Equity

Equity Incentive Program

The Company’s equity incentive program is a broad-based, retention program comprised of stock options, restricted stock units and an employee stock purchase plan (“ESPP”) designed to align stockholder and employee interests. For a description of the Company’s equity plans, see the notes to consolidated financial statements contained in the Company’s Annual Report on Form

-K for the year ended

March

31,

2016.

The Company granted the following stock options and restricted units during the

three

and

nine

months ended

December

31,

2016

and

2015:

	Three Months Ended				Nine Months Ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
	(in thousands)				(in thousands)
Stock options		247		353		1,855		1,422
Restricted stock units		69		27		106		165
Total granted		316		380		1,961		1,587

Valuation Assumptions

For the

three

and

nine

months ended

December

31,

2016

and

2015,

the Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:

	Period Ended
	December 31, 2016
	Three Months			Nine Months
Risk-free interest rate		1.86	%		1.28	%
Dividend yield		0	%		0	%
Expected volatility		58.10	%		52.75	%
Expected term in years		6.08			6.08
Weighted average fair value at grant date	$	1.11		$	0.91

	Period Ended
	December 31, 2015
	Three Months			Nine Months
Risk-free interest rate		1.84	%		1.79	%
Dividend yield		0	%		0	%
Expected volatility		52.83	%		50.51	%
Expected term in years		6.08			6.06
Weighted average fair value at grant date	$	1.66		$	2.15

The following tables summarize activity under the equity incentive plans for the

three

months ended

December

31,

2016:

	Options Outstanding					Restricted Stock Units Outstanding
	Number of shares (in th ousands)			Weighted average exercise price		Number of shares (in thousands)			Weighted average fair value

Outstanding at October 1, 2016		4,298		$	3.12		181		$	4.74
Granted		247		$	2.00		69		$	2.00
Exercised/Released		-		$	-		(75	)	$	3.11
Cancelled		(73	)	$	3.78		-		$	-
Outstanding at December 31, 2016		4,472		$	3.05		175		$	4.36

Vested and expected to vest		4,022		$	3.13

	Shares Available for Grant
	(in thousands)
Balance at October 1, 2016		998
Options:
Granted from approved plans		(247	)
Cancelled and available for grant		51
Restricted Stock Units:
Granted		(69	)
Balance at December 31, 2016		733

The weighted average remaining contractual term for exercisable options is

7.75

years. The intrinsic value is calculated as the difference between the market value as of

December

31,

2016

and the exercise price of the shares. The market value of the Company’s common stock as of

December

31,

2016

was

$1.95

as reported by the NASDAQ Capital Market. The aggregate intrinsic value of stock options outstanding at

December

31,

2016

and

2015

was

$0.7

million and

$0,

respectively. The aggregate intrinsic value of restricted stock units outstanding at

December

31,

2016

and

2015

was

$0.3

million and

$0.7

million, respectively.

The options outstanding and exercisable at

December

31,

2016

were in the following exercise price ranges:

			Options Outstanding				Options Vested
Range of Exercise Prices per share			Number of Shares (in thousands)		Weighted- Average Remaining Contractual Life (in years)		Number of Shares (in thousands)		Weighted-Average Exercise Price per Share
$1.35	—	$1.35		106		9.45		-	$	-
$1.64	—	$1.64		2,000		9.15		-	$	-
$1.80	—	$2.00		578		9.61		22	$	1.83
$3.24	—	$3.99		318		8.70		128	$	3.46
$4.32	—	$4.32		655		8.57		233	$	4.32
$5.18	—	$6.61		754		7.53		468	$	6.25
$6.83	—	$6.83		50		7.14		50	$	6.83
$7.20	—	$7.20		5		2.16		5		7.20
$11.40	—	$11.40		5		1.64		5	$	11.40
$18.90	—	$18.90		1		0.87		1	$	18.90
$1.35	—	$18.90		4,472		8.79		912	$	5.33

The effect of recording stock-based compensation expense (including expense related to the ESPP discussed below) for each of the periods presented was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015

Cost of revenues	$	111	$	104	$	236	$	279
Research and development		66		70		181		198
Sales and marketing		160		264		512		770
General and administrative		294		221		938		621
Impact on net loss	$	630	$	659	$	1,867	$	1,868

Upon the departure of our CEO in

June

2015,

a nominal amount of previously recognized stock-based compensation expense was reversed due to the forfeiture of stock option grants. As of

December

31,

2016,

the unrecorded stock-based compensation balance related to stock options and restricted stock units outstanding excluding estimated forfeitures was

$3.8

million and

$0.8

million, respectively, and will be recognized over an estimated weighted average amortization period of

2.88

years for stock options and

1.54

years for restricted stock units. The amortization period is based on the expected remaining vesting term of the options and restricted stock units.

1999

Employee Stock Purchase Plan (“ESPP”)

The price paid for the Company’s common stock purchased under the ESPP is equal to

85%

of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for the

three

months ended

December

31,

2016

and

2015

was

$21,000

and

$21,300,

respectively, and approximately

$70,000

and

$55,000

for the

nine

months ended

December

31,

2016

and

2015,

respectively. During the

nine

months ended

December

31,

2016

and

2015,

there were

46,604

and

24,115

shares issued under the ESPP, respectively.