4.	Earnings per Share and Stock-Based Compensation

The Company reports basic and diluted earnings per share (“EPS”). Basic EPS is based on the weighted average number of shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of the Company’s outstanding stock options, warrants and shares of restricted stock computed using the treasury stock method.

The table below sets forth the reconciliation of the denominator of each net loss per share calculation for the first quarter of fiscal 2014 and 2013:


	First Quarter Ended January 31,
In thousands	2014		2013
Shares used in computing basic net loss per share		169,747		165,767
Dilutive effect of stock options and restricted stock⁽¹⁾		—		—
Dilutive effect of stock warrants⁽¹⁾		—		—

Shares used in computing diluted net loss per share		169,747		165,767

⁽¹⁾

For the first quarter of fiscal 2014 and 2013, the shares used in computing diluted net loss per share do not include 3,974,000 and 3,391,000, respectively, of dilutive stock options and shares of restricted stock, nor 19,913,000 and 15,140,000, respectively, of dilutive warrant shares, as the effect is anti-dilutive given the Company’s net loss from continuing operations. For the first quarter of fiscal 2014 and 2013, additional stock options outstanding of 3,856,000 and 7,932,000, respectively, and additional warrant shares outstanding of 5,741,000 and 10,514,000, respectively, were excluded from the calculation of diluted EPS, as their effect would have been anti-dilutive based on the application of the treasury stock method.

The Company accounts for stock-based compensation under the fair value recognition provisions of Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation.” Stock-based compensation expense is included in selling, general and administrative expense (“SG&A”).

The Company has previously granted performance-based restricted stock units and options to certain key employees and executives. Vesting of these awards is contingent upon a required service period and the Company’s achievement of specified common stock price thresholds. In addition, the vesting of a portion of the options can be accelerated based upon the Company’s achievement of specified annual performance targets. The Company believes that the granting of these awards serves to further align the interests of its employees and executives with those of its stockholders. Based on the vesting contingencies in the awards, the Company used a Monte-Carlo simulation in order to determine the grant date fair values of the awards. There were no such awards granted in the first quarter of fiscal 2014. For the first quarter of fiscal 2013, the assumptions used in the Monte-Carlo simulations for the restricted stock units granted included a risk-free interest rate of 0.5%, volatility of 73% to 89%, and a zero dividend yield. The weighted average fair value of the restricted stock units granted in the first quarter of fiscal 2013 was $3.39. There were no performance options granted in the first quarter of fiscal 2014 or 2013.

Activity related to these performance-based equity instruments for the first quarter of fiscal 2014 was as follows:


	Performance Options			Performance Restricted Stock Units
Outstanding, October 31, 2013		688,000			11,675,782
Granted		—			—
Exercised		(12,000	)		—
Canceled		(36,000	)		(30,937	)

Outstanding, January 31, 2014		640,000			11,644,845

As of January 31, 2014, 82,000 of the 640,000 oustanding performance options were exercisable and none of the performance restricted stock units were exercisable. As of January 31, 2014, the Company had unrecognized compensation expense, net of estimated forfeitures, of approximately $0.7 million related to the performance options and approximately $6 million related to restricted stock units. This unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 2 years and 0.4 years, respectively.

For non-performance-based options, the Company uses the Black-Scholes option-pricing model to value compensation expense. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The expected term of options granted is derived from historical data on employee exercises. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of the Company’s stock. For the first quarter of fiscal 2014 and 2013, there were no options granted. The Company records stock-based compensation expense using the graded vested method over the vesting period, which is generally three years. As of January 31, 2014, the Company had approximately $3 million of unrecognized compensation expense for non-performance-based options expected to be recognized over a weighted average period of approximately 2 years.

Changes in shares under option, excluding performance-based options, for the first quarter of fiscal 2014 were as follows:


Dollar amounts in thousands, except per share amounts	Shares			Weighted Average Price		Weighted Average Life		Aggregate Intrinsic Value
Outstanding, October 31, 2013		8,829,618		$	4.83
Granted		—			—
Exercised		(568,290	)		4.24			$	2,370
Canceled		(626,750	)		8.59

Outstanding, January 31, 2014		7,634,578		$	4.56		5.5	$	21,110

Options exercisable, January 31, 2014		5,633,427		$	4.16		4.8	$	18,344

Changes in non-vested shares under option, excluding performance-based options, for the first quarter of fiscal 2014 were as follows:


	Shares			Weighted Average Grant Date Fair Value
Non-vested, October 31, 2013		2,784,826		$	2.95
Granted		—			—
Vested		(778,675	)		2.28
Canceled		(5,000	)		3.51

Non-vested, January 31, 2014		2,001,151		$	3.19

The Company also grants restricted stock and restricted stock units under its 2013 Performance Incentive Plan. Restricted stock issued under this plan generally vests in three years while restricted stock units issued under this plan generally vest upon the Company’s achievement of a specified common stock price threshold . There were no changes in restricted stock for the first quarter of fiscal 2014.

Compensation expense for restricted stock is determined using the intrinsic value method and forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The Company monitors the probability of meeting the restricted stock performance criteria, if any, and adjusts the amortization period as appropriate. As of January 31, 2014, there had been no acceleration of amortization periods and the Company had approximately $0.3 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately one year.