3. SHARE-BASED PAYMENTS

The Company’s share-based compensation benefit and related income tax effects are as follows:

	Three months ended							Nine months ended
	June 30,							June 30,
		2014			2013			2014			2013

Share-based compensation benefit		$	(19,000	)	$	(77,000	)	$	(209,000	)	$	(118,000	)

Income tax effect		$	-		$	-		$	-		$	-

Share-based compensation benefit recognized in losses for the three and nine months ended June 30, 2014 and 2013 are reflected in “General and administrative” expenses in the Condensed Consolidated Statements of Operations. There was no impact on income taxes for the three and nine months ended June 30, 2014 and 2013 due to a full valuation allowance on the related deferred tax asset.

As of June 30, 2014, there was $89,000 of total unrecognized compensation cost related to nonvested share options. That cost is expected to be recognized over 3.4 years. The weighted-average grant date fair value of employee options granted during the nine months ended June 30, 2014 was $2.04 (no options were granted during the three months ended June 30, 2014 or during the three and nine months ended June 30, 2013).

Equity-classified Awards

The following assumptions were used in estimating fair value for equity-classified share options in the nine months ended June 30, 2014:

Expected volatility	55.6%
Expected dividends	0.0%
Expected term (in years)	10.0
Risk-free interest rate	3.0%
Expected forfeitures	None

The application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation, and consequently, the related costs reported in the Condensed Consolidated Statements of Operations.

A summary of the activity in Barnwell’s equity-classified share options from October 1, 2013 through June 30, 2014 is presented below:

							Weighted-
							Average
				Weighted-			Remaining
				Average			Contractual		Aggregate
				Exercise			Term		Intrinsic
Options	Shares		Price				(in years)		Value
Outstanding at October 1, 2013		60,000			$	8.62
Granted		30,000			3.01
Exercised		-
Expired/Forfeited		-
Outstanding at June 30, 2014		90,000			$	6.75		3.4	$	-

Exercisable at June 30, 2014		60,000			$	8.62		0.4	$	-

Total share-based compensation expense for equity-classified awards vested in the three and nine months ended June 30, 2014 was $8,000 and $18,000, respectively. There was no share-based compensation expense for equity-classified awards in the prior year periods.

Liability-classified Awards

In December 2013, Barnwell granted non-qualified options with an exercise price equal to the closing market price of Barnwell’s stock on the date of grant, that vest annually over four years of continuous service, and that expire ten years from the date of grant. The non-qualified options have stock appreciation rights features that permit the holder to receive stock, cash or a combination thereof equal to the amount by which the fair market value, at the time of exercise of the option, exceeds the option price.

The following assumptions were used in estimating fair value for all liability-classified share options outstanding:

	Nine months ended June 30,
	2014	2013

Expected volatility range	34.1% to 57.1%	49.8% to 64.4%
Weighted-average volatility	50.1%	60.0%
Expected dividends	0.0%	0.0%
Expected term (in years)	0.4 to 9.5	1.4 to 6.5
Risk-free interest rate	0.1% to 2.5%	0.3% to 1.9%
Expected forfeitures	None	None

A summary of the activity in Barnwell’s liability-classified share options from October 1, 2013 through June 30, 2014 is presented below:

							Weighted-
							Average
				Weighted-			Remaining
				Average			Contractual		Aggregate
				Exercise			Term		Intrinsic
Options	Shares		Price				(in years)		Value
Outstanding at October 1, 2013		717,250			$	8.37
Granted		30,000			3.01
Exercised		-
Expired/Forfeited		-
Outstanding at June 30, 2014		747,250			$	8.15		3.9	$	-

Exercisable at June 30, 2014		717,250			$	8.37		3.7	$	-

The following table summarizes the components of the total share-based compensation for liability-classified awards:

	Three months ended						Nine months ended
	June 30,						June 30,
	2014			2013			2014			2013

Due to vesting	$	8,000		$	8,000		$	18,000		$	32,000
Due to remeasurement	(35,000		)	(85,000		)	(245,000		)	(150,000		)

Total share-based compensation benefit for liability-based awards	$	(27,000	)	$	(77,000	)	$	(227,000	)	$	(118,000	)