2. Share-Based Compensation

The accounting guidance requires all share-based payments, including grants of stock options, to be recognized in the statement of operations as compensation expense based on their fair values. Accordingly, the estimated fair value of options granted under the company’s share based compensation plans are recognized as compensation expense over the option-vesting period.

On August 23, 2011, the stockholders approved the 2011 Omnibus Equity Incentive Plan (the 2011 Plan). The 2011 Plan replaces the 2010 Employee Stock Option Plan and the 2001 Non-Executive Director Stock Option Plan. The 2011 Plan provides for the issuance of up to 3,350,000 shares of the company’s common stock in connection with stock options, restricted share awards and other stock compensation vehicles. The 2011 Plan is administered by a committee designated by the board of directors comprised entirely of outside directors. The board or the committee, as the case may be, has the discretion to determine eligible participants and the types of awards and the terms of such awards. Vesting of stock options generally occurs one-third per year over three years or subject to performance based vesting conditions and options generally have a life of ten years. The restricted stock units awarded during fiscal 2013 are subject to performance-based vesting conditions. The board or the committee has full authority to interpret the 2011 Plan and to establish and amend rules and regulations relating thereto. Under the 2011 Plan, the exercise price of an option designated as an ISO may not be less than the fair market value of the company’s common stock on the date the option is granted. However, in the event an option designated as an ISO is granted to a ten percent shareholder, the exercise price shall be at least 110% of such fair market value. The aggregate fair market value on the grant date of shares subject to options which are designated as ISOs which become exercisable in any calendar year, shall not exceed $100,000 per optionee.

The board or the committee may in its sole discretion grant bonuses or authorize loans to or guarantee loans obtained by a participant to enable such participant to pay any taxes that may arise in connection with the exercise or cancellation of an option. As of June 30, 2013, 2012 and 2011, no loans had been granted or guaranteed. Loans may not be granted or guaranteed for directors or executive officers.

Stock option activity under the company’s stock option plans for employees and non-executive directors for the period ended June 30, 2013 is as follows (in thousands, except per share and average life data):


Employees Information	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, June 30, 2010		1,891		$	6.20
Granted		592			1.74
Expired/forfeited		(511	)		7.36

Outstanding, June 30, 2011		1,972			4.56
Granted		579			1.42
Exercised		(2	)		1.20
Expired/forfeited		(259	)		1.91

Outstanding, June 30, 2012		2,290			4.06
Granted		233			1.41
Expired/forfeited		(252	)		1.87

Outstanding, June 30, 2013		2,271		$	3.94		6.13	$	6

Exercisable at June 30, 2013		1,137		$	6.08		4.39	$	6

Expected to vest at June 30, 2013		975		$	1.96		7.88	$	—


Non-Executive Director Information	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, June 30, 2010		246		$	6.12
Granted		45			1.70
Expired		(41	)		11.96

Outstanding, June 30, 2011		250			4.36
Granted		35			1.72
Expired		(42	)		5.07

Outstanding, June 30, 2012		243			3.86
Granted		218			1.01
Expired		(89	)		4.76

Outstanding, June 30, 2013		372		$	1.97		7.33	$	—

As of June 30, 2013, there were approximately 575,732 restricted stock units outstanding that were granted to employees on January 15, 2013 in connection with the company’s compensation modification program. These restricted stock units vest when the company achieves cash flow breakeven, as defined.

Under the 2011 Plan, the company’s non-employee directors continued to have the option to elect to receive up to 100% of their cash director compensation, including amounts payable for committee service, service as a committee chair and per meeting fees, in restricted shares of our common stock issued at fair value in accordance with the terms of the 2011 Plan. In December 2012, the board of directors agreed that all non-employee directors would receive all of their cash director compensation, including amounts payable for committee service, service as a committee chair and per meeting fees, in restricted shares of our common stock or stock options issued at fair value in accordance with the terms of the 2011 Plan for periods ending after December 2012. During the year ended June 30, 2013, the company issued 104,657 shares of restricted common stock and 138,211 stock options (valued at approximately $217,000) to certain non-executive directors in connection with this program. In July 2013, the company issued 21,257 shares of restricted common stock (valued at approximately $18,500) to such directors under the program.

Share-based compensation expense by category is as follows (in thousands):


	June 30,
	2013		2012		2011
SG&A	$	245	$	241	$	194
Product development		40		35		23
Cost of revenues		20		20		9

Share-based compensation expense	$	305	$	296	$	226

The accounting guidance requires cash flows resulting from the tax benefits from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The company did not realize any tax benefits from the exercise of stock options during the years ended June 30, 2013, 2012 and 2011.

We computed the estimated fair values of all option-based compensation using the Black-Scholes option pricing model and the assumptions set forth in the following table. We based our estimate of the life of these options on historical averages over the past five years and estimates of expected future behavior. The expected volatility was based on our historical stock volatility. The assumptions used in our Black-Scholes calculations for fiscal 2013, 2012 and 2011 are as follows:


	Risk Free Interest Rate			Dividend Yield			Volatility Factor			Weighted Average Option Life (Months)
Fiscal year 2013		0.6	%		0	%		107	%		48
Fiscal year 2012		1.5	%		0	%		114	%		48
Fiscal year 2011		1.8	%		0	%		107	%		48

The Black-Scholes option-pricing model requires the input of highly subjective assumptions. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not provide a reliable single measure of the fair value of share-based compensation for employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation as circumstances change and additional data becomes available over time, which may result in changes to these assumptions and methodologies. Such changes could materially impact the company’s fair value determination.

As of June 30, 2013, there was approximately $1,665,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements. Approximately $222,000 of this expense is expected to be recognized over a weighted-average period of 14 months. The remaining expense will be recognized if certain vesting conditions are met.

The total intrinsic value of options exercised was $0, $1,400 and $0 for fiscal years ended 2013, 2012 and 2011, respectively. The weighted average grant date fair value of options granted during the fiscal years ended June 30, 2013, 2012 and 2011 was approximately $0.86, $1.08 and $1.26. The values were calculated using the Black-Scholes model.

The total fair value of shares vested was $297,000, $240,000 and $238,000 for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.