Share-based payment arrangements — The Company’s Amended and Restated Omnibus Incentive Plan (the “Plan”) included several available forms of stock compensation of which incentive stock options, non-qualified stock options and restricted stock units have been granted to date.

	Award Shares Authorized		Award Shares Outstanding at June 30, 2012		Available for Issuance at June 30, 2012
Equity Compensation Arrangement
Amended and Res tated Omnibus Incentive Plan		1,715,625		1,171,093		99,139
Employee Stock Purchas e Plan		200,000		-		120,024

		1,915,625		1,171,093		219,163

The 2004 Employee Stock Purchase Plan (“ESPP”) permits employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee’s compensation, at a price not less than 85% of the market value of the stock on specified dates (June 30 and December 31). In no event may any participant purchase more than $25,000 worth of shares in any calendar year and an employee may purchase no more than 4,000 shares on any purchase date. This discount of $1,433 and $1,224 for fiscal 2012 and 2011, respectively, is included in selling, general and administrative expense in the accompanying financial statements.

Grant Date Fair Values and Underlying Assumptions; Contractual Terms—The Company estimates the fair value of each stock option as of the date of grant. The Company uses the Black-Scholes pricing model. The ESPP fair value is the amount of the discount the employee obtains at the date of the purchase transaction.

For stock options and restricted stock units (“RSUs”) granted in the years ended June 30, 2012 and 2011, the Company estimated the fair value of each stock award as of the date of grant using the following assumptions:

	Year Ended		Year Ended
	June 30, 2012		June 30, 2011
Expected volatility		119% - 122%		117%
Weighted average expected volatility		119% - 122%		117%
Dividend yields		0%		0%
Risk-free interest rate		0.9% - 2.01%		1.18% - 1.47%
Expected term, in years		3 - 7		3 - 7

Most awards granted under the Company’s Plan vest ratably over two to four years and generally have three-year to ten-year contract lives. The initial assumed forfeiture rate used in calculating the fair value of option grants with both performance and service conditions was 20% for 2012 and 20% for 2011. The forfeiture rate for RSUs was 0% for both 2012 and 2011. The volatility rate is based on historical trends in common stock closing prices and the expected term was determined based primarily on historical experience of previously outstanding awards. The interest rate used is the treasury interest rate for constant maturities. The forfeiture rate for RSUs for directors is 0% because upon termination of service as a director, all outstanding RSUs immediately vest.

Information Regarding Current Share-based Payment Awards—A summary of the activity for share-based payment awards in the years ended June 30, 2012 and 2011 is presented below:

								Restricted
	Stock Options							Stock Units (RSUs)
				Weighted		Weighted				Weighted
				Average		Average				Average
				Exercise		Remaining				Remaining
				Price		Contract				Contract
	Shares			(per share)		Life (YRS)		Shares		Life (YRS)
June 30, 2010		437,641		$	6.33		7.3		359,700		0.7
		-

Granted		77,500			2.87		9.3		75,000		2.0
Exercised		(7,270	)		1.05		7.5		-		-
Cancelled		(7,638	)		192.20		-		-		-

June 30, 2011		500,233		$	3.01		6.9		434,700		0.9


Granted		90,000			1.39		9.3		160,000		1.0
Exercised		-			-		-		-		-
Cancelled		(13,840	)		9.14		3.0		-		-

June 30, 2012		576,393		$	2.61		6.4		594,700		1.0



Awards exercisable/
vested as of
June 30, 2012		378,268		$	2.85		5.3		359,700		-


Awards unexercisable/
unvested as of
June 30, 2012		198,125		$	2.15		6.4		235,000		1.0
		576,393							594,700

As of June 30, 2012 there was $452,669 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share options and restricted stock units) granted under the Plan. The cost expected to be recognized as follows:

			Restricted
	Stock		Stock
	Options		Units		Total
Year ended June 30, 2013	$	79,057	$	168,420	$	247,477
Year ended June 30, 2014		64,254		94,570		158,824
Year ended June 30, 2015		23,587		18,852		42,439
Year ended June 30, 2016		3,929		-		3,929
Year ended June 30, 2017		-		-		-
	$	170,827	$	281,842	$	452,669

The table above does not include shares under the Company’s ESPP, which has purchase settlement dates in the second and fourth fiscal quarters. The Company’s ESPP is not administered with a look back option provision and, as a result, there is not a population of outstanding option grants during the employee contribution period.

The Company issues new shares of common stock upon the exercise of stock options. The following table is a summary of the number and weighted average grant date fair values regarding our unexercisable/unvested awards as of June 30, 2012 and 2011 and changes during the two years then ended:

Unexercisable/unvested awards	Stock Options Shares			RSU Shares			Total Shares			Weighted-Average Grant Date Fair Values (per share)
June 30, 2010		180,000			175,000			355,000		$	2.24
Granted		77,500			75,000			152,500			2.58
Vested		(75,000	)		(50,000	)		(125,000	)		2.31
Cancelled/Issued/Forfeited		-			-			-			-
June 30, 2011		182,500			200,000			382,500		$	2.53
Granted		90,000			160,000			250,000			1.30
Vested		(74,375	)		(125,000	)		(192,659	)		2.27
Cancelled/Issued/Forfeited		-			-			-			-
June 30, 2012		198,125			235,000			433,125		$	2.42

Financial Statement Effects and Presentation—The following table shows total stock-based compensation expense for the years ended June 30, 2012 and 2011 included in the Consolidated Statement of Operations:


	Year Ended		Year Ended
	June 30,		June 30,
	2012		2011

Stock options	$	86,096	$	100,766

RSU		185,948		145,383

Total	$	272,044	$	246,149

The amounts above were included in:
General & administrative	$	254,337	$	226,215
Cost of sales		8,328		8,765
New product development		9,379		11,169
	$	272,044	$	246,149