Quarterly report pursuant to Section 13 or 15(d)

7. Stock-Based Compensation

v3.5.0.2
7. Stock-Based Compensation
6 Months Ended
Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract]  
Stock-Based Compensation

Performance Based Awards Program

 

The Company’s Compensation Committee approved a short-term performance based bonus program for fiscal 2016 with predetermined objectives related to revenue and expense targets. In the event the fiscal 2016 objectives were met, eighty-percent of the options would have vested on June 30, 2016. On August 21, 2015, certain executives and senior managers were granted an aggregate of 75,500 stock options in connection with this program. The stock options have an exercise price of $5.80 and expire ten years from the date of grant. At March 31, 2016, it was determined targets were met related to 50,400 stock options which vested on June 30, 2016. At March 31, 2016, 10,000 stock options expired due to targets that were not met. The vesting of the remaining 15,100 stock options was at the discretion of the Company’s Compensation Committee to be determined during the three months ended June 30, 2016. The Company’s Compensation Committee determined 14,772 of the 15,100 discretionary stock options vested at June 30, 2016 and 228 of the discretionary stock options expired unvested.

 

The Company also approved a long-term market-based stock option bonus program for senior managers. Vesting of the stock options granted as part of this program is contingent upon the achievement of four separate target stock prices. The market-based options vest based on the 30 trading day trailing average of the stock price of the Company’s common stock with options vesting in 25% increments at each of the target stock prices. On the last day of each quarter, the chief executive officer and/or chief financial officer will determine if any of the target stock prices have been met by evaluating the period between the quarter end date and the grant date of the option. In the event that a target stock price has been met, the senior manager will be notified that such options have vested. At the end of five years from the date of the grant, if the stock target prices have not been met, then the unvested portion of the option will expire. On August 21, 2015, certain senior managers were granted an aggregate of 23,750 stock options in connection with this program. The stock options have an exercise price of $5.80 and if they vest will expire ten years from the date of grant. None of these options vested as of September 30, 2016.

  

Stock-Based Compensation

 

The Company issues service, performance and market-based stock options to employees and non-employees. The Company estimates the fair value of service and performance stock option awards using the Black-Scholes option pricing model. The Company estimates the fair value of market-based stock option awards using a Monte-Carlo simulation. Compensation expense for stock option awards is amortized on a straight-line basis over the awards’ vesting period. Compensation expense includes the impact of an estimate for forfeitures for all stock options.

 

The expected term of the 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 six months ended September 30, 2016 ranged from 4.65% to 6.01%. The estimated forfeiture rates used during the six months ended September 30, 2015 ranged from 1.18% to 1.81%.

  

The Company estimated the fair value of employee and non-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:

 

   

Three Months

Ended

September 30,

   

Six Months

Ended

September 30,

 
    2016     2015     2016     2015  
Expected life   9.10 years     5.95 years     7.97 years     6.32 years  
Risk-free interest rate     1.49%       1.62%       1.45%       1.66%  
Dividend yield     0.00%       0.00%       0.00%       0.00%  
Volatility     98%       89%       94%       89%  
Fair value of options granted   $ 3.64     $ 4.25     $ 3.68     $ 4.40  

 

Share-based awards compensation expense is as follows:

 

    Three Months     Six Months  
    Ended     Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Cost of service revenue   $ 66,000     $ 62,000     $ 134,000     $ 117,000  
Research and development     60,000       88,000       124,000       161,000  
Selling, general and administrative     280,000       342,000       559,000       626,000  
Total stock-based compensation   $ 406,000     $ 492,000     $ 817,000     $ 904,000  

  

At September 30, 2016, there were unrecognized compensation costs of $981,000 related to stock options which are expected to be recognized over a weighted-average amortization period of 1.21 years.

 

Stock-Based Award Activity

  

Stock-based awards outstanding at September 30, 2016 under the various plans are as follows:

 

Plan     Awards Outstanding  
  2006 Plan       171,000  
  2011 Plan       575,000  
          746,000  
  Awards available for grant as of September 30, 2016       372,000  

  

Stock options award activity is as follows:

 

    Number of
Shares
    Weighted-
Average
Exercise Price
    Weighted-
Average
Contractual Term
    Aggregate
Intrinsic
Value
 
Outstanding at April 1, 2016     753,000     $ 21.47                  
Options granted     25,000       4.49                  
Options exercised                            
Options forfeited     (15,000 )     7.09                  
Options expired     (17,000 )     22.68                  
Outstanding at September 30, 2016     746,000     $ 20.59       7.44     $ 2  
Exercisable at September 30, 2016     544,000     $ 24.91       6.99     $  

 

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock, or $4.34 per share at September 30, 2016.

 

Restricted stock award activity is as follows:

 

   

Number of

Shares

   

Weighted

Average Award

Date Fair Value

per Share

 
Unvested restricted stock awards outstanding at April 1, 2016         $  
Restricted stock awards granted     9,000       4.47  
Restricted stock awards vested     (9,000 )     4.47  
Restricted stock awards forfeited            
Unvested restricted stock awards outstanding at September 30, 2016         $  

 

Restricted stock awards were issued to non-employee directors for services in the six months ended September 30, 2016.

 

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

 

The Company issues new shares of common stock upon exercise of stock based awards.