Note 7. Stock-Based Awards

3 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 7.  Stock-Based Awards

We maintain the following stockholder-approved equity incentive plans:

● The 2000 Stock Incentive Plan (the “2000 Plan”) authorizes the issuance of up to 4,500,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, and performance shares.

● The 2007 Stock Incentive Plan (the “2007 Plan) authorizes the issuance of up to 7,000,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, and other stock-based awards.

● The 2003 Director Option Plan (the “2003 Plan”) authorizes the issuance of up to 450,000 shares of common stock covering the annual automatic grant of 10,000 stock options per outside director per year. The 2003 Plan also provides for granting newly elected or appointed outside directors a one-time grant of 10,000 stock options.

The stock option plans provide that options may be granted at an exercise price of 100% of fair market value of our common stock on the date of grant, may be exercised in full or in installments, at the discretion of our Board or its Compensation Committee, and must be exercised within ten years from date of grant. We recognize stock-based compensation expense on a straight-line basis over the requisite service period based on fair values, generally four years. We use historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of stock-based compensation expense as of the grant date.

Stock Options

The following table summarizes stock options activity for the three months ended June 30, 2013:

	Number of Shares			Exercise Price Range					Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding at March 31, 2013		5,780,608		$	0.79	–	$	4.88	$	2.09		6.6
Granted		522,500		$	1.00	–	$	1.09		1.04
Canceled		(226,250	)	$	1.04	–	$	2.78		2.06
Outstanding at June 30, 2013		6,076,858		$	0.85	–	$	4.88	$	2.00		6.5
Vested and expected to vest at June 30, 2013		5,944,245		$	0.85	–	$	4.88	$	2.01		6.5
Exercisable at June 30, 2013		3,928,087		$	0.85	–	$	4.88	$	2.24		5.3

The weighted average fair value of options granted during the three months ended June 30, 2013 and 2012 was $0.70 and $1.13 per share, respectively.

The total intrinsic value (the excess of the market price over the exercise price) was approximately $25 thousand for stock options outstanding, $22 thousand for stock options exercisable, and $24 thousand for stock options vested and expected to vest as of June 30, 2013.

We do not expect to realize any tax benefits from future disqualifying dispositions, if any, because we currently have a full valuation allowance against our deferred tax assets.

Restricted Stock

The following table summarizes restricted stock activity for the three months ended June 30, 2013:

	Number of Shares			Weighted Average Grant Price
Nonvested at March 31, 2013		122,044		$	2.37
Vested		(44,016	)	$	2.30
Nonvested at June 30, 2013		78,028		$	2.41

We grant restricted stock awards (RSA’s) to executive officers, employees and board members from time to time. There is no direct costs to the recipients of the RSA’s, except for any applicable taxes. In fiscal 2011, the compensation committee adopted a performance incentive plan (PIP) that provides for the payment of bonuses to the company’s executive officers and other senior managers based on the attainment of specified company performance and individual executive objectives. Any payments that may be due under the PIP will be paid in shares of restricted stock awarded under our current 2007 Amended and Restated Stock Incentive Plan. The nonvested balance of 78,028 shares represent RSAs awarded to executive officers, senior managers under the PIP for fiscal 2012 and board members under the 2003 Director Stock Option Plan. The compensation committee did not approve a PIP for fiscal 2013. 

Stock-Based Compensation Expense
 

We account for stock-based awards issued to employees in accordance with the provisions of ASC 718 (Topic 718, Compensation – Stock Compensation ). We recognize stock-based compensation expense on a straight-line uniform basis over the service period of the award, which is generally four years for employees. Stock-based awards issued to consultants are accounted for in accordance with the provisions of ASC 718 and ASC 505-50 (Subtopic 50 “Equity-Based Payments to Non-Employees” of Topic 505, Equity ). Options granted to consultants are periodically revalued as the options vest, and are recognized as an expense over the related period of service or the vesting period, whichever is longer. Under the provisions of ASC 718, members of the Board are considered employees for calculation of stock-based compensation expense.

We estimated the fair value of the stock options granted on the date of grant using a Black-Scholes valuation model that used the weighted average assumptions noted in the following table. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. The expected life (estimated period of time that we expect employees, consultants and directors to hold their stock options) was estimated based on historical rates for two group classifications, (i) employees and consultants and (ii) outside directors. Expected volatility was based on historical volatility of our stock price for a period equal to the stock option’s expected life and calculated on a daily basis. The expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

	Three Months Ended June 30,
	2013			2012
Risk-free interest rate		1.29	%		1.13	%
Expected life (in years)		7.02			6.7
Expected volatility		82	%		83	%
Expected dividend yield		--			--

We determine stock-based compensation expense for performance based restricted stock based upon the fair value of our common stock at the date of grant and recognize expense based upon the most probable outcome as to whether the performance targets will be achieved and the stock-based compensation being earned.

Stock-based compensation expense for the three months ended June 30, 2013 and 2012 was recorded in our condensed consolidated statement of operations as follows:

	Three Months Ended June 30,
	2013		2012
Cost of sales	$	30	$	47
Selling, general, and administrative expenses		509		369
Research and development expenses		16		27
Total stock-based compensation expense	$	555	$	443

At June 30, 2013, unrecognized stock-based compensation expense related to stock options was approximately $1.7 million and is expected to be recognized over a weighted average period of approximately 2.3 years. At June 30, 2013, unrecognized stock-based compensation expense related to nonvested (restricted stock) awards was approximately $0.1 million, which is expected to be recognized over a weighted average period of approximately 1.6 years.