Equity

Stock Sales

During August 2012, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may, from time to time, sell up to an aggregate of $50 million of our common or preferred stock, warrants or debt securities. On August 23, 2012, the registration statement was declared effective by the SEC, which will allow us to access the capital markets for the three year period following this effective date as long as we continue to meet the eligibility requirements for the use of Form S-3. On October 3, 2012, we sold 1,832,410 shares of common stock for net proceeds of $9.5 million. In addition, on September 18, 2013, we sold 2,875,000 shares of common stock for net proceeds of $11.7 million.

Equity Plans

We provide long-term incentives to eligible officers, directors, and employees in the form of equity-based awards. We maintain three equity incentive compensation plans, collectively described below as our Equity Plans:


•	the 2000 Stock Option Plan (2000 Plan),


•	the 2010 Equity Incentive Plan (2010 Equity Plan),


•	the 2012 Equity Incentive Plan (2012 Equity Plan).

On March 5, 2014, our shareholders approved an amendment to the 2012 Equity Plan to increase the total number of shares of common stock available for grant under the 2012 Equity Plan by 1,000,000 shares, to a total authorized of 2,000,000 shares.

We issue new shares of common stock to satisfy awards issued under our Equity Plans.

Stock Options

Most of our stock options vest and become exercisable over a four to five year period and have a contractual life of 10 years. Certain stock options awarded are intended to qualify as incentive stock options pursuant to Section 422A of the Internal Revenue Code.

The following table summarizes stock option activity under the Equity Plans for the six months ended March 31, 2014:



	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (*) (in thousands)
Outstanding as of September 30, 2013	1,745,948		$17.78
Granted	24,575		$4.97
Exercised	(6,100	)	$4.52		$	4
Forfeited	(30,805	)	$4.55
Expired	(59,230	)	$20.81
Outstanding as of March 31, 2014	1,674,388		$17.77	3.74
Exercisable as of March 31, 2014	1,504,207		$19.23	3.24	$	120
Vested and expected to vest as of March 31, 2014	1,647,359		$17.99	3.66	$	209

(*) Intrinsic value for stock options represents the “in-the-money” portion or the positive variance between a stock option's exercise price and the underlying stock price. For the six months ended March 31, 2013, the intrinsic value of options exercised was $92,000.

As of March 31, 2014, there was approximately $0.6 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested stock options granted under the Equity Plans which is expected to be recognized over an estimated weighted average life of 2.9 years.

Valuation Assumptions

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option valuation model, adhering to the straight-line attribution approach using the following weighted-average assumptions, of which the expected term and stock price volatility rate are highly subjective:



	For the Three Months Ended March 31,					For the Six Months Ended March 31,
	2014		2013			2014			2013
Black-Scholes weighted average assumptions:
Expected dividend rate	—	%	—		%	—		%	—		%
Expected stock price volatility rate	93.4	%	96.5		%	93.8		%	96.9		%
Risk-free interest rate	1.9	%	1.1		%	1.9		%	1.0		%
Expected term (in years)	6.0		6.0			6.0			6.0

Weighted average grant date fair value per share of stock options granted:	$3.76		$	4.28		$	3.79		$	3.94

Restricted Stock

Restricted stock awards (RSAs) and restricted stock units (RSUs) granted under the 2010 Equity Plan and 2012 Equity Plan typically vest over 3 years and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. RSAs are considered issued and outstanding shares on the grant date and have the same dividend and voting rights as other common stock. RSUs are not considered issued or outstanding common stock until they vest.

The following table summarizes the activity related to RSAs and RSUs for the six months ended March 31, 2014:



Restricted Stock Activity	Restricted Stock Awards			Restricted Stock Units
	Number of Shares		Weighted Average Grant Date Fair Value	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2013	99,561		$5.84	854,928		$4.51
Granted	—		—	656,750		$4.89
Vested	(92,932	)	$5.68	(326,657	)	$4.35
Forfeited	(2,463	)	$5.68	(71,974	)	$4.41
Non-vested as of March 31, 2014	4,166		$9.64	1,113,047		$4.79

Restricted stock awards: As of March 31, 2014, there was approximately $3,000 of remaining unamortized stock-based compensation expense, net of estimated forfeitures, associated with RSAs, which will be expensed over a weighted average remaining service period of approximately 0.1 years.

Restricted stock units: As of March 31, 2014, there was approximately $3.9 million of remaining unamortized stock-based compensation expense, net of estimated forfeitures, associated with RSUs, which will be expensed over a weighted average remaining service period of approximately 2.2 years. The 1.1 million outstanding non-vested RSUs have an aggregate intrinsic value of approximately $5.6 million and a weighted average remaining contractual term of 1.4 years. Of the 1.1 million outstanding non-vested RSUs, approximately 1.0 million RSUs are expected to vest and have an aggregate intrinsic value of approximately $4.9 million and a weighted average remaining contractual term of 1.4 years.

Stock-based compensation

The effect of recording stock-based compensation expense was as follows:



Stock-based Compensation Expense - by award type	For the Three Months Ended March 31,				For the Six Months Ended March 31,
(in thousands)	2014		2013		2014		2013
Employee stock options	$	43	$	123	$	110	$	381
Restricted stock awards and units	618		515		1,296		921
Employee stock purchase plan	108		125		228		256
401(k) match in common stock	250		257		410		513
Outside director fees in common stock	85		31		195		62
Total stock-based compensation expense	$	1,104	$	1,051	$	2,239	$	2,133



Stock-based Compensation Expense - by expense type	For the Three Months Ended March 31,				For the Six Months Ended March 31,
(in thousands)	2014		2013		2014		2013
Cost of revenue	$	214	$	290	$	431	$	605
Selling, general, and administrative	579		459		1,220		841
Research and development	311		302		588		687
Total stock-based compensation expense	$	1,104	$	1,051	$	2,239	$	2,133

Income (Loss) Per Share.

The following table sets forth the computation of basic and diluted net income (loss) per share:



Basic and Diluted Net (Loss) Income Per Share	For the Three Months Ended March 31,						For the Six Months Ended March 31,
(in thousands, except per share)	2014			2013			2014			2013

Numerator - Net (loss) income	$	(5,432	)	$	11,697		$	(7,486	)	$	14,523
Less: Undistributed earnings allocated to participating securities	—			(94		)	—			(118		)
Undistributed earnings allocated to common shareholders for basic net (loss) income per share	$	(5,432	)	$	11,603		$	(7,486	)	$	14,405
Undistributed earnings allocated to common shareholders for diluted net (loss) income per share	$	(5,432	)	$	11,603		$	(7,486	)	$	14,405
Denominator:
Denominator for basic net (loss) income per share - weighted average shares outstanding	30,392			26,310			30,162			26,142
Dilutive options outstanding, unvested stock units and ESPP	—			332			—			290
Denominator for diluted net (loss) income per share - adjusted weighted average shares outstanding	30,392			26,642			30,162			26,432
Basic net (loss) income per share	$	(0.18	)	$	0.44		$	(0.25	)	$	0.55
Diluted net (loss) income per share	$	(0.18	)	$	0.44		$	(0.25	)	$	0.54
Weighted average antidilutive options, unvested restricted stock units and awards, warrants and ESPP shares excluded from the computation	3,028			1,869			2,653			2,265
Average market price of common stock	$	4.96		$	5.66		$	5.00		$	5.16

The antidilutive stock options and unvested stock were excluded from the computation of diluted net income (loss) per share due to the assumed proceeds from the award’s exercise or vesting being greater than the average market price of the common shares or due to the Company incurring a net loss for the periods presented.

Employee Stock Purchase Plan

We maintain an Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is a 6-month duration plan with new participation periods beginning on February 25 and August 26 of each year. The purchase price is set at 85% of the average high and low market price of our common stock on either the first or last day of the participation period, whichever is lower, and contributions are limited to the lower of 10% of an employee's compensation or $25,000. On March 5, 2014, our shareholders approved an amendment to the ESPP that increased the total number of shares of common stock on which options may be granted under the ESPP to 3,250,000 shares.

Future Issuances

As of March 31, 2014, we had common stock reserved for the following future issuances:



Future Issuances	Number of Common Stock Shares Available for Future Issuances
Exercise of outstanding stock options	1,674,388
Unvested restricted stock units	1,113,047
Purchases under the employee stock purchase plan	1,245,506
Issuance of stock-based awards under the Equity Plans	1,037,540
Exercise of outstanding warrants	400,001
Purchases under the officer and director share purchase plan	88,741
Total reserved	5,559,223