8. Stock Based Compensation

The Company has three stock equity plans: The 1997 Employee Stock Option Plan, the 2000 Stock Option Plan and the 2007 Equity Incentive Plan. As of December 30, 2011, no additional awards may be issued under either the 1997 Employee Stock Option Plan or the 2000 Stock Option Plan. There are 2,500,000 shares authorized for issuance under the 2007 Equity Incentive Plan, with 416,615 shares remaining available for future grant.

Options and restricted stock awards may be granted to employees, officers, directors and consultants. Options typically vest over a period of one to four years and are exercisable up to ten years from the date of issuance. The option exercise price equals the stock’s market price on the date of grant. Restricted stock awards typically vest over a period of six months to four years, and the shares subject to such awards are generally not transferrable until the awards vest.

Stock option transactions for fiscal years 2012 and 2011 are summarized as follows:

	Shares (000)			Weighted Average Exercise Price		Weighted Average Term (in years)		Aggregate Intrinsic Value
Outstanding, March 31, 2010		2,604		$	1.85		5.58	$	6,000
Exercisable, March 31, 2010		2,402		$	1.89		4.98	$	6,000
Vested & expected to Vest, March 31, 2010		2,537		$	1.92		5.58	$	6,000

Outstanding, March 31, 2010		2,604		$	1.85
Granted		189		$	0.60
Exercised		(226	)	$	0.80
Expired		(406	)	$	2.94
Outstanding, March 31, 2011		2,161		$	1.65		5.90	$	1,114,000
Exercisable, March 31, 2011		1,933		$	1.74		4.89	$	854,000
Vested & expected to Vest, March 31, 2011		2,101		$	1.67		5.90	$	1,083,000

Outstanding, March 31, 2011		2,161		$	1.65
Granted		538		$	1.34
Exercised		(395	)	$	0.68
Expired		(37	)	$	1.70
Outstanding, March 31, 2012		2,267		$	1.75		5.77	$	32,000
Exercisable, March 31, 2012		1,994		$	1.88		5.18	$	15,000
Vested & expected to Vest, March 31, 2012		2,199		$	1.73		5.77	$	31,000

Information regarding stock options outstanding as of March 31, 2012 is as follows:

		Options Outstanding
	(in 000s)	Weighted Average	Weighted Average
Price Range	Shares	Exercise Price	Remaining Life

$0.50 - $1.25	455	$0.77	8.12
$1.50 - $2.50	1,499	$1.82	4.74
$2.56 - $5.34	313	$2.83	3.50

		Options Exercisable
	(in 000s)	Weighted Average	Weighted Average
Price Range	Shares	Exercise Price	Remaining Life

$0.50 - $1.25	182	$0.73	7.69
$1.50 - $2.50	1,499	$1.82	4.74
$2.56 - $5.34	313	$2.83	3.50

The intrinsic value of options exercised in fiscal years 2012 and 2011was approximately $59,000 and $357,000, respectively.

During fiscal 2011 and fiscal 2012, restricted shares were issued to certain individuals. The restricted share transactions are summarized below:

	Shares (000)			Weighted Average Grant Date Fair Value
Unvested, March 31, 2010		25		$	0.63
Granted		239		$	0.60
Vested		(194	)	$	0.67
Expired		--			--
Unvested, March 31, 2011		70		$	0.44
Granted		399		$	0.97
Vested		(223	)	$	0.96
Expired		--			--
Unvested, March 31, 2012		246		$	0.84

The Company estimates the fair value of stock-based awards utilizing the Black-Scholes pricing model for stock options and using the intrinsic value for restricted stock. The fair value of the awards is amortized as compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The Black-Scholes fair value calculations involve significant judgments, assumptions, estimates and complexities that impact the amount of compensation expense to be recorded in current and future periods. The factors include:

●	The time period that option awards are expected to remain outstanding has been determined based on the average of the original award period and the remaining vesting period in accordance with the SEC’s short-cut approach pursuant to SAB No. 107, “Disclosure About Fair Value of Financial Statements”. As additional evidence develops from the Company’s stock trading history, the expected term assumption will be refined to capture the relevant trends.
●	The future volatility of the Company’s stock has been estimated based on the weekly stock price from the acquisition date of Picometrix LLC (May 2, 2005) to the date of the latest stock grant.
●	A dividend yield of zero has been assumed for awards issued during the years ended March 31, 2012 and March 31, 2011, based on the Company’s actual past experience and the fact that Company does not anticipate paying a dividend on its shares in the near future.
●	The Company has based its risk-free interest rate assumption for awards issued during the years ended March 31, 2012 and March 31, 2011 on the implied yield available on U.S. Treasury issues with an equivalent expected term.
●	The forfeiture rate, for awards issued for the year ended March 31, 2012 was approximately 16.4% and March 31, 2011 was approximately 26.2%, and was based on the Company’s actual historical forfeiture history.

	Year Ended
	March 31, 2012			March 31, 2011
Option Plan Shares:
Expected term (in years)		6.3			6.3
Volatility		67.3	%		67.1	%
Expected dividend		0.0	%		0.0	%
Risk-free interest rate		1.05	%		1.14	%
Weighted-average grant date fair value	$	0.83		$	0.60

The table below lists the classification of the stock based compensation expense for the years ended March 31, 2012 and March 31, 2011.

	2012		2011
Cost of products sold	$	55,000	$	17,000
Research and development expense		157,000		38,000
General and administrative expense		295,000		158,000
Sales and marketing expense		25,000		12,000
Total Stock Based Compensation	$	532,000	$	225,000

At March 31, 2012, the total stock-based compensation expense related to unvested stock awards and restricted shares granted to employees and directors under the Company’s stock plans but not yet recognized was approximately $280,000. This expense will be amortized on a straight-line basis over a weighted-average period of approximately 3.0 years and will be adjusted for subsequent changes in estimated forfeitures.