5. STOCK OPTIONS

On February 18, 2010, at our annual meeting of stockholders, 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 the 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 units 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 or restricted stock can only be granted under the 2010 Plan within 10 years from the plan effective date of February 18, 2010. A maximum of 1,250,000 shares are issuable under the 2010 Plan and at December 31, 2013, 443,330 shares remained available for issuance.

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, which 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 expect to pay cash dividends on our common stock during the expected term of the options.

Stock Options

The following table provides information about options during the six months ended December 31, 2013 and 2012:

	2013		2012
Number of options granted	3,359		56,080
Compensation expense recognized	$	439,000	$	2,109,000
Compensation cost capitalized	—		688,000
Weighted average fair value of options outstanding	$	8.25	$	10.08

The following table details the significant assumptions used to compute the fair market values of employee and director stock options granted during the six months ended December 31, 2013 and 2012:

	2013		2012
Risk-free interest rate	0.08-0.90	%	0.13-0.45	%
Dividend yield	0	%	0	%
Volatility factor	74-95	%	98-123	%
Expected life (years)	0.5-3.25		0.5-3.25

Summary information regarding employee and director stock options issued and outstanding under all plans as of December 31, 2013 is as follows:

	Options		Weighted Average Exercise Price		Aggregate intrinsic value		Weighted average remaining contractual term (years)
Options outstanding at year ended July 1, 2013	1,361,509		13.12		$	52,277	3.26
Granted	3,359		4.77
Exercised	—		—
Forfeited	(76,043	)	19.22
Expired	(24,735	)	23.16
Options outstanding at December 31, 2013	1,264,090		$	12.53	$	129,243	2.55
Options exercisable at December 31, 2013	833,104		$	16.36	$	34,981	2.46

Options outstanding and exercisable as of December 31, 2013
Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	1.92-5.00	306,828	1 year	150,358
$	1.92-5.00	164,840	4 years	6,250
$	5.01-10.00	141,099	1 year	137,763
$	5.01-10.00	162,944	4 years	62,023
$	5.01-10.00	46,125	7 years	46,125
$	10.01-20.00	106,375	1 year	106,375
$	10.01-20.00	32,500	6 years	30,000
$	20.01-25.00	14,875	1 year	13,208
$	20.01-25.00	17,875	7 years	17,875
$	25.01-30.00	52,500	1 year	52,500
$	25.01-30.00	33,750	7 years	32,500
$	30.01-35.00	26,939	1 year	26,939
$	30.01-35.00	38,125	3 years	38,125
$	30.01-35.00	64,313	8 years	64,313
$	35.01-40.00	22,502	1 year	16,250
$	35.01-40.00	9,375	3 years	9,375
$	40.01-45.00	11,875	1 year	11,875
$	40.01-45.00	11,250	7 years	11,250
		1,264,090		833,104

At December 31, 2013, there was $1.0 million of unrecognized compensation costs related to non-vested share based compensation arrangements granted to employees and directors under the plans, with an amortization period of two to three years.