NOTE 9 - 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 for future awards 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 for future awards under the 2007 Plan.

In November 2010, the Company adopted the 2010 Omnibus Long-Term Incentive Plan (“2010 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 2010 Omnibus Plan, as amended, authorizes up to 11,950,000 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 14, 2016, the Company’s shareholders approved an amendment of the 2010 Omnibus Plan which increased the number of shares of the Company’s Common Stock available for issuance pursuant to awards under the 2010 Omnibus Plan by 4,000,000 to 11,950,000.

In November 2012, the Company adopted the 2012 Non-Employee Director Equity Compensation Plan, as amended (“2012 Director Equity Plan”), under which the Company may issue up to 4,400,000 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 14, 2016, the Company’s shareholders 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 to 4,400,000.

As of September 30, 2017, there were a total of 1,366,493 shares available to be issued for future awards under the 2010 Omnibus Plan and 1,729,170 shares available to be issued for future awards under the 2012 Director Equity Plan.

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 three months ended September 30, 2017 and September 30, 2016 using the Black-Scholes option-pricing model:

	Three months ended September 30,
	2017		2016
Expected life of option (years)		4		4
Risk-free interest rate		1.66 - 1.69%		0.93 - 1.07%
Assumed volatility		113.62 - 113.75%		104.69 - 108.34%
Expected dividend rate		0.00%		0.00%
Expected forfeiture rate		6.15 - 6.72%		7.42 - 7.88%

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.

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 $435,608 and $272,653, based on the amortized grant date fair value of options and RSUs, during the three months ended September 30, 2017 and September 30, 2016, respectively.

Information with respect to stock option activity is as follows:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Life (in years)
Balance at June 30, 2016		6,111,360		$	0.88		6.96
Options granted		2,654,100			0.59
Options exercised		(124,252	)		0.56
Options forfeited		(391,910	)		2.55
Balance at June 30, 2017		8,249,298			0.71		6.50
Options granted		27,000			0.46
Options forfeited		(226,333	)		1.91
Balance at September 30, 2017		8,049,965			0.68		6.27

The following table summarizes information relating to the stock options outstanding as of September 30, 2017:

	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		7,235,065		6.48	$	0.52		2,766,466		6.03	$	0.54
$1.01 to $2.50		662,150		5.02		1.48		510,150		4.71		1.61
$2.51 to $5.00		82,200		1.71		3.98		82,200		1.71		3.98
$5.01 to $6.95		70,550		1.50		5.90		70,550		1.50		5.90
Balance at September 30, 2017		8,049,965		6.27		0.68		3,429,366		5.64		0.89

During the three months ended September 30, 2017, options to purchase 27,000 shares were granted to employees exercisable at $0.39 to $0.48 per share based on various service-based vesting terms from July 2017 through September 2020 and exercisable at various dates through September 2025. During the three months ended September 30, 2016, options to purchase 182,500 shares were granted to employees exercisable at $0.35 to $0.88 per share based on service-based and performance-based vesting terms from July 2016 through September 2019 and exercisable at various dates through September 2024.

The aggregate intrinsic value of outstanding options totaled $481,010 and was based on the Company’s adjusted closing stock price of $0.52 as of September 30, 2017.

Information with respect to unvested employee stock option activity is as follows:

	Number of Options			Weighted Average Grant Date Fair Value Per Share		Average Remaining Contractual Life (in years)
Balance at June 30, 2016		4,852,367		$	0.54		7.42
Options granted		2,654,100			0.59
Options vested		(2,110,085	)		0.57
Options forfeited		(199,284	)		0.80
Balance at June 30, 2017		5,197,098			0.54		6.93
Options granted		27,000			0.46
Options vested		(422,166	)		0.74
Options forfeited		(181,333	)		0.66
Balance at September 30, 2017		4,620,599			0.52		6.74

Total fair value of options granted for the three months ended September 30, 2017 and September 30, 2016 was $9,319 and $112,368, respectively. At September 30, 2017, there was $764,181 in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 1.4 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 September 30, 2017, 563,635 of the RSUs from the November 14, 2016 grant had vested and 18,181 had forfeited.

On November 17, 2015, 864,000 RSUs were granted to the Company's directors in partial payment of director's fees through November 2016 under the 2012 Director Equity Plan. As of September 30, 2016, all of the RSUs from the November 17, 2015 grant had vested.

On November 14, 2016, the Company’s CEO was awarded 750,000 RSUs under the 2010 Omnibus Plan that will vest over three years, beginning on November 14, 2017. Additionally, an executive of the Company was awarded 340,000 RSUs under the 2010 Omnibus Plan that will vest in August of 2019.

On November 17, 2015, the Company’s CEO was awarded 1,500,000 RSUs under the 2010 Omnibus Plan. 750,000 of these RSUs vest over three years, beginning on November 17, 2016. As of September 30, 2017, 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 September 30, 2017, there were 2,340,000 of unvested RSUs and $1,263,289 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.

Information with respect to RSU activity is as follows:

	Number of Restricted Stock Units			Weighted Average Valuation Price Per Unit
Balance at June 30, 2016		4,029,244		$	1.03
RSUs granted		1,671,816			1.15
Shares issued		(144,728	)		0.75
Balance at June 30, 2017		5,556,332			1.07
RSUs granted		-			-
RSUs forfeited		(18,181	)		0.99
Shares issued		(36,364	)		0.99
Balance at September 30, 2017		5,501,787			1.07