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Compensatory Equity Incentive Plan and Other Equity Incentives

9 Months Ended

Mar. 31, 2013

Compensatory Equity Incentive Plan And Other Equity Incentives

Compensatory Equity Incentive Plan and Other Equity Incentives

7. Compensatory Equity Incentive Plan and Other Equity Incentives

Share-Based Compensation Arrangements—The Company’s Amended and Restated Omnibus Incentive Plan (the “Plan”) included several available forms of stock compensation of which incentive stock options and restricted stock awards have been granted to date.

The 2004 Employee Stock Purchase Plan (“ESPP”) permits employees to purchase shares of Class A 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 of Class A common stock in any calendar year and an employee may purchase no more than 4,000 shares on any purchase date within an offering period of 12 months and 2,000 shares on any purchase date within an offering period of six months. The discount on market value is included in selling, general and administrative expense in the accompanying statements of operations and was $898 and $1,433 for the nine months ended March 31, 2013 and 2012, respectively.

These two plans are summarized below:

						Award Shares				Available for
		Award Shares				Outstanding				Issuance
		Authorized				at March 31,				at March 31,
Equity Compensation Arrangement						2013				2013
Amended and Restated Omnibus Incentive Plan			2,715,625				1,435,345				834,887
Employee Stock Purchase Plan			200,000				—				109,457

			2,915,625				1,435,345				944,344

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 using the Black-Scholes-Merton pricing model. The ESPP fair value is the amount of the discounted market value the employee obtains at the date of the purchase transaction.

For stock options granted in the nine month period ended March 31, 2013 and 2012, the Company estimated the fair value of each stock option as of the date of grant using the following assumptions:

		Nine months ended		Nine months ended
		March 31, 2013		March 31, 2012
Expected volatility		110% - 120%		121% - 122%
Weighted average expected volatility		110% - 120%		121% - 122%
Dividend yields		0%		0%
Risk-free interest rate		0.67% - 1.72%		1.59% - 2.01%
Expected term, in years		6.25		3 - 7

Most options granted under the Plan vest ratably over two to four years and are generally exercisable for ten years. The assumed forfeiture rates used in calculating the fair value of options and restricted stock unit grants with both performance and service conditions were 20% and 0%, respectively, for the nine months ended March 31, 2013 and 2012. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures. The interest rate used is the U.S. Treasury interest rate for constant maturities.

Information Regarding Current Share-Based Compensation Awards—A summary of the activity for share-based compensation awards in the nine months ended March 31, 2013 is presented below:

		Stock Options												Restricted 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, 2012			576,393			$	2.61				6.4				594,700				1.0

Granted			98,500				0.96				9.6				240,000				2.8
Exercised			—				—				—				—				—
Cancelled			(74,248	)			2.27				7.1				—				—

March 31, 2013			600,645			$	2.38				6.2				834,700				1.2

Awards exercisable/vested as of
March 31, 2013			417,395			$	2.76				5.1				463,030				—

Awards unexercisable/unvested as of
March 31, 2013			183,250			$	1.53				8.7				371,670				1.2
			600,645												834,700

The weighted average fair value of shares awarded for the nine months ended March 31, 2013 was:

		Stock
		Options				RSU				All Awards
Weighted average fair value of share awards granted for the nine months ended March 31, 2013		$	0.80			$	0.87			$	0.85

The total intrinsic value of options outstanding and exercisable at March 31, 2013 and 2012 was $0 and $19,103, respectively.

The total intrinsic value of RSUs exercised during the nine months ended March 31, 2013 and 2012 was $0 and $0, respectively.

The total intrinsic value of RSUs outstanding and exercisable at March 31, 2013 and 2012 was $307,275 and $608,580, respectively.

The total fair value of RSUs vested during the nine months ended March 31, 2013 and 2012 was $189,129 and $181,250, respectively.

The total fair value of option shares vested during the nine months ended March 31, 2013 and 2012 was $123,231 and $177,279, respectively.

As of March 31, 2013, there was $457,764 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 compensation cost is expected to be recognized as follows:

						Restricted
		Stock				Stock
		Options				Units				Total
Remainder of the year ended June 30, 2013		$	18,963			$	52,146			$	71,109
Year ended June 30, 2014			57,371				163,769				221,140
Year ended June 30, 2015			27,092				88,055				115,147
Year ended June 30, 2016			12,749				34,597				47,346
Year ended June 30, 2017			3,022				—				3,022
		$	119,197			$	338,567			$	457,764

The table above does not include shares under the Company’s ESPP, which has purchase settlement dates in the second and fourth fiscal quarters of each year and issuance dates in the first and third fiscal quarters of each year. 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.

Restricted stock unit awards vest immediately or from two to four years from the date of grant.

The Company issues new shares of Class A 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 the Company’s unexercisable/unvested awards as of March 31, 2013 and changes during the nine months then ended:

Unexercisable/unvested awards		Stock Options Shares				RSU Shares				Total Shares				Weighted-Average Grant Date Fair Values (per share)
June 30, 2012			198,125				235,000				433,125			$	2.42

Granted			98,500				240,000				338,500				0.85

Vested			(59,875	)			(103,330	)			(163,205	)			1.91
Cancelled/Forfeited			(53,500	)			—				(53,500	)			1.64
March 31, 2013			183,250				371,670				554,920			$	1.57

Financial Statement Effects and Presentation—The following table shows total stock-based compensation expense for the nine months ended March 31, 2013 and 2012 included in the consolidated statements of operations and comprehensive income:

		(unaudited)				(unaudited)
		Nine months ended				Nine months ended
		March 31,				March 31,
		2013				2012

Stock options			46,323				69,455
RSU			150,875				133,347
Total			197,198				202,802

The amounts above were included in:
General & administrative			194,741				188,221
Cost of sales			(4,349	)			6,661
New product development			6,806				7,920
			197,198				202,802