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Compensatory Equity Incentive Plan and Other Equity Incentives
 6 Months Ended
Dec. 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 consolidated statements of operations and was $248 and $473 for the six months ended December 31, 2013 and 2012, respectively.

 

These two plans are summarized below:

 

       Award Shares   Available for 
   Award    Outstanding at    Issuance at  
   Shares Authorized   December 31, 2013   December 31, 2013 
          
Equity Compensation Arrangement            
Amended and Restated Omnibus Incentive Plan   2,715,625    1,507,458    569,103 
Employee Stock Purchase Plan   200,000    —    105,918 
                
    2,915,625    1,507,458    675,021 

 

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 six month periods ended December 31, 2013 and 2012, the Company estimated the fair value of each stock option as of the date of grant using the following assumptions:

 

   Six Months Ended   Six Months Ended 
   December 31, 2013   December 31, 2012 
Expected volatility   118%   110%
Weighted average expected volatility   118%   110%
Dividend yields   0%   0%
Risk-free interest rate   2.48%   0.67%
Expected term, in years   11.85    6.25 

 

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 six months ended December 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 six months ended December 31, 2013 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, 2013   585,009   $2.38    5.9    834,700    1.1 
                          
Granted   80,000    1.41    9.8    212,760    2.8 
Exercised   —    —    —    (191,160)   — 
Cancelled   (13,851)   2.40    —    —    — 
                          
December 31, 2013   651,158   $2.26    6.0    856,300    1.1 
                          
Awards exercisable/vested as of                         
December 31, 2013   433,408   $2.65    4.7    435,332    — 
                          
Awards unexercisable/unvested as of                         
December 31, 2013   217,750   $1.46    8.7    420,968    1.1 
    651,158              856,300      

 

The total intrinsic value of options outstanding and exercisable at December 31, 2013 and 2012 was $19,325 and $0, respectively.

 

The total intrinsic value of RSUs exercised during the six months ended December 31, 2013 and 2012 was $288,652 and $0, respectively.

 

The total intrinsic value of RSUs outstanding and exercisable at December31, 2013 and 2012 was $592,052 and $350,077, respectively.

 

The total fair value of RSUs vested during the six months ended December 31, 2013 and 2012 was $264,372 and $139,000, respectively.

 

The total fair value of option shares vested during the six months ended December 31, 2013 and 2012 was $62,986 and $68,000, respectively.

 

As of December 31, 2013, there was $507,212 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share options and restricted stock units) granted under the Plan. We expect to recognize the compensation cost as follows:

 

 

       Restricted     
   Stock   Stock     
   Options   Units   Total 
Six months ended June 30, 2014  $29,042   $99,913   $128,955 
Year ended June 30, 2015   41,127    156,625    197,752 
Year ended June 30, 2016   26,784    112,291    139,075 
Year ended June 30, 2017   17,057    20,865    37,922 
Year ended June 30, 2018   3,508    —    3,508 
   $117,518   $389,694   $507,212 

 

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 December 31, 2013 and changes during the six months then ended:

 

Unexercisable/unvested awards  Stock Options   RSU Shares   Total Shares   Weighted-Average Grant Date Fair Values 
June 30, 2013   183,250    371,670    554,920   $1.57 
Granted   80,000    212,760    292,760    1.41 
Vested   (45,500)   (163,462)   (208,962)   1.43 
Cancelled/Forfeited   —    —    —    — 
December 31, 2013   217,750    420,968    638,718   $1.19 

 

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

 

   (Unaudited)   (Unaudited) 
   Six Months Ended   Six Months Ended 
   December 31,   December 31, 
   2013   2012 
         
Stock options   38,857    33,692 
RSU   188,789    94,594 
Total   227,646    128,286 
           
The amounts above were included in:          
General & administrative   221,994    122,292 
Cost of sales   —    1,580 
New product development   5,651    4,414 
    227,645    128,286