Note 9 - Stock-Based Awards

12 Months Ended

Mar. 31, 2014

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

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

Note 9. Stock-Based Awards

We maintain the following stockholder-approved equity incentive plans:

● The 2000 Stock Incentive Plan (the “2000 Plan”) authorized 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”) authorized the issuance of up to 5,000,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, and other stock-based awards. On July 26, 2012, our stockholders approved an amendment to the 2007 Plan further increasing the number of authorized shares issuable under the plan to 7,000,000 shares of common stock.

● The 2003 Director Option Plan (the “2003 Plan”) authorized the issuance of up to 450,000 shares of common stock covering the annual automatic grant, unless waived, 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 of Directors (the “Board”) or its Compensation Committee (the “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 option activity for fiscal years 2014 and 2013:

	Fiscal Year Ended March 31,
	2014					2013
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Outstanding at April 1		5,780,608		$	2.09		6,007,661		$	2.23
Granted		1,096,500			1.04		1,019,750			1.25
Exercised		-			-		(87,881	)		1.13
Cancelled (1)		(2,499,234	)		2.19		(1,158,922	)		2.18
Outstanding at March 31		4,377,874		$	1.78		5,780,608		$	2.09
Vested and expected to vest at March 31		4,302,138		$	1.79		5,622,126		$	2.10
Exercisable at March 31		3,531,403		$	1.90		3,580,173		$	2.34

⁽¹⁾ Includes cancellation of unvested stock options granted to our former President and Chief Executive Officer, Cynthia F. Ansari (1,125,000 stock options), and our former EVP, Corporate Development and Chief Financial Officer, Katherine L. Wolf (612,458 stock options).

At March 31, 2014, there were 1,415,603 shares of common stock reserved for stock options. We generally issue shares for the exercise of stock options from unissued reserved shares.

The weighted average remaining contractual term was approximately 6.0 years for stock options outstanding, approximately 5.3 years for stock options exercisable, and 5.9 years for stock options vested and expected to vest as of March 31, 2014. The weighted average fair value of options granted was $0.68 and $0.90 in fiscal years 2014 and 2013, respectively.

The total intrinsic value (the excess of the market price over the exercise price) was approximately $319 thousand for stock options outstanding, $202 thousand for stock options exercisable, and $308 thousand for stock options vested and expected to vest as of March 31, 2014. The total intrinsic value for stock options exercised was approximately $25 thousand in fiscal 2013. There were no stock options exercised during fiscal 2014.

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.

The following table summarizes information concerning outstanding and exercisable stock options at March 31, 2014:

			Stock Options Outstanding						Stock Options Exercisable
Range of Exercise Prices			Number of Shares		Weighted Average Remaining Contractual Life		Weighted Exercise Average Price		Number of Shares		Weighted Average Exercise Price
$0.79	-	$1.16		1,591,250		8.07	$	1.00		994,500	$	1.00
$1.17	-	$2.32		1,868,399		4.88	$	1.64		1,710,586	$	1.62
$2.33	-	$3.48		464,350		6.63	$	2.63		372,442	$	2.65
$3.49	-	$4.65		293,375		1.23	$	3.93		293,375	$	3.93
$4.66	-	$5.81		160,500		4.16	$	4.88		160,500	$	4.88
				4,377,874		5.96	$	1.78		3,531,403	$	1.90

Restricted Stock

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.

The following table summarizes restricted stock activity for fiscal years 2014 and 2013:

	Fiscal Year Ended March 31,
	2014					2013
				Weighted					Weighted
				Average					Average
	Number			Grant		Number			Grant
	of Shares			Price		of Shares			Price
Nonvested at April 1		122,044		$	2.37		306,606		$	2.50
Granted		1,365,000			1.00		40,000			1.40
Vested		(161,642	)		1.54		(174,284	)		2.30
Forfeited		-			-		(50,278	)		2.66
Nonvested at March 31		1,325,402		$	1.06		122,044		$	2.37

We grant restricted stock awards (“RSA’s”) to our executive officers and management employees (collectively “management”) and members of our Board from time-to-time. There is no direct cost to the recipients of the RSA’s, except for any applicable taxes upon lapsing of the restrictions. In fiscal 2011, the Compensation Committee adopted a performance incentive plan (“PIP”) that provides for the payment of bonuses to management based on the attainment of specified Company performance and individual objectives. Any payments that may be due under the PIP will be paid in shares of restricted stock awarded under our 2007 Plan. The Compensation Committee did not approve a PIP for fiscal 2014 or 2013. 

On November 26, 2013 (the “Appointment Date”), at the time of his appointment as President and Chief Executive Officer, Howard Zauberman was granted 1,200,000 shares of restricted stock. The restrictions on Mr. Zauberman’s restricted stock will lapse over four years (subject to further vesting as described below) commencing on the Appointment Date as follows: up to 300,000 shares become unrestricted each year, upon Mr. Zauberman’s achievement of predetermined Company milestones and individual performance objectives (the “Milestones”) based on a plan developed by Mr. Zauberman and approved by the Board on April 23, 2014 (the “Plan”). If a Milestone is not achieved, the shares of restricted stock tied to that Milestone are cancelled. Those restricted shares for which restrictions have been removed as a result of Mr. Zauberman’s achieving Milestones as described above will then vest in four equal annual installments.

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.

	Fiscal Year Ended March 31,
	2014			2013
Risk-free interest rate		1.27	%		1.05	%
Expected life (in years)		5.47			6.43
Expected volatility		79	%		84	%
Expected dividend yield		--			--

The following table summarizes stock-based compensation recorded in our consolidated statements of operations in fiscal years 2014 and 2013:

	Fiscal Year Ended March 31,
	2014		2013
Cost of sales	$	54	$	89
Selling, general, and administrative expenses(1)		577		1,329
Research and development expenses		63		51
Total stock-based compensation	$	694	$	1,469

⁽¹⁾ Reflects reversal of stock-based compensation expense of $289 thousand in fiscal 2014 for the cancellation of unvested stock options granted to our former President and Chief Executive Officer, Cynthia F. Ansari.

At March 31, 2014, unrecognized stock-based compensation expense related to stock options was approximately $0.5 million and is expected to be recognized over a weighted average period of approximately 2.5 years. At March 31, 2014, 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 0.6 years.