8. Stock-Based Compensation

The condensed consolidated statements of operations include $1.4 million and $2.2 million of stock compensation expense for the three and six months ended June 30, 2016, respectively. Stock compensation expense for the three months ended June 30, 2016 consists of $0.7 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.2 million for stock bonus expenses, $41 for stock option expenses and $42 for stock purchase plan expenses. Stock compensation expense for the six months ended June 30, 2016 consists of $1.4 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.2 million for stock bonus expenses, $129 for stock option expenses and $89 for stock purchase plan expenses.

The condensed consolidated statements of operations include $0.2 million and $0.7 million of stock compensation expense for the three and six months ended June 30, 2015, respectively. Stock compensation expense for the three months ended June 30, 2015 consists of $0.3 million for time-based restricted stock awards, $0.3 million for share to directors, $0.1 million for stock option expenses and $57 for stock purchase plan expenses, offset by an expense reversal of $0.5 million related to performance units that are not expected to vest. Stock compensation expense for the six months ended June 30, 2015 consists of $0.6 million for time-based restricted stock awards, $0.3 million for shares to directors, $0.3 million for stock option expenses and $0.1 million for stock purchase plan expenses, offset by the expense reversal of $0.5 million related to performance units that are not expected to vest.

The Company did not capitalize any stock compensation expense during the three and six months ended June 30, 2016 or 2015. Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows:

	Three Months Ended					Six Months Ended
	June 30					June 30
	2016		2015			2016		2015

Cost of revenues	$	132	$	56		$	264	$	129
Research and development		175		30			342		145
Sales and marketing		182		(18	)		327		140
General and administrative		893		173			1,309		328
Total	$	1,382	$	241		$	2,242	$	742

Restricted Stock – Service Based

The Company grants restricted shares as employee incentives. When service-based restricted stock is granted to employees, the Company records deferred stock compensation within additional paid in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares. These grants vest over various periods, but typically vest over four years.

The following table summarizes service-based restricted stock activity for the six months ended June 30, 2016:

				Weighted
				Average
				Grant Date
	Shares			Fair Value

Unvested Restricted Stock Awards - December 31, 2015		1,050,172		$	6.11
Shares awarded		426,800			5.64
Shares vested		(94,788	)		7.50
Shares cancelled		(103,226	)		6.21
Unvested Restricted Stock Awards - June 30, 2016		1,278,958		$	5.85

The intrinsic value of service-based restricted shares that vested during the three months ended June 30, 2016, and 2015, was $6 and $13, respectively. The intrinsic value of service-based restricted shares that vested during the six months ended June 30, 2016, and 2015, was $0.5 million and $1.5 million, respectively.

At June 30, 2016, total unrecognized compensation expense related to restricted stock was approximately $4.4 million, net of forfeitures to be recognized through 2020 over a weighted average period of 1.8 years.

Restricted Stock Units – Service Based

The Company grants restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units.

The following table summarizes the restricted stock unit activity during the six months ended June 30, 2016:

				Weighted
				Average
				Grant Date
	Units			Fair Value

Unvested Restricted Stock Units - December 31, 2015		22,725		$	5.65
Units awarded		15,000			5.61
Units vested		(1,337	)		7.25
Unvested Restricted Stock Units - June 30, 2016		36,388		$	5.57

The intrinsic value of service-based restricted stock units that vested and were issued as shares during the six months ended June 30, 2016 was $10. No units vested during the three months ended June 30, 2016. The intrinsic value of service-based restricted stock units that vested and issued as shares during the six months ended June 30, 2015 was $20.

As of June 30, 2016, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was approximately $0.1 million, to be recognized through 2020 over a weighted average period of 1.4 years.

Stock Options

The Company grants stock options to purchase common stock as long-term incentives. The Company issues stock options with an exercise price no less than the fair value of the Company’s stock on the grant date. The Company grants new stock options with a seven-year life that contain installment vesting over a period of four years, 25% after one year, and monthly thereafter. Stock options may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement.

A summary of the Company’s stock option activity for the three months ended June 30, 2016 is as follows:

				Weighted
				Average
	Options			Exercise
	Outstanding			Price

Outstanding at December 31, 2015		1,220,442		$	7.72
Expired or Cancelled		(140,105	)		8.51
Forfeited		(41,436	)		7.09
Outstanding at June 30, 2016		1,038,901		$	7.64

Exercisable at June 30, 2016		809,258		$	7.72

There were no options granted and there were no exercises of stock options during the six months ended June 30, 2016. During the three months ended June 30, 2015, the Company received proceeds of $0.1 million from the exercise of 11,350 options. The intrinsic value of these options exercised was $3. During the six months ended June 30, 2015, the Company received proceeds of $0.3 million from the exercise of 35,134 options. The intrinsic value of these options exercised was $34.

The range of exercise prices for options outstanding and exercisable at June 30, 2016, was $5.50 to $11.00. The following table summarizes information about stock options outstanding under all stock option plans:

					Options Outstanding						Options Exercisable
							Weighted
							Average		Weighted-				Weighted
Range of					Number		Contractual Life		Average		Number		Average
Exercise Prices					Outstanding		(Years)		Exercise Price		Exercisable		Exercise Price
$	5.50	--	$	6.00		16,879		5.23	$	5.90		3,292	$	5.65
	6.01	--		6.50		16,267		2.79		6.23		15,909		6.23
	6.51	--		7.00		37,522		1.90		6.85		36,189		6.86
	7.01	--		7.50		652,173		3.76		7.17		502,594		7.17
	7.51	--		8.00		18,000		4.29		7.80		12,008		7.81
	8.01	--		8.50		87,400		5.45		8.11		31,020		8.15
	8.51	--		9.00		6,750		3.09		8.76		5,066		8.77
	9.01	--		9.50		181,010		0.22		9.20		180,812		9.20
	9.51	--		10.00		15,500		2.22		9.63		14,968		9.63
	10.01	--		11.00		7,400		0.57		10.90		7,400		10.90
$	5.50	--	$	11.00		1,038,901		3.19	$	7.64		809,258	$	7.72

The weighted average contractual life and intrinsic value at June 30, 2016, was the following:

Weighted

Average

Contractual

Life (years)

Intrinsic

Value

Options Outstanding

3.19

Options Exercisable

2.83

The intrinsic value is based on the share price of $4.71 at June 30, 2016.

The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions at June 30^th:

The fair value of each unvested option was estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options.

The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The Company incorporates a forfeiture rate based on historical data in the expense calculation. The expected life used for options granted is based on historical data of employee exercise performance. The Company records expense based on the grading vesting method.

As of June 30, 2016, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $0.2 million, net of estimated forfeitures to be recognized through 2019 over a weighted average period of 1.1 years.

Performance-based Equity Awards

The Company issued performance share units to executives in 2014 and 2015. The fair value of these performance share units was calculated based on the stock price on the date of grant.

In June 2015, the Company’s Board of Directors approved the 2015 Long-Term Incentive Plan (“2015 LTIP”). Under the 2015 LTIP, shares can be earned by certain executive employees based upon achievement of revenue goals over a four-year period with a penalty if certain earnings levels are not maintained. The four-year period is divided into two interim periods (each an “Interim Period”), the first of which will end on December 31, 2016, and the second of which will end on December 31, 2018. At the award date, the number of shares that could be earned collectively by all participants at threshold and target were 212,000 and 424,000, respectively. Stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. No expense has been recorded during the year ended December 31, 2015 or the six months ended June 30, 2016 for the 2015 LTIP because the Company does not believe it will meet the revenue threshold for the year ended December 31, 2016.

In March 2014, the Company’s Board of Directors approved the 2014 Long-Term Incentive Plan (“2014 LTIP”). Under the 2014 LTIP, shares can be earned by certain executive employees based upon achievement of revenue goals over a four-year period with a penalty if certain profit levels are not maintained. The four-year period is divided into two interim periods (each an “Interim Period”), the first of which will end on December 31, 2015, and the second of which will end on December 31, 2017. The number of shares that could be earned collectively by all participants at threshold and target were 190,000 and 380,000, respectively. Stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. No expense was recorded for the 2014 LTIP because the Company did not meet the revenue threshold for the year ended 2015. Unvested awards of 162,000 related to the Interim Period ended December 31, 2015 were cancelled in December.

The Company had 555,000 unvested performance units at June 30, 2016 and December 31, 2015. There was no activity during the six months ended June 30, 2016.

Director shares

In June 2016, the Company issued 85,374 shares to directors that immediately vested. The intrinsic value of these shares was $0.4 million based on the share price of $4.65 on the award date.

Short-term incentive plan

For the Company’s 2016 short-term incentive plan (“STIP”), executives will be paid in restricted shares of the Company’s stock. Any shares earned under the STIP will be awarded in the first quarter of 2017 and will vest one-year from the award date. During the three and six months ended June 30, 2016, the Company recorded the expense based on an estimate of the achievement of the award on a pro-rate basis over the measurement period plus the vesting period.

Employee Stock Purchase Plan (“ESPP”)

The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is approximately six months. The Company received proceeds of $0.4 million from the issuance of 78,415 shares under the ESPP in February 2016 and received proceeds of $0.4 million from the issuance of 57,293 shares under the ESPP in February 2015.

Based on the 15% discount and the fair value of the option feature of this plan, this plan is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.

The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions:

	June 30,
	2016			2015
Dividend yield		4.2	%		2.5	%
Risk-free interest rate		0.6	%		0.3	%
Expected volatility		34	%		33	%
Expected life (in years)		0.5			0.5

The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The expected life used is based on the offering period.

Employee Withholding Taxes on Stock Awards

For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stock awards for the value of the statutory withholding taxes. For each individual receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $0.2 million and $0.4 million during the six months ended June 30, 2016 and 2015, respectively.

Stock Repurchases

The Company repurchased 783,212 shares at an average price of $5.23 during the first quarter 2016. No shares were repurchased during the three months ended June 30, 2016. As of the first quarter 2016, the Company had no shares that could still be repurchased under previously approved programs. The Company repurchased 1,942,788 shares at an average price of $6.22 during the year ended December 31, 2015. In total, the Company repurchased 2,726,000 shares under share repurchase program during the past twelve months.

Dividend yield

Risk-free interest rate

Expected volatility

Expected life (in years)