(8) Stock-Based Compensation

Equity Incentive Plan

As of December 31, 2014, we had 2,100,000 shares of common stock authorized and 690,905 shares of common stock available for future grant to employees and consultants under our 2012 Equity Incentive Plan (“Plan”). The term of the 2012 Plan is ten years. Under the 2012 Plan, the exercise price of each option is set at the fair value of the common stock on the date of grant and the maximum term of the option is ten years from the date of grant. Options granted to employees generally have a ten year term and vest ratably over a three-year period. The maximum number of options that may be granted to an employee under the Plan in any calendar year is 500,000 options. Forfeitures under the Plan are available for re-issuance at any time prior to expiration of the Plan in 2022. Options granted under the Plan to employees require the option holder to abide by certain Company policies, which restrict their ability to sell the underlying common stock. Prior to the adoption of the 2012 Plan, we issued stock options under our 2002 Equity Incentive Plan. Forfeitures under the 2002 Equity Incentive Plan may not be re-issued.

Directors Plan

We have a Stock Option Plan for Non-Employee Directors (“Directors Plan”) pursuant to which directors may elect to receive stock options in lieu of cash compensation for their services as directors. As of December 31, 2014, we had 1,000,000 shares of common stock authorized and 239,841 shares of common stock available for future grant under the Directors Plan. Option terms range from three to ten years from the date of grant. Option exercise prices are equal to the fair value of the common shares on the date of grant. Options granted under the plan generally vest immediately. Forfeitures under the Directors Plan are available for re-issuance at a future date.

Stock Bonus Plan

We have a Stock Bonus Plan (“Stock Plan”) administered by the Board of Directors. As of December 31, 2014, we had 2,254,994 shares of common stock authorized and there were 211,005 shares of common stock available for future grant under the Stock Plan. Under the Stock Plan, shares of common stock may be granted to employees, key consultants, and directors who are not employees as additional compensation for services rendered. Vesting requirements for grants under the Stock Plan, if any, are determined by the Board of Directors at the time of grant.

Stock Purchase Plan

We have a Stock Purchase Plan under which eligible employees may contribute up to 10 percent of their compensation to purchase shares of our common stock at 85 percent of the fair market value at specified dates. At December 31, 2014, we had 700,000 shares of common stock authorized and 295,598 shares of common stock available for issuance under the Stock Purchase Plan.

Share-Based Compensation Expense

We use the straight-line attribution method to recognize share-based compensation costs over the requisite service period of the award. The exercise price of options is equal to the market price of our common stock (defined as the closing price reported by the NYSE MKT) on the date of grant. We adjust share-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of forfeiture adjustments in the quarters and nine month periods ended December 31, 2014 and 2013 were insignificant.

We use the Black-Scholes-Merton option pricing model for estimating the fair value of stock option awards. The expected volatility and the expected life of options granted are based on historical experience, and the risk free interest rate is obtained from the U.S. Department of the Treasury daily yield curve rates.

The table below shows total share-based compensation expense for the quarters and nine month periods ended December 31, 2014 and 2013 and the classification of these expenses:


	Quarter Ended December 31,				Nine Months Ended December 31,
	2014		2013		2014		2013
Costs of contract services	$	8,617	$	3,647	$	16,108	$	15,712
Costs of product sales		5,130		10,565		18,414		30,883
Research and development		973		4,282		4,840		7,544
Production engineering		19,052		30,659		72,437		103,007
Selling, general and administrative		119,541		123,487		438,093		453,570
	$	153,313	$	172,640	$	549,892	$	610,716

Additional information with respect to stock option activity during the nine month period ended December 31, 2014 under stock option plans is as follows:


					Weighted-
			Weighted-		Average
	Shares		Average		Remaining		Aggregate
	Under		Exercise		Contractual		Intrinsic
	Option		Price		Life		Value
Outstanding at April 1, 2014		3,330,575	$	1.98		4.8 years	$	2,931,885
Granted		369,287	$	1.71
Exercised		(5,053)	$	0.89			$	6,720
Forfeited		(595,827)	$	2.74

Outstanding at December 31, 2014		3,098,982	$	1.80		5.7 years	$	1,260

Exercisable at December 31, 2014		2,461,625	$	1.93		4.7 years	$	420

Vested and expected to vest at December 31, 2014		3,080,545	$	1.80		5.7 years	$	1,235

As of December 31, 2014, there was $432,092 of total unrecognized compensation costs related to stock options granted under our stock option plans. The unrecognized compensation cost is expected to be recognized over a weighted-average period of eighteen months. The total fair value of stock options that vested during the quarter and nine month period ended December 31, 2014 was $9,333 and $377,375, respectively.

Stock Plan Activity

Activity with respect to non-vested shares under the Stock Plan as of December 31, 2014 and 2013 and changes during the nine month periods ended December 31, 2014 and 2013 are presented below:


	Nine Months Ended December 31, 2014			Nine Months Ended December 31, 2013
		Weighted-Average			Weighted-Average
	Shares Under	Grant Date		Shares Under	Grant Date
	Contract	Fair Value		Contract	Fair Value
Non-vested at April 1	640,979	$	1.17	358,855	$	1.22
Granted	136,144	$	1.71	452,195	$	1.18
Vested	(288,051)	$	1.28	(166,231)	$	1.34
Forfeited	-	$	-	(3,840)	$	1.25
Non-vested at December 31	489,072	$	1.25	640,979	$	1.17

As of December 31, 2014, there was $461,051 of total unrecognized compensation costs related to common stock granted under our Stock Bonus Plan. The unrecognized compensation cost at December 31, 2014 is expected to be recognized over a weighted-average period of nineteen months.

Stock Purchase Plan Activity

During the nine month periods ended December 31, 2014 and 2013, we issued 12,052 and 48,532 shares of common stock, respectively, under the Stock Purchase Plan. Cash received by us upon the purchase of shares under the Stock Purchase Plan for the nine month periods ended December 31, 2014 and 2013 was $22,055 and $39,438, respectively.