,098,001</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.74</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$1.15 - $2.30</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>14,208,333</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.9</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.39</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'> </p> </td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>12,714,177</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.40</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$3.07 - $3.89</p> </td> <td width="76" valign="bottom" style='width:57.1pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>45,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.0</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$3.71</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>45,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$3.71</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'>$9.92 - $10.00</p> </td> <td width="76" valign="bottom" style='width:57.1pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.4</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$9.97</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,000</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$9.97</p> </td> </tr> <tr align="left"> <td width="129" valign="bottom" style='width:96.65pt;padding:0in .85pt 0in .85pt'></td> <td width="76" valign="bottom" style='width:57.1pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>18,420,316</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>7.1</p> </td> <td width="87" valign="bottom" style='width:65.3pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.22</p> </td> <td width="11" valign="bottom" style='width:8.15pt;padding:.85pt .85pt 0in .85pt'></td> <td width="68" valign="bottom" style='width:50.65pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>15,385,445</p> </td> <td width="109" valign="bottom" style='width:81.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1.25</p> </td> </tr> </table>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="505" style='width:378.4pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'><i><font style='font-style:italic'>(In thousands)</font></i></p> </td> <td width="82" valign="bottom" style='width:61.6pt;padding:.85pt .85pt 0in .85pt'></td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Year ending 6/30/15</p> </td> <td width="82" valign="bottom" style='width:61.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$909</p> </td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Year ending 6/30/16</p> </td> <td width="82" valign="bottom" style='width:61.6pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>267</p> </td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'> <p style='margin:0in;margin-bottom:.0001pt'>Year ending 6/30/17</p> </td> <td width="82" valign="bottom" style='width:61.6pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>31</p> </td> </tr> <tr align="left"> <td width="422" valign="bottom" style='width:4.4in;padding:.85pt .85pt 0in .85pt'></td> <td width="82" valign="bottom" style='width:61.6pt;border:none;border-bottom:double windowtext 2.25pt;padding:.85pt .85pt 0in .85pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$1,207</p> </td> </tr> </table>
<!--egx--><p style='margin-top:0in;margin-right:0in;margin-bottom:6.0pt;margin-left:10.0pt;text-indent:-10.0pt;font-weight:bold;margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left:0in;text-align:justify;text-indent:.25in'> </p> <table border="0" cellspacing="0" cellpadding="0" width="529" style='width:396.65pt;margin-left:.2in;border-collapse:collapse'> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'></td> <td width="154" colspan="2" valign="bottom" style='width:115.4pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year ended 6/30/14</font></b></p> </td> <td width="154" colspan="2" valign="bottom" style='width:115.4pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Year ended 6/30/13</font></b></p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'></td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Shares</font></b></p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font style='font-weight:bold'>Weighted-Average Exercise Price</font></b></p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warrants outstanding as of July 1</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,780,352</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.99</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,555,352</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.59</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Issued</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>25,000</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.79</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>2,400,000</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.12</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Exercised</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(36,492)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.30</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(1,104,204)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.08</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in'>Expired</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(200,000)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1.20</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:solid windowtext 1.0pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>(1,070,796)</p> </td> <td width="77" valign="bottom" style='width:57.7pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>0.92</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warrants outstanding as of June 30</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,568,860</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.93</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,780,352</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.99</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt'>Warrants exercisable as of June 30</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>3,093,859</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.96</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>1,958,688</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.88</p> </td> </tr> <tr align="left"> <td width="221" valign="bottom" style='width:165.85pt;padding:.75pt .75pt 0in .75pt'> <p style='margin:0in;margin-bottom:.0001pt;margin-left:.1in;text-indent:-.1in'>Weighted-average fair value of warrants granted during the year</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;padding:.75pt .7pt 0in .7pt'></td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.66</p> </td> <td width="77" valign="bottom" style='width:57.7pt;border:none;padding:.75pt .7pt 0in .7pt'></td> <td width="77" valign="bottom" style='width:57.7pt;border:none;border-bottom:double windowtext 2.25pt;padding:.75pt .7pt 0in .7pt'> <p align="right" style='margin:0in;margin-bottom:.0001pt;text-align:right'>$0.71</p> </td> </tr> </table>
624000
624000
21000000
21000000
27184000
27184000
2995000
2995000
624000
624000
27184000
27184000
1000000
1000000
12403000
12403000
The fair value of each option granted during fiscal years 2014 and 2013 is estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions:
0.0000
0.0000
0.7300
1.2700
0.0111
0.0034
P5Y7M6D
P5Y9M18D
121000
312000
312000
1897000
1811000
616000
279000
355000
55000
61000
83000
254000
312000
897000
734000
69000
28000
151000
30000
157000
182000
655000
579000
9149000
5103000
862000
746000
547000
517000
187000
163000
106000
9000
243000
216000
-0.3400
-0.3400
-0.0280
-0.0370
0.0300
0.0250
-0.0090
-0.0060
0.3470
0.3580
0.0000
0.0000
150000000
125000000
10-K
2014-06-30
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No
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Allowance for doubtful accounts of $1 at June 30, 2014.
Allowance for doubtful accounts of $0 at June 30, 2013.
Senior secured convertible promissory notes (the "Note") as of June 30, 2014 composed of i) first Note of $3,184; ii) second Note of $12,000;and, iii) third Note of $12,000.
Senior secured convertible promissory notes (the "Note") as of June 30, 2013 composed of i) first Note of $3,184; ii) second Note of $12,000; and iii) third Note of $12,000.
$0.001 par value; 200,000,000 shares authorized; 63,634,171 issued and 63,623,626 outstanding at June 30, 2014.
$0.001 par value; 200,000,000 shares authorized; 57,655,594 issued and 57,645,049 outstanding at June 30, 2013.
no stated value; 5,000,000 shares authorized at June 30, 2014.
no stated value; 5,000,000 shares authorized at June 30, 2013.
no par value; 650,000 shares authorized, 0 shares issued and outstanding at June 30, 2014 (liquidation value $0)
no par value; 650,000 shares authorized, 16,167 shares issued and outstanding at June 30, 2013 (liquidation value $129,000)
no par value; Series H and I - 15,000 and 15,000 shares authorized, respectively; Series J - 6,000 shares authorized; Series H, I and J - 0 shares issued and outstanding at June 30, 2014.
no par value; Series H and I - 15,000 and 15,000 shares authorized, respectively; Series J - 6,000 shares authorized; Series H, I and J - no shares issued and outstanding at June 30, 2013.
10,545 common shares, at cost, at June 30, 2014.
10,545 common shares, at cost, at June 30, 2013.