7. Director and Employee Stock Compensation Plans

Employee Stock Option Plans

On November 7, 2012, the Company’s stockholders approved the Omnibus Equity Compensation Plan (the “Omnibus Plan”). Until November 2014, the Compensation Committee of the Company’s Board of Directors administered the Omnibus Plan. The full Board is the current administrator of the Omnibus Plan and, in that capacity, has the exclusive authority to grant various incentive awards under the Omnibus Plan in the form of stock options, stock awards, stock units, performance units, and other stock-based awards. Up to 2,000,000 shares of the Company’s common stock are available for issuance to participants under the Omnibus Plan. The Omnibus Plan is available to all employees of the Company and its subsidiaries, including employees who are officers or members of the Board, and all non-employee directors and consultants of the Company and its subsidiaries. Prior to the adoption of the Omnibus Plan, the Board of Directors granted options to purchase shares of the Company’s common stock at an exercise price of not less than the fair market value of the common stock on the date of grant, under the Avatech Solutions, Inc. 2002 Stock Option Plan (the “2002 Option Plan”). The 2002 Option Plan, which expired in August 2012, provided for the granting of either incentive or non-qualified stock options to purchase an aggregate of up to 7,800,000 shares of common stock to eligible employees, officers, and directors of the Company and its subsidiaries. Although the term of the 2002 Option Plan has expired, it will continue to govern all options granted thereunder until such options are exercised, expire or are forfeited in accordance with their their terms.

On September 29, 2014, the Company’s Board of Directors approved a planned recapitalization of its balance sheet in order to provide liquidity to its shareholders and to maximize shareholder value. This planned recapitalization process was accomplished through a tender offer which was concluded on November 3, 2014 whereby the Company purchased 25,849,945 shares of its common stock from its shareholders for a price of $1.20 per share. In conjunction with the tender offer, the Company’s Board of Directors voted to accelerate the vesting of all unvested stock options effective September 29, 2014. The Board of Directors also voted to provide option holders the ability to exercise their options under a net-settlement program, whereby the Company issued common shares for the aggregate difference between the exercise price and the $1.20 tender offer price, minus required tax withholdings. There were 1,810,920 options exercised under this program, resulting in 470,155 common shares issued in settlement, which were immediately tendered at the $1.20 per-share tender offer price.

The Company recorded and included in selling, general and administrative expenses, $566,000 and $297,000 of stock compensation expense for the years ended June 30, 2015 and June 30, 2014, respectively.

The following are the assumptions made in computing the fair value of stock-based awards:

	Year Ended June 30	Year Ended June 30
	2015	2014
Average risk-free interest rate	2.19%	2.031%
Dividend yield	0 %	0 %
Expected life	10 years	5 years
Expected volatility	.52	.50
Weighted average fair value of granted options	$ 1.09	$ 0.51

Expected volatilities are based on historical volatility of the Company’s common stock. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of stock option activity during the year ended June 30, 2015 and related information is included in the table below:

	Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value

Outstanding at July 1, 2014		3,311,745		$	0.83
Granted		36,000			1.72
Exercised		(2,028,920	)		0.79
Forfeited		(44,250	)		0.88
Expired	–			–

Outstanding at June 30, 2015		1,274,575		$	0.92	$	1,527,000

Exercisable at June 30, 2015		1,250,575		$	0.91	$	517,000

Weighted-average remaining contractual life	6.4 Years

The aggregate intrinsic value of options exercised was $1,007,000 and $204,000 during the years ended June 30, 2015 and 2014, respectively.

All options granted have an exercise price equal to the fair market value of the Company’s common stock on the date of grant. Exercise prices for options outstanding as of June 30, 2015 ranged from $0.67 to $1.72 as follows:

Range of Exercise Prices				Options Outstanding		Weighted Average Exercise Prices of Options Outstanding		Weighted Average Remaining Contractual Life of Options Outstanding	Options Exercisable		Weighted Average Exercise Prices of Options Exercisable		Weighted Average Remaining Contractual Life of Options Exercisable
$	0.67	–	0.75		342,975	$	0.70	5.9 years		342,975	$	0.70	5.9 years
	0.76	–	1.00		744,100	$	0.89	6.9 years		744,100	$	0.89	6.9 years
	1.01	–	1.72		187,500	$	1.44	5.2 years		163,500	$	1.40	4.6 years
					1,274,575					1,250,575

Assuming that no additional share-based payments are granted after June 30, 2015, $25,000 of compensation expense will be recognized in the consolidated statement of operations over a weighted-average period of 1.3 years.