10. STOCK OPTIONS AND WARRANTS

On July 1, 2013, the Company effected a reverse stock split in which each eight shares of the Company's common stock was reclassified and combined into one share of Common Stock. As such, we have retrospectively adjusted basic and diluted earnings per share, Common Stock, stock options and prices per share information for the Reverse Stock Split in all periods presented.

On February 18, 2010, at our annual meeting of stockholders, the board of directors and stockholders approved the 2010 Equity Incentive Plan (the "2010 Plan"). Prior to the 2010 stockholder meeting, we had two stock award plans: the Stock and Stock Option Plan, which was adopted in 1997 ("1997 Plan") and the 2008 Restricted Stock Award Plan ("2008 Plan"). In conjunction with the approval of the 2010 Plan at the annual meeting, the 1997 Plan and 2008 Plan were terminated as of February 18, 2010. Subsequently, on February 17, 2012, the 2010 Plan was amended to increase the maximum shares issuable under the 2010 Plan.

The 2010 Plan provides for the grants of shares of common stock, restricted stock or incentive stock options and/or nonqualified stock options to purchase our common stock to selected employees, directors, officers, agents, consultants, attorneys, vendors and advisors of ours' or of any parent or subsidiary thereof. Shares of common stock, options, or restricted stock can only be granted under this plan within 10 years from the effective date of February 18, 2010. A maximum of 1,250,000 shares are issuable under the 2010 Plan and at June 30, 2013, 345,906 shares remained available for issuance (in each case, after giving effect to the 1-for-8 Reverse Stock Split effected July 1, 2013).

The 2010 Plan provides a means to attract and retain the services of participants and also to provide added incentive to such persons by encouraging stock ownership in the Company. Plan grants are administered by the Compensation Committee, who has substantial discretion to determine which persons, amounts, time, price, exercise terms, and restrictions, if any.

Additionally, from time to time, we issue non-compensatory warrants, such as warrants issued to investors.

The fair value of non-market based options or warrants are estimated using the Black-Scholes valuation model. For market based options, the fair value was estimated using a Black-Scholes option pricing model with inputs adjusted for the probability of the vesting criteria being met and the median expected term for each grant as determined by utilizing a Monte Carlo simulation. Expected volatility is based solely on historical volatility of our common stock over the period commensurate with the expected term of the stock options. We rely solely on historical volatility as we do not have traded options. The expected term calculation for stock options is based on the simplified method as described in the Securities and Exchange Commission Staff Accounting Bulletin number 107. We use this method because we do not have sufficient historical information on exercise patterns to develop a model for expected term. The risk-free interest rate is based on the U. S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield rate of zero is based on the fact that we have never paid cash dividends on our common stock and we do not intend to pay cash dividends on our common stock.

Stock Options (All share and per share amounts in this section have been adjusted to reflect the 1-for-8 reverse stock split effected on July 1, 2013)

The following table provides information about options during the years ended June 30:

	2013		2012		2011

Number of options granted		247,197		534,182		363,315
Compensation expense recognized	$	2,615,498	$	5,024,825	$	2,175,625
Compensation cost capitalized		809,309		1,745,344		973,730
Weighted average fair value of options outstanding	$	8.68	$	16.72	$	14.80

The following table details the significant assumptions used to compute the fair market values of employee and director stock options granted during the years ended June 30:



Risk-free interest rate	0.07 - 0.96	%	0.11 - 0.91	%	1.11 - 2.68	%
Dividend yield	0	%	0	%	0	%
Volatility factor	80 - 123	%	105 - 129	%	91 - 146	%
Expected life (years)	0.5 - 3.5		0.25 - 3.25		0.9 - 6.0

Summary information regarding employee stock options issued and outstanding under all plans as of June 30, 2013 is as follows:

			Weighted Average Share Price		Aggregate intrinsic value

Outstanding at year ended July 1, 2010	1,006,095		$	7.28	$	2,589,600	6.20
Granted	363,315			33.20
Exercised	(107,327	)		8.80
Forfeited	(54,757	)		7.20
Expired	(47,970	)		17.92

Outstanding at year ended June 30, 2011	1,159,356		$	14.80	$	23,558,086	5.65

Granted	534,182			20.56
Exercised	(100,625	)		6.64
Forfeited	(31,000	)		44.08

Options outstanding at year ended June 30, 2012	1,561,913		$	16.72	$	1,145,800	4.62

Granted	247,197			4.49
Exercised	(95,000	)		3.92
Forfeited	(272,583	)		25.66
Expired	(80,018	)		24.61

Options outstanding at year ended June 30, 2013	1,361,509			13.12	$	52,277	3.26

Options exercisable at year ended June 30, 2013	756,461		$	16.16	$	12,000	3.22

Options outstanding and exercisable as of June 30, 2013

Exercise Price

$1.92 - 4.00	292,500	1 year	122,083
$1.92 - 4.00	174,071	5 years	6,250
$4.01 - 10.00	149,479	1 year	149,479
$4.01 - 10.00	190,684	4 years	46,270
$4.01 - 10.00	46,125	7 years	46,125
$10.01 - 15.00	106,375	1 year	106,375
$10.01 - 15.00	15,000	4 years	12,500
$15.01 - 20.00	20,000	7 years	18,333
$20.01 - 25.00	14,875	1 year	12,375
$20.01 - 25.00	17,875	7 years	17,875
$25.01 - 30.00	102,500	1 year	27,500
$25.01 - 30.00	33,750	7 years	28,333
$30.01 - 35.00	28,338	1 year	28,338
$30.01 - 35.00	38,125	3 years	19,063
$30.01 - 35.00	64,312	8 years	64,312
$35.01 - 40.00	44,375	3 years	28,125
$40.01 - 45.00	11,875	1 year	11,875
$40.01 - 45.00	11,250	7 years	11,250

	1,361,509		756,461

Options outstanding and exercisable as of June 30, 2012

Exercise Price

$0.01 - 8.00	5,000	1 year or less	5,000
$0.01 - 8.00	453,334	2 years	205,104
$0.01 - 8.00	230,431	5 years	—
$8.01 - 16.00	158,875	2 years	143,833
$8.01 - 16.00	3,750	5 years	—
$8.01 - 16.00	93,833	8 years	67,583
$16.01 - 24.00	9,625	5 years	—
$16.01 - 24.00	35,000	8 years	24,375
$24.01 - 32.00	123,750	4 years	—
$24.01 - 32.00	63,875	8 years	37,979
$32.01 - 40.00	147,875	4 years	—
$32.01 - 40.00	195,315	9 years	78,907
$40.01 - 48.00	12,500	1 year or less	12,500
$40.01 - 48.00	13,750	9 years	6,250
$48.01 - 56.00	3,750	9 years	1,875
$56.01 - 64.00	11,250	9 years	3,750

	1,561,913		587,156

At June 30, 2013, there was $1.5 million of unrecognized compensation costs related to non-vested share based compensation arrangements granted to employees under the plans.

During 2013, a total of 335,447 options, with a weighted average grant date fair value of $11.17 per share, vested in accordance with the underlying agreements. Unvested options at June 30, 2013 totaled 605,048 with a weighted average grant date fair value of $5.28, an amortization period of two to three years and a weighted average remaining life of 3.33 years.

Liability Awards (All share and per share amounts in this section have been adjusted to reflect the 1-for-8 reverse stock split effected on July 1, 2013)

During the first quarter of 2012, our Board of Directors approved an increase in authorized shares under the 2010 Plan from 625,000 to 1,250,000 subject to shareholder approval. Prior to receiving shareholder approval, we reached the limit of shares available under the 2010 Plan during the first quarter of fiscal 2012, at which point we concluded that all additional awards granted should be classified as liabilities until shareholders approved the increase in the maximum shares issuable under the 2010 plan. Pending shareholder approval of the amended 2010 Plan, we granted options to purchase 147,565 shares of our common stock to employees. The 2010 Plan was amended by a shareholder vote to increase issuable shares from 625,000 to 1,250,000 on February 17, 2012. The fair value on the date of modification was reclassified from a liability classification to equity. As of the modification date, we have recalculated the fair value of the awards and will amortize the unrecognized expense over the remaining vesting period.

The following table details the significant assumptions used to compute the fair market value of awards modified as of February 17, 2012:



Risk-free interest rate	0.42	%
Dividend yield	0	%
Volatility factor	129	%
Expected life (years)	2.5 - 3.2

Warrants (All share and per share amounts in this section have been adjusted to reflect the 1-for-8 reverse stock split effected on July 1, 2013)

Year ended June 30, 2013:

On November 21, 2012, warrants to purchase a total of 6,375 shares of our common stock were granted at an exercise price of $7.84. The warrants were immediately exercisable and have a term of 24 months from the date they were granted. The exercise price of the warrants may be adjusted in the case of stock splits, stock dividends or combinations of shares, or in the event the Company issues rights, options or warrants to all holders of the Company's common stock with an exercise or purchase price less than the volume weighted average price of the Company's shares on the record date. The warrants are considered indexed to our common stock and therefore are not considered a derivative. The warrants issued to the investors had a fair value of $16,000. The fair value of the warrants was determined using the Black-Scholes option pricing model. The following table details the significant assumptions used to compute the fair market value of the warrants:



Risk-free interest rate	0.17	%
Dividend yield	0	%
Volatility factor	114	%
Expected life (months)	12

Year ended June 30, 2012:

As a result of the equity transaction in February 2012, the Company issued warrants to purchase a total of 1,250,000 shares of its common stock to institutional investors. The warrants have an exercise price of $28.00 per share, a term of 14 months from the date they were granted, and are exercisable 6 months following the close of the transaction. The exercise price of the warrants may be adjusted in the case of stock splits, stock dividends or combinations of shares, or in the event the Company issues rights, options or warrants to all holders of the Company's common stock with an exercise or purchase price less than the volume weighted average price of the Company's shares on the record date. The warrants are considered indexed to our common stock and therefore are not considered a derivative. The warrants issued to the investors had a fair value of $7,820,000. The fair value of the 1,250,000 shares issued in the transaction was $22,180,000 based upon the market price on the transaction date. The fair value of the warrants was determined using the Black-Scholes option pricing model. The following table details the significant assumptions used to compute the fair market value of the warrants:



Risk-free interest rate	0.15	%
Dividend yield	0	%
Volatility factor	105	%
Expected life (months)	14

Year ended June 30, 2011:

During the fiscal year ended June 30, 2011, holders of warrants exercised an aggregate of 888,304 warrants with exercise prices ranging from $7.84 to $12.64 per share for total proceeds to us of $7,709,000, and 12,500 warrants held by former executives with a weighted average price of $32.00 were cancelled during the year. Additionally, YA Global exercised the remaining 87,778 of its warrants on a cashless basis and received 48,106 shares of our common stock.

Summary information regarding common stock warrants issued and outstanding as of June 30, 2013 is as follows:

			Weighted Average Share Price		Aggregate intrinsic value

Outstanding at year ended July 1, 2010	1,383,141		$	10.00	$	1,168,000	3.93
Granted	—			—
Exercised	(888,304	)		9.60
Expired	(12,500	)		32.00

Outstanding at year ended June 30, 2011	482,337		$	10.08	$	11,737,345	3.03

Granted	1,250,000			28.00
Exercised	(53,750	)		7.20
Expired	—			—

Outstanding at year ended June 30, 2012	1,678,587		$	23.52	$	—	1.08

Granted	6,375			7.84
Exercised	—			—
Expired	(1,250,000	)		28.00

Outstanding at year ended June 30, 2013	434,962			10.40		—	1.02

Warrants outstanding and exercisable as of June 30, 2013

Exercise Price

$7.20	351,250	1 year	351,250
$7.84	7,729	1 year	7,729
$12.64	25,983	2 years	25,983
$32.00	50,000	1 year	50,000

	434,962		434,962

Warrants outstanding and exercisable as of June 30, 2012

Exercise Price

$7.20	351,250	2 years	351,250
$7.84	1,354	2 years	1,354
$12.64	25,983	3 years	25,983
$28.00	1,250,000	Less than1 year	—
$32.00	50,000	2 years	50,000

	1,678,587		428,587