Shareholders' Equity

9 Months Ended

Jun. 30, 2013

Equity [Abstract]

Shareholders' Equity

Note 6 – Shareholders’ Equity

Share-based compensation expense for the three months ended June 30, 2013 and 2012 was $760,000 and $227,000, respectively, and $1,922,000 and $560,000 for the nine months ended June 30, 2013 and 2012, respectively, as included in the following expense categories:

	Three months Ended				Nine months Ended
	June 30,				June 30,
	2013		2012		2013		2012
	(In thousands)
Sales and marketing	$	523	$	118	$	1,451	$	317
Engineering and product development		21		20		64		29
General and administrative		216		89		407		214
	$	760	$	227	$	1,922	$	560

The Company’s stock compensation plans provide for the granting of restricted stock units and either incentive or non-qualified stock options to employees and non-employee directors. Options and restricted stock units are subject to terms and conditions determined by the Compensation and Stock Committee of the Board of Directors. Options generally vest over a three year period beginning three months from the date of grant and expire either seven or ten years from the date of grant. Restricted stock units vest annually over a three year period.

Stock Options

The Company uses the Black-Scholes option-pricing model to calculate the fair value of options on the date of grant. The key assumptions for this valuation method include the expected life of the option, stock price volatility, risk-free interest rate and dividend yield. The weighted-average fair value of options granted under the stock option plans for the three and nine months ended June 30, 2013 was $7.61 per share. No options were granted under the stock option plans for the three or nine months ended June 30, 2012. The total intrinsic value of options exercised during the three months ended June 30, 2013 and 2012 was approximately $51,000 and $61,000, respectively. The total intrinsic value of options exercised during the nine months ended June 30, 2013 and 2012 was approximately $612,000 and $670,000, respectively. Total cash received from option exercises during the three and nine months ended June 30, 2013 was $9,000 and $142,000, respectively. As of June 30, 2013, there was $648,000 of total unrecognized compensation cost related to non-vested stock option arrangements, which is expected to be recognized over a weighted-average period of 2.63 years.

Many of the assumptions used in the determination of share-based compensation expense are judgmental and highly volatile. The table below indicates the key assumptions used in the option valuation calculations for options granted in the nine months ended June 30, 2013: 

	2013
Expected life	5 Years
Expected volatility		72.95	%
Weighted-average volatility		72.95	%
Risk-free interest rate		0.71	%
Dividend yield		0.0	%

The expected option life is based on historical trends and data. With regard to the expected option life assumption, the Company considers the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are determined on specific criteria of the aggregate pool of optionees including the reaction to vesting, realizable value and short-time-to-maturity effect. The Company uses an expected stock-price volatility assumption that is based on historical volatilities of the underlying stock which are obtained from public data sources. The risk-free interest rate is equal to the historical U.S. Treasury zero-coupon bond rate with a remaining term equal to the expected life of the option. The Company uses a dividend yield of zero which is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Based on the Company’s historical voluntary turnover rates, an annualized estimated forfeiture rate of 10% has been used in calculating the estimated cost. Additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture rate is higher than estimated.

The following table summarizes information about the Company’s stock option plans for the nine months ended June 30, 2013.

						Weighted -
				Weighted-		Average
	Number of			Average		Remaining		Aggregate
	Options			Exercise		Contractual		Intrinsic
	Outstanding			Price		Term		Value $(000)
Outstanding, October 1, 2012		355,334		$	3.71
Granted		75,000			12.92
Canceled		-			-
Exercised		(49,000	)		2.87
Outstanding, June 30, 2013		381,334		$	5.63		4.41	$	4,732
Vested or expected to vest, June 30, 2013		367,898		$	5.51		4.33	$	4,611
Exercisable, June 30, 2013		246,975		$	3.80		3.57	$	3,516

Restricted Stock Units

The Company periodically grants awards of restricted stock units (“RSU”) to each of its non-employee directors and some of its management team and employees on a discretionary basis pursuant to its stock compensation plans. Each RSU entitles the holder to receive, at the end of each vesting period, a specified number of shares of the Company’s common stock. The total number of RSUs unvested at June 30, 2013 was 660,630. Each RSU vests at the rate of 33.33% on each of the first through third anniversaries of the grant date with final vesting of the most recent grants scheduled to occur in May 2016. Included in the total number of RSUs unvested at June 30, 2013 are certain RSUs that are subject to a further vesting condition that the Company’s common stock must trade at a price greater than the following market prices per share on a national securities exchange for a period of twenty consecutive days on or prior to certain anniversaries of the grant date as follows: 

		Number of
		Unvested RSUs
$10.00 per share prior to the fifth anniversary of the grant date	*		103,513
$10.00 per share prior to the fourth anniversary of the grant date	*		189,273
$17.50 per share prior to the fifth anniversary of the grant date			30,000
$17.50 per share prior to the fourth anniversary of the grant date	*		112,171
$17.50 per share prior to the third anniversary of the grant date			166,500
$20.00 per share prior to the fourth anniversary of the grant date			8,500
$22.50 per share prior to the fourth anniversary of the grant date			19,000
No vesting condition			31,673
Unvested RSUs, June 30, 2013			660,630

The Company’s common stock has satisfied both the $10 per share market price vesting condition and the $17.50 per share market price vesting condition for the grants denoted with an asterisk above totaling 404,957 RSUs. For all of the RSUs containing a market price vesting condition, the Company performed fair value analysis using the Monte Carlo option-pricing model. The fair value related to the RSUs was calculated based primarily on the average stock price of the Company’s common stock on the date of the grant and is being amortized evenly on a pro-rata basis over the vesting period to sales and marketing, engineering and product development and general and administrative expense. The fair values of the RSUs granted in the nine months ended June 30, 2013 and 2012, respectively, were approximately $4,619,795 (or $14.77 weighted-average fair value per share) and $1,198,000 (or $6.77 weighted-average fair value per share). The Company recorded compensation expense related to RSUs of approximately $683,000 and $185,000 for the three months ended June 30, 2013 and 2012, respectively, and $1,765,000 and $431,000 for the nine months ended June 30, 2013 and 2012, respectively. These amounts are included in the total share-based compensation expense disclosed above. As of June 30, 2013, there was approximately $7.0 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted average period of 2.31 years.

The following table presents RSU information for the nine months ended June 30, 2013: 

	Number of
	RSUs
	Outstanding
Outstanding, October 1, 2012		464,584
Granted		339,000
Canceled		(6,667	)
Vested		(136,287	)
Outstanding, June 30, 2013		660,630