Share-Based Compensation

Equity Incentive Plans

The Company adopted and the shareholders approved the Company’s 2007 Long-Term Incentive Plan (the “2007 Plan”), effective November 21, 2006, to provide incentives to certain employees, officers, directors and consultants who contribute to the strategic and long-term performance objectives and growth of the Company. A maximum of 10 million shares of the Company’s common stock can be issued under the 2007 Plan in connection with the grant of awards. Awards to purchase common stock have been granted pursuant to the 2007 Plan and are outstanding to various employees, officers, directors, Scientific Advisory Board members and independent distributors at prices between $0.21 and $1.50 per share, with initial vesting periods that ranged from one to three years. Awards expire in accordance with the terms of each award and the shares subject to the award are added back to the 2007 Plan upon expiration of the award. The contractual term of stock options granted is generally ten years. As of June 30, 2013 there were awards outstanding, net of awards expired, for the purchase in aggregate of 3,950,976 shares of the Company’s common stock. As of June 30, 2013 there were 27,269 shares available for issuance under the 2007 Plan.

The Company adopted and the shareholders approved the Company’s 2010 Long-Term Incentive Plan (the “2010 Plan”), effective November 19, 2010, to provide incentives to certain employees, officers, directors and consultants who contribute to the strategic and long-term performance objectives and growth of the Company. A maximum of 6,900,000 shares of the Company’s common stock can be issued under the 2010 Plan in connection with the grant of awards. Awards to purchase common stock have been granted pursuant to the 2010 Plan and are outstanding to various employees, officers and directors. Outstanding stock options awarded under the 2010 Plan have exercise prices between $0.63 and $3.53 and vest over one to four year periods. Awards expire in accordance with the terms of each award and the shares subject to the award are added back to the 2010 Plan upon expiration of the award. The contractual term of stock options granted is generally ten years. As of June 30, 2013 there were awards outstanding, net of awards expired, for an aggregate of 3,058,976 shares of the Company’s common stock. As of June 30, 2013 there were 370,000 shares available for issuance under the 2010 Plan.

Stock-Based Compensation

In accordance with accounting guidance on stock based compensation, payments in equity instruments for goods or services are accounted for by the fair value method. For the fiscal years ended June 30, 2013, 2012 and 2011, stock based compensation of $2.2 million, $1.3 million and $0.8 million, respectively, was reflected as an increase to additional paid in capital. Of the $2.2 million stock-based compensation for the fiscal year ended June 30, 2013, $2.2 million was employee related and $0 was non-employee related. Of the $1.3 million stock-based compensation for the fiscal year ended June 30, 2012, $1.2 million was employee related and $0.1 million was non-employee related. Of the $0.8 million stock-based compensation for the fiscal year ended June 30, 2011, $0.7 million was employee related and $0.1 million was non-employee related.

The fair value of stock option awards was estimated using the Black-Scholes option-pricing model with the following assumptions and weighted-average fair values:



	June 30,
	2013		2012		2011
Risk-free interest rate	0.82	%	0.59% - 1.41%		1.33% - 2.64%
Dividend yield	—	%	—	%	—	%
Expected life in years	5.0 - 6.08		3.0 - 6.65		3.0 - 6.65
Expected volatility	127	%	119% - 137%		125% - 129%

The following is a summary of stock option activity for the years ended June 30, 2013, 2012 and 2011:



	Options (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2010	8,536		$	0.50	8.39	$	820
Granted	2,632		$	1.04	9.65	$	1,336
Exercised	(470	)	$	0.32	7.54	$	252
Forfeited	(200	)	$	0.74
Expired or Cancelled	—		$	—
Outstanding at June 30, 2011	10,498		$	0.64	7.93	$	9,139
Granted	2,086		$	1.89	9.61	$	2,122
Exercised	(1,612	)	$	0.45	6.97	$	2,038
Forfeited	(27	)	$	1.36
Expired or Cancelled	—		$	—
Outstanding at June 30, 2012	10,945		$	0.91	7.43	$	21,219
Granted	152		$	2.82	9.03	$	—
Exercised	(3,319	)	$	0.49	5.46	$	7,128
Forfeited	(768	)	$	1.54
Expired or Cancelled	—
Outstanding at June 30, 2013	7,010		$	1.08	6.71	$	9,211
Exercisable at June 30, 2013	5,609		$	0.81	6.30	$	8,574

The Company also granted 50,000 Stock Appreciation Rights (SARs) to an employee during the year ended June 30, 2012 which are all outstanding at June 30, 2013.

The following is a summary of restricted shares granted during the years ended June 30, 2013 and 2012:



Nonvested Shares	Shares (in thousands)		Weighted Average Grant Date Fair Value
Nonvested at June 30, 2011	—		—
Granted	164		$	3.34
Vested	—		—
Forfeited	(2	)	$	3.36
Nonvested at June 30, 2012	162		3.34
Vested at June 30, 2012	—		—

Granted	2,808		2.62
Vested	(37	)	—
Forfeited	(196	)	3.25
Nonvested at June 30, 2013	2,737		2.61
Vested at June 30, 2013	—		—

At June 30, 2013 there was $7.4 million of unrecognized compensation cost related to nonvested share-based compensation arrangements under the 2010 Plan, based on management's estimate of the shares that will ultimately vest. The Company expects to recognize such costs over a weighted average period of 3.0 years.

Warrants

As of June 30, 2013 the Company had outstanding warrants which were issued in conjunction with convertible debentures between November 2009 and February 2010.

The following is a summary of the warrant activity for the years ended June 30, 2013, 2012 and 2011 (in thousands):



	Common Stock Warrants
Outstanding and exercisable, June 30, 2010	38,580
Issued	108
Cancelled	—
Exercised	(13,228	)
Expired	—
Outstanding and exercisable at June 30, 2011	25,460
Issued	270
Cancelled	—
Exercised	(12,563	)
Expired	(203	)
Outstanding and exercisable at June 30, 2012	12,964
Issued	—
Cancelled	—
Exercised	(4,723	)
Expired	—
Outstanding and exercisable at June 30, 2013	8,241

As of June 30, 2013 and 2012, the Company had no warrants classified as derivative liabilities.

As of June 30, 2011, the Company classified warrants to acquire an aggregate of 8,360,000 shares issued in conjunction with the 2009 private placement of common stock as a short-term derivative liability. The Company estimated the fair value of the liability at June 30, 2011 as $7.4 million using the Black-Scholes Merton model adjusted for dilution with the following assumptions:


1)	risk free rate of 1.33 percent;


2)	dividend yield of -0- percent;


3)	expected life of 0.72 years to 0.78 years; and


4)	a volatility factor of the expected market price of the Company’s common stock of 106 percent.

As of June 30, 2011, the Company classified warrants to acquire an aggregate of 15,168,052 shares issued in conjunction with the 2009 and 2010 convertible debentures as a long-term derivative liability. The Company estimated the fair value of the liability at June 30, 2011 as $19.9 million using the Black-Scholes Merton model adjusted for dilution with the following assumptions:


1)	risk free rate of 0.81 to 2.13 percent;


2)	dividend yield of -0- percent;


3)	expected life of 3.43 to 5.68 years; and


4)	a volatility factor of the expected market price of the Company’s common stock of between 137 and 138 percent.