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Compensatory Equity Incentive Plan and Other Equity Incentives

9 Months Ended

Mar. 31, 2014

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 Plan includes 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 $755 and $898 for the nine months ended March 31, 2014 and 2013, respectively.

These two plans are summarized below:

			Award Shares		Available for
			Outstanding		Issuance
	Award Shares		at March 31,		at March 31,
Equity Compensation Arrangement	Authorized		2014		2014
Amended and Restated Omnibus Incentive Plan		2,715,625		1,510,458		566,103
Employee Stock Purchase Plan		200,000		—		101,693

		2,915,625		1,510,458		667,796

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.

		Options				RSU’s				All Awards
Weighted average fair value of share awards granted in period			1.21				1.41				1.36

For stock options granted in the nine month periods ended March 31, 2014 and 2013, 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, 2014			March 31, 2013
Expected volatility		105	%		110	%
Weighted average expected volatility		105	%		110	%
Dividend yields		0	%		0	%
Risk-free interest rate		1.60	%		0.67	%
Expected term, in years		7.49			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 nine months ended March 31, 2014 and 2013. 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, 2014 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, 2013		585,009		$	2.38		5.9		834,700			1.1

Granted		83,000			1.41		9.6		212,760			2.6
Exercised		—			—		—		(191,160	)		—
Cancelled		(13,851	)		2.40		—		—			—

March 31, 2014		654,158		$	2.25		5.8		856,300			1.0

Awards exercisable/vested as of
March 31, 2014		461,158		$	2.63		4.5		534,663			—

Awards unexercisable/unvested as of
March 31, 2014		193,000		$	1.34		8.7		321,637			1.0
		654,158							856,300

The total intrinsic value of options outstanding and exercisable at March 31, 2014 and 2013 was $39,243 and $0, respectively.

The total intrinsic value of RSUs exercised during the nine months ended March 31, 2014 and 2013 was $288,652 and $0, respectively.

The total intrinsic value of RSUs outstanding and exercisable at March 31, 2014 and 2013 was $778,095 and $307,275, respectively.

The total fair value of RSUs vested during the nine months ended March 31, 2014 and 2013 was $333,571 and $189,129, respectively.

The total fair value of option shares vested during the nine months ended March 31, 2014 and 2013 was $121,884 and $123,231, respectively.

As of March 31, 2014, there was $443,377 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
Three months ended June 30, 2014	$	13,320	$	49,957	$	63,277
Year ended June 30, 2015		41,642		156,625		198,267
Year ended June 30, 2016		27,299		112,291		139,590
Year ended June 30, 2017		17,571		20,865		38,436
Year ended June 30, 2018		3,807		—		3,807
	$	103,639	$	339,738	$	443,377

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, 2014 and changes during the nine 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		83,000			212,760			295,760			1.36
Vested		(73,250	)		(262,793	)		(336,043	)		1.36
Cancelled/Forfeited		—			—			—			—
March 31, 2014		193,000			321,637			514,637		$	1.18

Financial Statement Effects and Presentation—The following table shows total stock-based compensation expense for the nine months ended March 31, 2014 and 2013 included in the consolidated statements of operations and comprehensive income:

	(Unaudited)		(Unaudited)
	Nine months ended		Nine months ended
	March 31,		March 31,
	2014		2013

Stock options		54,793		46,323
RSU		238,745		150,875
Total		293,538		197,198

The amounts above were included in:
General & administrative		285,237		194,741
Cost of sales		—		(4,349	)
New product development		8,301		6,806
		293,538		197,198

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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