11.	Share-Based Compensation

We have Stock Incentive Plans providing for the grant of incentive stock options to employees and non‑qualified stock options to employees and directors. The Compensation Committee of the Board of Directors (“Compensation Committee”) administers the Stock Incentive Plans. Under the plans, the Compensation Committee may award stock options and shares of common stock on a restricted basis. The plans also specifically provide for stock appreciation rights and authorize the Compensation Committee to provide, either at the time of the grant of an option or otherwise, that the option may be cashed out upon terms and conditions to be determined by the Compensation Committee or the Board of Directors.

Option awards are granted with an exercise price equal to the market price of our stock at the date of grant. We recognize stock compensation expense in accordance with ASC 718-10 over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock compensation is accounted for as equity instruments.

Our 2011 Stock Incentive Plan became effective November 1, 2011 and replaced the 2001 Stock Option Plan that expired on October 31, 2011. The 2011 Stock Incentive Plan terminates on October 31, 2021. Stockholders have authorized the issuance of up to 1,100,000 shares under this plan, and at June 30, 2015, there were 470,740 shares available for future grants.

We recorded share-based compensation related to the issuance of stock options and restricted stock to employees, board members and non-employees, as follows:

	Year Ended June 30,
	2015		2014		2013

Share-based compensation expense included in the consolidated statement of operations:
Cost of sales	$	53	$	56	$	55
Sales and marketing		115		176		165
Research and development		105		150		128
General and administrative		629		748		500
Total		902		1,130		848
Tax benefit		-		-		-
Share-based compensation expense, net of taxes	$	902	$	1,130	$	848

Based on historical experience of restricted stock and option pre-vesting cancellations, we estimated annualized forfeiture rates of 5.0% and 9.0% for unvested restricted stock awards and stock options outstanding as of June 30, 2015 and 2014, respectively. We update our expectation of forfeiture rates quarterly and under the true‑up provisions of ASC 718-10, we will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated.

We have not received any cash from option exercises under any share-based payment arrangements for the fiscal years ended June 30, 2015, 2014 and 2013.

Restricted Share Awards

During fiscal year 2015, we issued 316,000 shares of restricted stock. All of these restricted awards were issued to employees and board members and vest over a four-year period for employees and a three-year graded vesting period for board members. Vesting is based solely on a service condition, and restrictions generally release ratably over the service period. The weighted-average grant date fair value per share for our restricted stock awards is the closing price on the date of grant. A summary of the activity of our service condition restricted stock awards during fiscal year 2015 is presented below:

Restricted Stock Awards	Shares			Weighted- Average Grant Date Fair Value

Non-vested at July 1, 2014		183,634		$	6.08
Granted		316,000			6.87
Vested		(88,846	)		6.26
Forfeited		(40,098	)		6.27
Non-vested at June 30, 2015		370,690		$	6.69

During fiscal years 2013 and 2014, we issued performance-based restricted shares (“PSAs”) to senior and executive management and board members. The PSAs issued in fiscal years 2013 and 2014 will be released only if company performance criteria are achieved over a three-year performance period. The performance criteria are determined each year and require us to achieve certain financial goals. The weighted-average grant date fair value per share for our performance shares is the closing price on the date the annual performance criteria is approved by our Board of Directors.

During fiscal year 2015, we released restrictions on 51,293 PSAs issued to senior and executive management based upon achievement of performance goals attributable to our fiscal year 2014 financial results. Additionally, 38,732 PSAs issued to senior and executive management were cancelled and forfeited as a result of termination of employment. A summary of the activity of our PSAs during fiscal year 2015 is presented below:

Performance Stock Awards	Shares			Weighted- Average Grant Date Fair Value

Non-vested at July 1, 2014		115,912		$	5.59
Granted		-			-
Vested		(51,293	)		5.30
Forfeited		(38,732	)		5.82
Non-vested at June 30, 2015		25,887		$	5.84

Total compensation cost of restricted stock awards issued, but not yet vested as of June 30, 2015 is $1,625, which is expected to be recognized over the weighted average period of 2.0 years.

Stock Options

We use the Black-Scholes valuation model to estimate the fair value of each option award on: (1) the date of grant for grants to employees and (2) each reporting period-end date for grants to non-employees, until the non‑employee shares have vested, at which point the vest date becomes the final measurement date for non‑employee grants. We did not grant any stock options in fiscal years 2015, 2014 and 2013, and there were no unvested options granted to non-employees as of June 30, 2015.

During the third quarter of fiscal year 2013 our Board of Directors approved a $0.50 reduction in the exercise price of outstanding stock options for existing employees and board members as an equitable adjustment for the $0.50 special dividend declared and paid during the second quarter of fiscal year 2013. We accounted for this equitable adjustment to exercise price as a modification on the date of approval. This modification resulted in less than $1 of additional expense as most option exercise prices remain above our stock’s trading price after the equitable adjustment. We use the Black-Scholes valuation model to estimate the fair value of each option award under modification accounting.

A summary of our stock option activity as of June 30, 2015 and changes during fiscal year 2015 is presented below:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding as of July 1, 2014		183,317		$	10.92
Granted		-			-
Exercised		-			-
Forfeited or expired		(90,801	)		9.86
Outstanding as of June 30, 2015		92,516		$	11.96		1.97	$	6
Vested at June 30, 2015		92,516		$	11.96		1.97	$	6
Exercisable at June 30, 2015		92,516		$	11.96		1.97	$	6

The following table summarizes information about stock options outstanding and exercisable at June 30, 2015:

		Outstanding Options						Options Exercisable
Range of Exercise Prices		Weighted- Average Remaining Contractual Life (Years)		Number Outstanding		Weighted- Average Exercise Price		Number Exercisable		Weighted- Average Exercise Price

	$5.90		3.09		20,000	$	5.90		20,000	$	5.90
	$11.10 - $13.00		1.66		26,910	$	12.65		26,910	$	12.65
	$13.50		1.95		26,606	$	13.50		26,606	$	13.50
	$14.70 - $15.30		1.23		15,000	$	14.90		15,000	$	14.90
	$16.40		1.34		4,000	$	16.40		4,000	$	16.40
	$5.90 - $16.40		1.97		92,516	$	11.96		92,516	$	11.96

The total intrinsic value of options both outstanding and exercisable was $6, $71 and $86 for the fiscal years ended June 30, 2015, 2014 and 2013, respectively. There is no remaining compensation cost for options granted as all outstanding options have vested as of June 30, 2015. We generally issue new shares to satisfy option exercises.