8. SHARE-BASED COMPENSATION

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, 2014, 231,324 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, 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.

Stock Options

The fair value of stock option awards is estimated using the Black-Scholes valuation model. For market based stock option awards, those options where vesting terms are dependent on achieving a specified stock price, 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.

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

	2014		2013		2012
Number of options granted	372,086		247,197		534,182
Compensation expense recognized	$	481,426	$	2,615,498	$	5,024,825
Compensation cost capitalized	—		809,309		1,745,344
Weighted average fair value of options outstanding	$	5.88	$	8.68	$	16.72

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:

	2014		2013		2012
Risk-free interest rate	0.08-0.95	%	0.07-0.96	%	0.11-0.91	%
Dividend yield	0	%	0	%	0	%
Volatility factor	74-125	%	80-123	%	105-129	%
Expected life (years)	0.5-3.25		0.5-3.5		0.25-3.25

Summary information regarding employee stock options issued and outstanding under all plans as of June 30, 2014 is as follows:

	Options		Weighted Average Share Price		Aggregate intrinsic value		Weighted average remaining contractual life (years)
Outstanding at July 1, 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 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 June 30, 2013	1,361,509		$	13.12	$	52,277	3.26
Granted	372,086		3.30
Exercised	—		—
Forfeited	(92,100	)	18.78
Expired	(199,768	)	23.66
Options outstanding at June 30, 2014	1,441,727		$	8.76	$	8,327	3.14
Options exercisable at June 30, 2014	762,498		$	13.17	$	8,439	2.74

Options outstanding and exercisable as of June 30, 2014

Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	1.92-4.00	299,108	1 year	149,107
$	1.92-4.00	510,880	5 years	56,238
$	4.01-10.00	81,425	1 year	81,425
$	4.01-10.00	175,319	3 years	106,879
$	4.01-10.00	57,687	6 years	53,625
$	10.01-20.00	106,375	1 year	106,375
$	10.01-20.00	32,500	6 years	31,250
$	20.01-30.00	55,375	6 years	54,541
$	30.01-40.00	45,620	2 years	45,620
$	30.01-40.00	68,688	7 years	68,688
$	40.01-50.00	8,750	7 years	8,750
		1,441,727		762,498

Options outstanding and exercisable as of June 30, 2013

Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	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

At June 30, 2014, there was $1.6 million of unrecognized compensation costs related to non-vested share based compensation arrangements granted to employees under the plans.

During 2014, a total of 204,970 options, with a weighted average grant date fair value of $12.33 per share, vested in accordance with the underlying agreements. Unvested options at June 30, 2014 totaled 679,234 with a weighted average grant date fair value of $2.21, an amortization period of two to three years and a weighted average remaining life of 3.58 years.

Restricted Stock

The fair value of restricted stock awards classified as equity awards is based on the Company’s stock price as of the date of grant. During the year ended June 30, 2014, we granted restricted stock awards with a fair value of $0.1 million or 21,030 shares. These awards do not grant any rights as a shareholder of the company until a certificate for the vested shares of common stock has been issued. There were no restricted stock awards issued in the year ended June 30, 2013. Summary information regarding employee and director restricted stock issued and outstanding under the 2010 Plan as of June 30, 2014 is as follows:

	Options	Weighted Average Grant Price
Balance at July 1, 2013	—	$	—
Granted	21,030	4.12
Vested	—	—
Forfeited	—	—
Expired	—	—
Balance at June 30, 2014	21,030	$	4.12
Vested at June 30, 2014	—	$	—

Warrants

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:

	2013
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:

	2012
Risk-free interest rate	0.15	%
Dividend yield	0	%
Volatility factor	105	%
Expected life (months)	14

Summary information regarding common stock warrants issued and outstanding as of June 30, 2014 is as follows:

	Warrants		Weighted Average Share Price		Aggregate intrinsic value		Weighted average remaining contractual life(years)
Outstanding at year ended July 1, 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
Granted	—		—
Exercised	—		—
Expired	(402,604	)	10.28
Outstanding at year ended June 30, 2014	32,358		$	11.69	$	—	1.12

Warrants outstanding and exercisable as of June 30, 2014

Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	7.84	6,375	1 year	6,375
$	12.64	25,983	1 year	25,983
		32,358		32,358

Warrants outstanding and exercisable as of June 30, 2013

Exercise Price		Outstanding Number of Shares	Remaining Life	Exercisable Number of Shares
$	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