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STOCK-BASED COMPENSATION

As of

March

31,

2017,

we have unvested restricted stock awards and stock options granted under stock-based employee compensation plans that are described more fully in Note

to the consolidated financial statements in our

2016

Form

-K.

As of

March

31,

2017,

total unrecognized compensation expense related to unvested restricted stock awards and stock options was

$830.

The weighted average period over which this expense is expected to be recognized is

3.1

years. The following table shows the allocation of the compensation expense we recorded during the

three

months ended

March

31,

2017

and

2016,

respectively, related to stock-based compensation:

	Three Months Ended March 31,
	201 7		2016
Cost of revenues	$	3	$	3
Selling expense		-		1
Engineering and product development expense		3		2
General and administrative expense		82		33
	$	88	$	39

There was

stock-based compensation expense capitalized in the

three

months ended

March

31,

2017

2016.

Restricted Stock Awards

We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over

four

years. However, during

January

2016,

we granted

22,500

shares of restricted stock to

three

of our independent directors which vested

100%

upon the re-election of these directors at our annual meeting of stockholders in

June

2016.

The total compensation expense related to the shares granted in

2016

was

$98,

and it was recorded upon the re-election of these directors. In

March

2017,

we granted

22,500

shares of restricted stock to these same directors. These shares vested

25%

upon the grant date and will vest an additional

25%

at each of

June

30,

September

30,

and

December

31,

2017.

The total compensation expense related to these shares is

$143

and it will be recorded as the shares vest during

2017.

The following table summarizes the activity related to unvested shares of restricted stock for the

three

months ended

March

31,

2017:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares outstanding, January 1, 2017		97,025		$	4.04
Granted		55,000			6.35
Vested		(20,975	)		4.56
Forfeited		-			-
Unvested shares outstanding, March 31, 2017		131,050			4.92

The total fair value of the shares that vested during the

three

months ended

March

31,

2017

and

2016

was

$105

and

$22,

respectively, as of the vesting dates of these shares.

Stock Options

We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option

may

be granted with an exercise period in excess of

ten

years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over

four

years.

The fair value for stock options granted during the

three

months ended

March

31,

2017

and

2016

was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2017			2016
Risk-free interest rate		2.14	%		1.30	%
Dividend yield		0.00	%		0.00	%
Expected common stock market price volatility factor		0.39			0.40
Weighted average expected life of stock options (years)		6			4

The per share weighted average fair value of stock options issued during the

three

months ended

March

31,

2017

and

2016

was

$2.64

and

$1.43,

respectively.

The following table summarizes the activity related to stock options for the

three

months ended

March

31,

2017:

	Number of Shares		Weighted Average Exercise Price
Options outstanding, January 1, 2017 (none exercisable)		19,800	$	4.37
Granted		96,000		6.35
Vested		-		-
Forfeited		-		-
Options outstanding, March 31, 2017 (4,950 exercisable)		115,800		6.01