Annual report pursuant to Section 13 and 15(d)

NOTE 13 - Stock-Based Compensation

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NOTE 13 - Stock-Based Compensation
 12 Months Ended
Mar. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
NOTE 13 — Stock-Based Compensation

1999, 2000, 2003 and 2004 Stock Option Plans

The 1999, 2000, 2003 and 2004 Stock Option Plans became effective May 1999, June 2000, July 2003 and July 2004, respectively. The Plans provide for grants of both incentive stock options (ISOs) and non-qualified stock options (NSOs) to employees, consultants and directors.

In accordance with the Plans, the stated exercise price may not be less than 100% and 85% of the estimated fair market value of the Company’s common stock on the date of grant for ISOs and NSOs, respectively, as determined by the board of directors at the date of grant. With respect to any 10% shareholder, the exercise price of an ISO or NSO was not to exceed 110% of the estimated fair market value per share on the date of grant.

Options issued under the Plans generally have a ten-year term and generally became exercisable over a five-year period.

On June 29, 2006, the compensation committee of the Company’s board of directors resolved that it would not approve any further grants under its 1999, 2000 and 2003 Plans. Additionally, in connection with the Company’s reincorporation in Delaware on December 15, 2006, no future options will be granted under the 2004 Plan.

2006 Stock Plan

On November 7, 2006, the board authorized and reserved 1,250,000 shares for issuance under the Company’s 2006 Stock Incentive Plan, as amended (the “2006 Plan”), which was previously adopted by the board of directors in August 2006. On December 14, 2006, the stockholders approved the Company’s 2006 Plan which became effective at the close of the Company’s initial public offering. The 2006 Plan was amended by resolution of the board on April 26, 2007, and the amendments were subsequently approved by the stockholders.  On September 10, 2009, the Company’s shareholders approved a subsequent amendment of the 2006 Plan.  This amendment authorized and reserved an additional 1,000,000 shares for issuance under the 2006 Plan.

The 2006 Plan provides for the granting of incentive stock options to employees and the granting of nonstatutory stock options to employees, non-employee directors, advisors and consultants. The 2006 Plan also provides for grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants.

In accordance with the 2006 Plan, the stated exercise price may not be less than 100% and 85% of the estimated fair market value of common stock on the date of grant for ISOs and NSOs, respectively, as determined by the board of directors at the date of grant. With respect to any 10% stockholder, the exercise price of an ISO or NSO shall not be less than 110% of the estimated fair market value per share on the date of grant.

Options issued under the 2006 Plan generally have a ten-year term and generally become exercisable over a five-year period.

Shares subject to awards that expire unexercised or are forfeited or terminated will again become available for issuance under the 2006 Plan. No participant in the 2006 Plan can receive option grants, restricted shares, stock appreciation rights or stock units for more than 187,500 shares in the aggregate in any calendar year.

As provided under the 2006 Plan, the aggregate number of shares authorized for issuance as awards under the 2006 Plan automatically increased on April 1, 2011 by 1,328,815 shares (which number constitutes 5% of the outstanding shares on the last day of the year ended March 31, 2011).  The number of shares authorized for issuance will be subject to adjustment on April 1, 2012 (Note 17).

2011 Stock Plan

On September 12, 2011, upon recommendation of the board, the stockholders approved the Company’s 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan shall be effective as of the date of the initial offering of common stock to the public pursuant to a registration statement filed by the Company with the Securities and Exchange Commission.  As of March 31, 2012, the Company has not filed such registration statement for the 2011 Plan.

The 2011 Plan provides for the grant of incentive stock options as defined in Section 422 of the Internal Revenue Code to employees, and the grant of non-statutory stock options and stock purchase rights to employees, non-employee directors, advisors and consultants. The 2011 Plan also permits the grant of stock appreciation rights, stock units and restricted stock.

The board has authorized 3,000,000 of the Company’s common stock for issuance under the 2011 Plan, in addition to automatic increases provided for in the 2011 Plan through April 1, 2021. The number of shares of the Company’s common stock reserved for issuance under the 2011 Plan will automatically increase, with no further action by the stockholders, at the beginning of each fiscal year by an amount equal to the lesser of (i) 15% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding year, or (ii) an amount approved by the board (Note 17).

Options issued under the 2011 Plan will generally have a ten-year term.

In accordance with the 2011 Plan, the stated exercise price of an employee incentive stock option shall not be less than 100% of the estimated fair market value of a share of common stock on the date of grant, and the stated exercise price of an nonstatutory option shall not be less 85% of the estimated fair market value of a share of common stock on the date of grant, as determined by the board of directors. An employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company shall not be eligible for the grant of an employee incentive stock option unless such grant satisfies the requirements of Section 422(c)(5) of the Internal Revenue Code.

Shares subject to awards that expire unexercised or are forfeited or terminated for any other reason will again become available for issuance under the 2011 Plan. No participant in the 2011 Plan can receive option grants, stock appreciation rights, restricted shares, or stock units for more than 750,000 shares in the aggregate in any calendar year. As provided under the 2011 Plan, the aggregate number of shares authorized for issuance as awards under the 2011 Plan automatically increases on April 1 of each year by in an amount equal to the lesser of (i) 15% of the outstanding shares on the last day of the immediately preceding year, or (ii) an amount determined by the board (Note 17).

Options and restricted stock units outstanding at March 31, 2012 under the various plans is as follows (in thousands):

Plan
 
Total
Number of
Options and
Restricted
Stock Units
Outstanding
in Plan
 
1999 Plan
   
4
 
2000 Plan
   
—
 
2003 Plan
   
147
 
2004 Plan
   
486
 
2006 Plan
   
5,629
 
2011 Plan
   
 —
 
     
  6,266
 

A summary of activity under all option plans for the years ended March 31, 2012 and 2011 is presented below (in thousands, except per share data):

   
Number of
Shares
   
Weighted-
Average
Exercise Price
   
Weighted-
Average
Contractual Term
   
Aggregate
Intrinsic
Value
 
Outstanding at March 31, 2010
   
  3,987
   
$
2.96
             
Options granted
   
    750
     
1.95
             
Options exercised
   
  (126
) 
   
0.74
             
Options forfeited or expired
   
    (215
) 
   
4.79
             
Outstanding at March 31, 2011
   
    4,396
     
2.96
             
Options granted
   
   2,173
     
1.60
             
Options exercised
   
  (135
) 
   
0.41
             
Options forfeited or expired
   
    (168
) 
   
4.61
             
Outstanding at March 31, 2012
   
    6,266
   
$
2.36
     
  7.47
   
$
653
 
Exercisable at March 31, 2012
   
    4,759
   
$
2.54
     
  7.02
   
$
629
 
Options available for grant as of March 31, 2012
   
    2,833
                         

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock ($1.33) for stock options.

Stock-Based Compensation

The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. The Company amortizes the fair value of employee stock options on a straight-line basis over the requisite service period of the awards.  Compensation expense includes the impact of an estimate for forfeitures for all stock options.

Employee stock-based compensation expense is as follows (in thousands, except per share amounts):

   
Employee
Stock-based
Compensation
for the Year Ended
March 31, 2012
   
Employee
Stock-based
Compensation
for the Year Ended
March 31, 2011
 
Cost of revenues
 
$
113
   
$
58
 
Research and development
   
278
     
206
 
Selling, general and administrative
   
1,780
     
1,620
 
Total stock-based compensation
 
$
2,171
   
$
1,884
 

No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options.

The Company estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service periods of the respective awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:

   
Year Ended March 31,
 
   
2012
   
2011
 
Fair value of common stock on date of grant
 
$
1.60
   
$
1.95
 
Expected Term
 
5.75 yrs
   
5.60 yrs
 
Risk-free interest rate
   
1.27
%
   
  2.03
%
Dividend yield
   
0.00
%
   
  0.00
%
Volatility
   
83.5
%
   
  83.5
%

The weighted-average fair values of options granted during the years ended March 31, 2012 and 2011 were $1.11 and $1.35, respectively.

The expected term of stock options represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options. The expected stock price volatility for the Company’s stock options was determined by examining the historical volatilities for industry peers and using an average of the historical volatilities of the Company’s industry peers. The Company will continue to analyze the stock price volatility and expected term assumptions as more data for the Company’s common stock and exercise patterns become available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.  The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company estimates forfeitures based on historical experience and reduces compensation expense accordingly. The estimated forfeiture rates used during the year ended March 31, 2012 ranged from 0.53% to 2.53%.

At March 31, 2012, there were unrecognized compensation costs of $1,871,000 related to stock options which are expected to be recognized over a weighted-average amortization period of 1.95 years.

The Company did not capitalize any cost associated with stock-based compensation.

The Company issues new shares of common stock upon exercise of stock options.