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 statements of operations and was $473 and $806 for the six months ended December 31, 2012 and 2011, respectively.

These two plans are summarized below:

			Award Shares		Available for
	Award Shares		Outstanding		Issuance
	Authorized		at December 31,		at December 31,
Equity Compensation Arrangement			2012		2012
Amended and Restated Omnibus Incentive Plan		1,715,625		1,208,939		61,293
Employee Stock Purchase Plan		200,000		-		114,763

		1,915,625		1,208,939		176,056

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 period ended December 31, 2012 and 2011, 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, 2012	December 31, 2011
Expected volatility	110%	121%
Weighted average expected volatility	110%	121%
Dividend yields	0%	0%
Risk-free interest rate	0.67%	1.59%
Expected term, in years	6.25	3-7

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, 2012 and 2011. 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, 2012 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, 2012		576,393		$	2.61		6.4		594,700		1.0

Granted		77,500			0.98		9.8		-		-
Exercised		-			-		-		-		-
Cancelled		(39,654	)		2.68		6.6		-		-

December 31, 2012		614,239		$	2.40		6.4		594,700		0.8

		-

Awards exercisable/
vested as of
December 31, 2012		397,614		$	2.75		5.2		438,030		-


Awards unexercisable/
unvested as of
December 31, 2012		216,625		$	1.76		8.7		156,670		0.8
		614,239							594,700

The weighted average fair value of shares awarded for the six months ended December 31, 2012 was:

	Stock
	Options		RSU		All Awards
Weighted average fair value
of share awards granted for the six months ended
December 31, 2012	$	0.82	$	-	$	0.82

The total intrinsic value of options outstanding and exercisable at December 31, 2012 and 2011 was $0 and $1,068, respectively.

The total intrinsic value of RSUs exercised during the six months ended December 31, 2012 and 2011 was $0 and $0, respectively.

The total intrinsic value of RSUs outstanding and exercisable at December 31, 2012 and 2011 was $350,077 and $465,129, respectively.

The total fair value of RSUs vested during the six months ended December 31, 2012 and 2011 was $139,000 and $225,000, respectively.

The total fair value of option shares vested during the six months ended December 31, 2012 and 2011 was $68,000 and $81,942, respectively.

As of December 31, 2012, there was $310,323 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share options and restricted stock units) granted under the Plan. The compensation cost is expected to be recognized as follows:

			Restricted
	Stock		Stock
	Options		Units		Total
Remainder of the year ended June 30, 2013	$	30,498	$	73,826	$	104,324
Year ended June 30, 2014		55,183		94,570		149,753
Year ended June 30, 2015		24,904		18,853		43,757
Year ended June 30, 2016		10,560		-		10,560
Year ended June 30, 2017		1,929		-		1,929
	$	123,074	$	187,249	$	310,323

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, 2012 and changes during the six months then ended:

Unexercisable/unvested awards	Stock Options Shares			RSU Shares			Total Shares			Weighted-Average Grant Date Fair Values (per share)
June 30, 2012		198,125			235,000			433,125			$	2.42
Granted		77,500			-			77,500				0.82
Vested		(37,375	)		(78,330	)		(115,705	)			1.79
Cancelled/Forfeited		(21,625	)		-			(21,625	)			1.70
December 31, 2012		216,625			156,670			373,295			$	1.69

Financial Statement Effects and Presentation—The following table shows total stock-based compensation expense for the six months ended December 31, 2012 and 2011 included in the consolidated statements of operations:

	(unaudited)		(unaudited)
	Six months ended		Six months ended
	December 31,		December 31,
	2012		2011

Stock options		33,692		46,570
RSU		94,594		91,406
Total		128,286		137,976

The amounts above were included in:
General & administrative		122,292		128,105
Cost of sales		1,580		4,536
New product development		4,414		5,335
		128,286		137,976