7. Share-based Compensation

As of June 30, 2013, we had one active plan (2006 Amended Stock and Incentive Plan) for share-based compensation grants. Under the plan, if we have a change in control, all outstanding grants, including those subject to vesting or other performance targets, fully vest immediately. Under this plan, we had reserved 2,700,000 shares of our Common stock for share-based grants. As of June 30, 2013, we had 1,275,000 shares remaining that were available for grant. We grant option awards with an exercise price equal to the closing market price of our stock at the date of the grant. Options granted under this plan generally expire over a period ranging from five to seven years from date of grant and vest at varying rates ranging up to three years.

We recognize share-based compensation expense in the statement of operations based on the fair value of the share-based payment over the requisite service period. We incurred approximately $16,000 and $164,000 in Share-based compensation and consulting expense for the three months ended June 30, 2013 and 2012 (inclusive of $2,000 in 2012 for option grants to consultants), respectively.

We determined the fair value of our option awards using the Black-Scholes option pricing model. We used the following weighted-average assumptions to value the options granted during the three months ended June 30:

	2013			2012

Expected life in years		5.53			4.74
Risk-free interest rate		0.84	%		0.82	%
Expected volatility		81.96	%		91.44	%
Expected dividend yield		0	%		0	%
Weighted-average grant date fair value	$	1.42		$	2.24

The expected life selected for options granted during the three-months represents the period of time that we expect our options to be outstanding based on historical data of option holder exercise and termination behavior for similar grants. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock. We estimate a forfeiture rate for stock awards of up to 18.0% based on our historical experience.

The following table summarizes the activity related to our stock options during the three months ended June 30, 2013:

	Number of shares			Weighted average exercise price		Weighted average remaining life in years		Aggregate intrinsic value

Outstanding at March 31, 2013		2,016,000		$	3.51		2.64	$	598,000
Options granted		12,000			2.11
Options surrendered		(205,000	)		3.64

Outstanding at June 30, 2013		1,823,000		$	3.48		2.53	$	444,000

Exercisable at June 30, 2013		1,584,000		$	3.45		2.00	$	444,000

The total fair value of stock options that vested during the three months ended June 30, 2013 and 2012 was $180,000 and $249,000 respectively.

Our 2006 Stock and Incentive Plan also permit our Compensation Committee to grant other stock-based benefits, including restricted shares. Restricted shares are subject to risk of forfeiture for termination of employment. The forfeiture risk generally lapses over a period of four years.

The following table summarizes the activity related to our restricted shares during the three months ended June 30, 2013:

	Number of Shares			Weighted average grant date fair value		Weighted average remaining life in years		Aggregate intrinsic value
Balance at March 31, 2013		180,000		$	4.39		1.50	$	790,000
Shares vested		(29,000	)		4.71
Shares forfeited		(71,000	)		4.42

Balance at June 30, 2013		80,000		$	4.24		1.76	$	337,000

The aggregate intrinsic value shown above for the restricted shares represents the total pre-tax value based on the closing price of our Company’s common stock on the grant date.

As of June 30, 2013, we had approximately $713,000 of unrecognized Share-based compensation expense, net of estimated forfeitures, related to stock options and restricted shares that we expect to recognize over a weighted-average period of approximately 2 years.

Subsequent Event. On July 23, 2013, and in connection with the commencement of his employment, our new Chief Executive Officer received options to purchase 700,000 shares vesting in three equal annual increments, and a stock grant of 300,000 shares. After giving effect to forfeitures after June 30, 2013 and these new grants, we had approximately 295,000 shares remaining available for grant of future awards under our 2006 Amended Stock and Incentive Plan at July 23, 2013. In the second quarter of fiscal year 2014 we expect to incur non-cash charges of approximately $700,000 related to the stock grant on July 23, 2013 and approximately $74,000 related to the stock options.