Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Note 8. Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of FASB Accounting Standards Codification (“ASC”) topic 718, Compensation-Stock Compensation (“ASC 718”), which established accounting for stock-based awards exchanged for employee services. Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period of the award. All of our stock compensation is accounted for as an equity instrument.

The following table summarizes compensation costs related to our stock-based awards (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Cost of revenue	$	5	$	5	$	10	$	11
Selling, general and administrative		245		291		489		575
Research and development		47		42		90		84
Total stock-based compensation		297		338		589		670
Tax effect on stock-based compensation		—		—		—		—
Net effect on net income (loss)	$	297	$	338	$	589	$	670

As of June 30, 2014, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was approximately $1.2 million, net of estimated forfeitures of $78,000. These costs will be amortized on a straight-line basis over a weighted-average period of approximately 2.5 years and will be adjusted for subsequent changes in estimated forfeitures. We elected not to capitalize any stock-based compensation to inventory as of June 30, 2014 due to the immateriality of the amount.

We estimate the fair value of stock options using the Black-Scholes valuation model. There were 52,000 and zero stock options granted with weighted average grant date fair values of $1.10 and $0 in the three months ended June 30, 2014 and 2013, respectively. The fair value of our stock options granted to employees for the three and six months ended June 30, 2014 was estimated using the following weighted-average assumptions:

	Three Months Ended			Six Months Ended
	June 30, 2014			June 30, 2014

Expected term (in years)		4.0			4.0
Volatility		66.32	%		66.32	%
Expected dividend		0	%		0	%
Risk-free interest rate		1.98	%		1.98	%

The following table summarizes the stock option transactions during the six months ended June 30, 2014 (in thousands, except per share data):

Stock Options	Shares			Weighted- average Exercise Price		Weighted- average Remaining Contractual Life (in years)		Aggregate Intrinsic Value

Balance as of January 1, 2014		2,671		$	3.29		6.71	$	893
Granted		52			2.14
Exercised		(5	)		1.29
Canceled and expired		(73	)		5.18
Balance as of June 30, 2014		2,645		$	3.22		6.48	$	383

Options vested and expected to vest as of June 30, 2014		2,645		$	3.22		6.48	$	383

Options exercisable as of June 30, 2014		1,729		$	3.35		5.29	$	383

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $2.14 on June 30, 2014, which would have been received by the option holder had all option holders exercised their options on that date.

Restricted stock awards

A summary of activity related to restricted stock awards for the six months ended June 30, 2014 is presented below:

Stock Awards	Shares			Weighted-Average Grant Date Fair Value
Non-vested as of January 1, 2014		241,232		$	3.44
Granted		55,044		$	2.18
Vested		(30,320	)	$	3.96
Non-vested as of June 30, 2014		265,956		$	3.12

As of June 30, 2014, the unamortized compensation costs related to unvested restricted stock awards was approximately $599,000, which is to be amortized on a straight-line basis over a weighted average period of approximately 1.4 years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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