Stock-based Compensation

9 Months Ended

Sep. 30, 2012

Stock-based Compensation [Abstract]

Stock-Based Compensation

Note 5:  Stock-based Compensation

The Company uses the fair value method of accounting for share-based compensation arrangements. The fair value of stock options is estimated at the date of grant using the Black-Scholes option valuation model.  Stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method.

The following table summarizes the allocation of non-cash stock-based compensation to our expense categories for the three and nine month periods ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended September 30, (unaudited)				Nine Months Ended September 30, (unaudited)
	2012		2011		2012		2011
Cost of revenue	$	70	$	62	$	206	$	148
Research and development		147		130		434		279
Selling, general and administrative		342		224		1,319		1,350
Total stock compensation expense	$	559	$	416	$	1,959	$	1,777

At September 30, 2012, total unrecognized compensation costs related to stock options was approximately $3.2 million, net of estimated forfeitures.  Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of approximately 1.9 years.  

The following key assumptions were used in the Black-Scholes option pricing model to determine the fair value of stock options granted:

	For the Nine Months Ended September 30,
	2012			2011
Dividend yield		0	%		0	%
Risk free interest rates		0.36 – 0.87	%		1.04 - 2.37	%
Expected  volatility		71.8 to 81.2	%		67.1 to 85.7	%
Expected term (in years)		3.0 to 5.5			3.5 to 5.5

The Company has not declared or paid any dividends and does not currently expect to do so in the near future.  The risk-free interest rate used in the Black-Scholes option pricing model is based on the implied yield currently available on U.S. Treasury securities with an equivalent term.   Expected volatility is based on the weighted average historical volatility of the Company’s common stock for the equivalent term.  The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards.

A summary of the Company’s stock option activity for the nine months ended September 30, 2012 is presented in the following tables:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		4,242,251		$	3.93
Options granted		687,531			3.47
Options exercised		(160,563	)		1.59
Options forfeited or expired		(18,152	)		8.83
Options cancelled		—			—
Outstanding at September 30, 2012		4,751,067		$	3.93		5.53	$	5,725,866
Vested or expected to vest at September 30, 2012 (1)		4,674,855		$	3.90		5.55	$	5,700,655
Exercisable at September 30, 2012		3,226,827		$	3.14		5.92	$	5,221,647

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options.

The aggregate intrinsic value in the table above represents the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock.  During the three and nine months ended September 30, 2012, the aggregate intrinsic value of options exercised was $357 thousand and $421 thousand, respectively.   The Company issues new shares of common stock upon exercise of stock options.