NOTE 11 – EMPLOYEE AND DIRECTOR EQUITY INCENTIVE PLANS

The Company previously adopted the 2002 Stock Option Plan (“2002 Plan”) in which a stock option committee could grant up to 1,000,000 shares to key employees or non-employee members of the board of directors. The options vest in accordance with specific terms and conditions contained in an employment agreement. If vesting terms and conditions are not defined in an employment agreement, then the options vest as determined by the stock option committee. If the vesting period is not defined in an employment agreement or by the stock option committee, then the options immediately vest in full upon death, disability, or termination of employment. Vested options expire upon the earlier of either the five year anniversary of the vesting date or termination of employment. No shares are available to be issued under the 2002 Plan.

The Company also previously adopted the 2007 Equity Incentive Plan (“2007 Plan”) that authorized the board of directors or a committee to grant up to 300,000 shares to employees and directors of the Company. Unless defined in an employment agreement or otherwise determined, the options vest ratably over a three-year period. Options expire 10 years after the date of grant. No shares are available to be issued under the 2007 Plan.

In November 2010, the Company adopted the 2010 Omnibus Long-Term Incentive Plan (“Omnibus Plan”) which authorizes a committee of the board of directors to grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other stock-based awards, and cash awards. The Omnibus Plan authorized up to 800,000 shares plus shares of Common Stock underlying any outstanding stock option of other awards granted by any predecessor employee stock plan of the Company that is forfeited, terminated, or cancelled without issuance of shares, to employees, officers, non-employee members of the board of directors, consultants, and advisors. Unless otherwise determined, options vest ratably over a three-year period and expire 8 years after the date of grant.

At the annual meeting of shareholders held on November 7, 2012, the Company’s shareholders approved an amendment of the Omnibus Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 900,000 shares and the creation of the 2012 Non-Employee Director Equity Compensation Plan (“2012 Director Equity Plan”), under which the Company may issue up to 700,000 restricted stock unit awards and other equity awards to our non-employee directors pursuant to the Company’s director compensation policy.

At the annual meeting of shareholders held on November 18, 2014, the Company’s shareholders approved an amendment of the Omnibus Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 1,250,000. The shareholders also approved an amendment of the 2012 Director Equity Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the 2012 Director Equity Plan by 1,000,000.

At the annual meeting of shareholders held on November 17, 2015, the Company’s shareholders approved an amendment of the Omnibus Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 5,000,000. The shareholders also approved an amendment of the 2012 Director Equity Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the 2012 Director Equity Plan by 1,500,000.

At the annual meeting of shareholders held on November 14, 2016, the Company’s shareholders approved an amendment of the Omnibus Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the Omnibus Plan by 4,000,000. The shareholders also approved an amendment of the 2012 Director Equity Plan which increased the number of shares of the Company’s common stock available for issuance pursuant to awards under the 2012 Director Equity Plan by 1,200,000. As of December 31, 2016, there were a total of 2,767,294 shares available to be issued under the Omnibus Plan and 1,710,989 shares available to be issued under the 2012 Director Equity Plan.

In aggregate for all plans, at December 31, 2016, there were a total of 6,790,416 options and 5,592,697 RSUs outstanding.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical data to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the six months ended December 31, 2016 and December 31, 2015 using the Black-Scholes option-pricing model:

	Six months ended December 31,
	2016		2015
Expected life of option (years)		4		4
Risk-free interest rate		0.93 - 1.14%		1.14 - 1.38%
Assumed volatility		104.69 - 108.35%		100.77 - 101.70%
Expected dividend rate		0.00%		0.00%
Expected forfeiture rate		7.42 - 9.18%		6.23 - 7.97%

Time-vested and performance-based stock awards, including stock options and RSUs are accounted for at fair value at date of grant. Compensation expense is recognized over the requisite service and performance periods.

During the three and six months ended December 31, 2016 and December 31, 2015, the Company’s results of operations include compensation expense for stock options and RSUs granted under its various equity incentive plans. The amount recognized in the condensed consolidated financial statements related to stock-based compensation was $849,653 and $1,122,305 based on the amortized grant date fair value of options and RSUs during the three and six months ended December 31, 2016, respectively. The amount recognized in the condensed consolidated financial statements related to stock-based compensation was $306,747 and $463,539, based on the amortized grant date fair value of options and RSUs during the three and six months ended December 31, 2015, respectively.

Information with respect to stock option activity is as follows:

					Average
	Number		Weighted		Remaining
	of		Average		Contractual Life
	Options		Exercise Price		(in years)
Balance at June 30, 2015		1,577,778	$	2.60
Options granted		4,782,100		0.49
Options forfeited		(248,518)		4.16
Balance at June 30, 2016		6,111,360		0.88		5.18
Options granted		1,022,500		0.58
Options exercised		(120,000)		0.57
Options forfeited		(223,444)		1.18
Balance at December 31, 2016		6,790,416	$	0.83		6.59

The following table summarizes information relating to the stock options outstanding as of December 31, 2016:

	Outstanding						Exercisable
Range of Exercise Prices	Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number of Options		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.28 to $1.00		5,808,050		6.95	$	0.50		933,721		6.29	$	0.63
$1.01 to $2.50		684,316		5.69		1.50		364,231		5.11		1.67
$2.51 to $5.00		86,200		2.48		3.96		86,200		2.48		3.96
$5.01 to $6.95		211,850		1.33		6.48		211,850		1.33		6.48
Balance at December 31, 2016		6,790,416		6.59	$	0.83		1,596,002		5.16	$	1.82

During the six months ended December 31, 2016, options to purchase 1,022,500 shares were granted to employees exercisable at $0.35 to $1.02 per share based on various service-based and performance-based vesting terms from July 2016 through December 2019 and exercisable at various dates through December 2024. During the six months ended December 31, 2015, options to purchase 2,171,000 shares were granted to employees exercisable at $0.45 to $0.85 per share based on service based vesting terms from July 2015 through December 2018 and exercisable at various dates through December 2023.

The aggregate intrinsic value of outstanding options totaled $1,356,870 and was based on the Company’s adjusted closing stock price of $0.72 as of December 31, 2016.

A summary of the status of unvested employee stock options as of December 31, 2016, and June 30, 2016, and changes during the six months and years then ended is presented below:

			Weighted
			Average		Average
	Number		Grant Date		Remaining
	of		Fair Value		Contractual Life
	Options		Per Share		(in years)
Balance at June 30, 2015		776,525	$	1.19
Options granted		4,782,100		0.49
Options vested		(596,993)		0.89
Options forfeited		(109,265)		0.88
Balance at June 30, 2016		4,852,367		0.54		7.40
Options granted		1,022,500		0.58
Options vested		(510,169)		0.64
Options forfeited		(170,284)		0.85
Balance at December 31, 2016		5,194,414	$	0.53		7.04

Total fair value of options granted for the six months ended December 31, 2016 and December 31, 2015 was $420,680 and $962,089, respectively. At December 31, 2016, there was $847,120 in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 1.46 years.

The Company compensates its directors with RSUs and cash. On November 14, 2016, 581,816 RSUs were granted to the Company’s directors in partial payment of director’s fees through November 2017 under the 2012 Director Equity Plan. As of December 31, 2016, 145,454 of the RSUs from the November 14, 2016 grant had vested and there were $143,999 and $251,999 in director’s fees expense settled with RSUs for the three and six months ended December 31, 2016.

On November 14, 2016, the Company’s CEO was awarded 750,000 RSUs; 250,000 of these vested immediately and the remaining 500,000 will vest over the next two years. Additionally, an executive of the Company was awarded 340,000 RSUs that will vest in August of 2019.

On November 17, 2015, the Company’s CEO was awarded 1,500,000 RSUs. 750,000 of these RSUs vest over three years, beginning on November 17, 2016. As of December 31, 2016, 250,000 of the 750,000 that vest over three years beginning on November 17, 2016 from the November 17, 2015 grant had vested. The remaining 750,000 of these RSUs vest upon the satisfaction of certain performance targets that must be met on or before December 31, 2017.

As of December 31, 2016, there were 2,526,362 unvested RSUs and $2,058,812 in unrecognized compensation cost. Generally, shares of common stock related to vested RSUs are to be issued six months after the holder’s separation from service with the Company.

The table below summarizes the activity of the RSUs for the six months ended December 31, 2016 and the year ended June 30, 2016:

			Weighted
	Number of		Average
	Restricted		Valuation
	Stock Units		Price Per Unit
Balance at June 30, 2015		1,936,035	$	1.53
RSUs granted		2,364,000		0.50
Shares issued		(270,791)		0.63
Balance at June 30, 2016		4,029,244		1.03
RSUs granted		1,671,816		0.99
Shares issued		(108,363)		0.66
Balance at December 31, 2016		5,592,697	$	1.04