Quarterly report pursuant to Section 13 or 15(d)

8. Stock-Based Compensation

8. Stock-Based Compensation
3 Months Ended
Jun. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract]  
8. Stock-Based Compensation

On June 1, 2015, the Board of Directors of the Company approved an increase of 250,000 shares authorized for issuance under the 2006 Stock Plan as of April 1, 2015, and an increase of 2,256,762 shares authorized for issuance under the 2011 Stock Plan as of April 1, 2015.


The Company estimated the fair value of employee and non-employee stock options using the Black-Scholes option pricing model. The fair values of employee and non-employee stock options are being amortized on a straight-line basis over the requisite service periods of the respective awards. Compensation expense includes the impact of an estimate for forfeitures for all stock options.


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 SEC’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 for non-employee grants and was determined by using the historical volatilities of the Company for employee options. 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, 2015 ranged from 0.85% to 1.81%. The estimated forfeiture rates used during the three months ended June 30, 2014 ranged from 0.36% to 0.37%.


The fair value of the stock options granted was calculated using the Black-Scholes option-pricing model using the following weighted-average assumptions:


    Three Months
June 30, 2015
Expected life   8.96 years    
Risk-free interest rate     2.18%    
Dividend yield     0.00%    
Volatility     86%    
Fair value of options granted   $ 1.08    


The Company did not grant stock options during the three months ended June 30, 2014.


Stock-based compensation expense is as follows:


    Three Months Ended
June 30,
    2015     2014  
Cost of revenues   $ 55,000     $ 64,000  
Research and development     73,000       96,000  
Selling, general and administrative     284,000       291,000  
Total stock-based compensation   $ 412,000     $ 451,000  


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 ($1.43) for stock options.


At June 30, 2015, there were unrecognized compensation costs of $2,473,000 related to stock options which is expected to be recognized over a weighted-average amortization period of 1.74 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.


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, 2015 and changes during the three months then ended is presented below:


    Number of
Exercise Price
Contractual Term
Outstanding at April 1, 2015     2,877,000     $ 6.96                  
Options granted     155,000       1.32                  
Options exercised                            
Options forfeited or expired     (53,000 )     (4.97 )                
Outstanding at June 30, 2015     2,979,000     $ 6.70       7.19     $ 38,000  
Exercisable at June 30, 2015     1,781,000     $ 8.91       6.05     $ 36,000  
Options available for grant as of June 30, 2015     3,858,000