Quarterly report pursuant to Section 13 or 15(d)

7. Stock-Based Compensation

7. Stock-Based Compensation
3 Months Ended
Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract]  
7. Stock-Based Compensation

In April 2014, the Company’s board of directors approved increases to the number of shares authorized for issuance under the 2006 and 2011 Plans by 250,000 and 1,224,021 shares, respectively.


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:


    Three Months Ended
June 30,
    2014     2013  
Cost of revenues   $ 64,000     $ 25,000  
Research and development     96,000       33,000  
Selling, general and administrative     291,000       128,000  
Total stock-based compensation   $ 451,000     $ 186,000  


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


A summary of all option activity as of June 30, 2014 and changes during the three months then ended is presented below:


    Number of
Exercise Price
Contractual Term
Outstanding at April 1, 2014     2,536,000       7.78                  
Options granted                            
Options exercised                            
Options forfeited or expired                            
Outstanding at June 30, 2014     2,536,000     $ 7.78       8.24     $ 54,000  
Exercisable at June 30, 2014     1,084,000     $ 12.82       6.46     $ 36,000  
Options available for grant as of June 30, 2014     2,252,000                          


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 ($3.09) for stock options.


At June 30, 2014, there were unrecognized compensation costs of $3,652,000 related to stock options which is expected to be recognized over a weighted-average amortization period of 2.56 years.


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 using an average of the historical volatilities of the Company and its 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 three months ended June 30, 2014 ranged from 0.36% to 0.37%.


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.