6. Stock Options and Restricted Stock Awards

On November 16, 2012, our shareholders approved a new equity compensation plan, the Urologix, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan replaced our Amended and Restated 1991 Stock Option Plan (the “1991 Plan”) and provides stock incentive awards in the form of options (incentive and non-qualified), stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other awards in stock and/or cash. As of June 30, 2013, we had reserved 1,724,165 shares of common stock under the 2012 Plan, which includes 124,165 expired and forfeited shares from the 1991 Plan and 1,719,265 shares were available for future grants. The number of shares available under the 2012 Plan will be increased by an amount equal to the number of shares subject to awards or options granted under the 1991 Plan, which would have become available for additional awards under the 1991 Plan by reason of the forfeiture, cancellation, expiration or termination of those awards. Options expire 10 years from the date of grant and typically vest 25 percent after the first year of service with the remaining vesting 1/36th each month thereafter. The Company issues new shares when stock options are exercised.

Under the terms of the previous 1991 Plan, persons serving as non-employee directors at the date of the annual shareholder meeting receive an option grant to purchase 10,000 shares of common stock at a price equal to fair market value on the date of grant. Generally, such options are immediately exercisable on the date of grant, and expire 10 years from the date of grant, subject to earlier termination one year after the person ceases to be a director of the Company. For the 10,000 share option award granted to each of our four non-employee directors in connection with the 2012 Annual Meeting of Shareholders, our previous equity compensation plan, the 1991 Plan, was used.

Amounts recognized in the financial statements related to stock-based compensation for the fiscal years ended June 30, 2013, 2012 and 2011 were as follows (in thousands):



	2013		2012		2011
Cost of goods sold	$	19	$	29	$	38
Sales and marketing		46		88		43
General and administrative		164		207		244
Research and development		28		35		44
Total cost of stock-based compensation	$	257	$	359	$	369

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We use historical data to estimate expected volatility, the period of time that option grants are expected to be outstanding, as well as employee termination behavior. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. For restricted stock awards, the fair value is calculated as the market price on date of grant and we amortize the fair value on a straight-line basis over the requisite service period of the award. The following weighted-average assumptions were used to estimate the fair value of options granted during the fiscal years ended June 30, 2013, 2012 and 2011 using the Black-Scholes option-pricing model:



	2013	2012	2011
Volatility	72.00%	78.00%	80.00%
Risk-free interest rate	0.4%	0.4%	0.9%
Expected option life	3.4 years	3.3 years	3.6 years
Stock dividend yield	-	-	-

A summary of our options and option activity for the fiscal year ended June 30, 2013 is as follows:



Options Outstanding										Options Exercisable
						Weighted
						Avg.
						Remaining		Weighted				Weighted
				Outstanding as of		Contractual		Avg. Exercise		Exercisable as of		Avg. Exercise
				June 30, 2013		Life		Price		June 30, 2013		Price
$	0.00	$	0.97		622,345		7.8	$	0.85		315,598	$	0.84
$	0.98	$	1.86		994,085		4.1	$	1.54		917,717	$	1.57
$	1.87	$	2.75		44,000		3.6	$	2.63		44,000	$	2.63
$	2.76	$	4.06		32,500		1.5	$	3.76		32,500	$	3.76
$	4.07	$	6.95		11,000		1.9	$	5.32		11,000	$	5.32
$	6.96	$	12.23		7,500		1.1	$	12.23		7,500	$	12.23
					1,711,430		5.4	$	1.43		1,328,315	$	1.58



	Number of Options		Weighted-avg. Exercise Price Per Option	Weighted-avg. Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at July 1, 2012	1,621,095	$	1.50		$	1,504
Options granted	234,500		0.82
Options forfeited	(67,439)		0.99
Options expired	(56,726)		1.77
Options exercised	(20,000)		0.78
Outstanding at June 30, 2013	1,711,430	$	1.43	5.39	$	-
Exercisable at June 30, 2013	1,328,315	$	1.58	4.49	$	-

There is no aggregate intrinsic value in the table above as our closing stock price of $0.17 on June 28, 2013, the last trading day prior to June 30, 2013, was lower than all options outstanding and exercisable as of that date. The aggregate intrinsic value for options exercisable at June 30, 2012 and 2011 was $1,000 and $18,000, respectively, when the closing price of our stock on June 29, 2012 (the last trading day prior to June 30, 2012) and 2011 was $0.77 and $0.95, respectively.

The weighted average fair value of our options at their grant date was approximately $0.40, $0.47 and $0.51 for options granted during the fiscal years ended June 30, 2013, 2012 and 2011, respectively. There was a negative intrinsic value of approximately $600 and $14,000 on options exercised during fiscal years 2013 and 2012, respectively, as some options were exercised at a market price lower than the exercise price. The total intrinsic value of options exercised during the fiscal year ended June 30, 2011 was $360.

A summary of the status of our non-vested options as of June 30, 2013 is as follows:



	Number of Options		Weighted-avg. Grant-Date Fair Value
Non-vested at June 30, 2012	475,717	$	0.53
Options granted	234,500		0.40
Options forfeited	(67,439)		0.51
Options vested	(259,663)		0.54
Non-vested at June 30, 2013	383,115		0.46

A summary of restricted stock award activity is as follows:



	Number of Restricted Stock Awards		Weighted-avg. Grant-Date Fair Value
Non-vested at June 30, 2012	83,576	$	0.98
Awards granted	106,064		0.66
Awards forfeited	-		-
Awards vested	(75,973)		0.98
Non-vested at June 30, 2013	113,667		0.68

As of June 30, 2013, total unrecognized compensation cost related to non-vested stock options and restricted stock awards granted under our plan was $155,000 and $33,000, respectively. That cost is expected to be recognized over a weighted-average period of 2.1 years for non-vested stock options and 0.7 years for restricted stock awards. The total fair value of options vested during the fiscal years ended June 30, 2013, 2012 and 2011 was $140,000, $288,000 and $281,000, respectively.