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 nine months ended June 30, 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	35,825		$4.74
Exercised	(7,100	)	$4.59		$	4
Forfeited	(41,731	)	$4.67
Expired	(163,792	)	$17.12
Outstanding as of June 30, 2014	1,569,150		$17.96	3.68
Exercisable as of June 30, 2014	1,409,046		$19.44	3.19	$	32
Vested and expected to vest as of June 30, 2014	1,544,771		$18.17	3.60	$	50

(*) 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 nine months ended June 30, 2013, the intrinsic value of options exercised was $93,000.

As of June 30, 2014, there was approximately $0.5 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 2.8 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 June 30,					For the Nine Months Ended June 30,
	2014		2013			2014			2013
Black-Scholes weighted average assumptions:
Expected dividend rate	—	%	—		%	—		%	—		%
Expected stock price volatility rate	92.0	%	96.7		%	93.2		%	96.8		%
Risk-free interest rate	1.9	%	1.3		%	1.9		%	1.1		%
Expected term (in years)	6.0		6.0			6.0			6.0

Weighted average grant date fair value per share of stock options granted:	$3.21		$	2.98		$	3.61		$	3.45

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 nine months ended June 30, 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	—		$0.00	660,500		$4.89
Vested	(97,098	)	$5.85	(350,161	)	$4.37
Forfeited	(2,463	)	$5.68	(99,846	)	$4.48
Non-vested as of June 30, 2014	—		$0.00	1,065,421		$4.80

Restricted stock awards: As of June 30, 2014, there was no remaining unamortized stock-based compensation expense associated with RSAs.

Restricted stock units: As of June 30, 2014, there was approximately $3.3 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 2.0 years. The 1.1 million outstanding non-vested RSUs have an aggregate intrinsic value of approximately $4.4 million and a weighted average remaining contractual term of 1.2 years. For the nine months ended June 30, 2014, the intrinsic value of RSUs vested was $1.7 million. Of the 1.1 million outstanding non-vested RSUs, approximately 0.9 million RSUs are expected to vest and have an aggregate intrinsic value of approximately $3.9 million and a weighted average remaining contractual term of 1.2 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 June 30,				For the Nine Months Ended June 30,
(in thousands)	2014		2013		2014		2013
Employee stock options	$	28	$	163	$	138	$	544
Restricted stock awards and units	640		547		1,936		1,468
Employee stock purchase plan	98		124		326		380
401(k) match in common stock	323		267		733		780
Outside director fees in common stock	91		51		286		113
Total stock-based compensation expense	$	1,180	$	1,152	$	3,419	$	3,285



Stock-based Compensation Expense - by expense type	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
(in thousands)	2014		2013		2014		2013
Cost of revenue	$	254	$	311	$	685	$	916
Selling, general, and administrative	607		485		1,827		1,326
Research and development	319		356		907		1,043
Total stock-based compensation expense	$	1,180	$	1,152	$	3,419	$	3,285

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 June 30,						For the Nine Months Ended June 30,
(in thousands, except per share)	2014			2013			2014			2013

Numerator - Net (loss) income	$	(3,150	)	$	(7,283	)	$	(10,636	)	$	7,240
Less: Undistributed earnings allocated to participating securities	—			—			—			(42		)
Undistributed earnings allocated to common shareholders for basic net (loss) income per share	$	(3,150	)	$	(7,283	)	$	(10,636	)	$	7,198
Undistributed earnings allocated to common shareholders for diluted net (loss) income per share	$	(3,150	)	$	(7,283	)	$	(10,636	)	$	7,198
Denominator:
Denominator for basic net (loss) income per share - weighted average shares outstanding	30,656			26,609			30,327			26,320
Dilutive options outstanding, unvested stock units and ESPP	—			—			—			300
Denominator for diluted net (loss) income per share - adjusted weighted average shares outstanding	30,656			26,609			30,327			26,620
Basic net (loss) income per share	$	(0.10	)	$	(0.27	)	$	(0.35	)	$	0.27
Diluted net (loss) income per share	$	(0.10	)	$	(0.27	)	$	(0.35	)	$	0.27
Weighted average antidilutive options, unvested restricted stock units and awards, warrants and ESPP shares excluded from the computation	3,091			2,873			2,990			2,467
Average market price of common stock	$	4.39		$	4.11		$	4.80		$	4.81

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 by 1,000,000 shares to 3,250,000 shares.

Future Issuances

As of June 30, 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	1,569,150
Unvested restricted stock units	1,065,421
Purchases under the employee stock purchase plan	1,245,506
Issuance of stock-based awards under the Equity Plans	1,064,473
Exercise of outstanding warrants	400,001
Purchases under the officer and director share purchase plan	88,741
Total reserved	5,433,292