Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

7. Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model for determining the estimated fair value and stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the six months ended June 30, 2011 are as follows:

	Three Months Ended June 30, 2011	Six Months Ended June 30, 2011
Stock Options
Risk free interest rate	1.8 % to 2.6%	1.8 % to 2.6%
Expected term	5.1 to 6.1 years	5.0 to 6.1 years
Expected volatility	72.3 % to 75.2%	72.3 % to 89.7%
Expected dividend yield	0.0%	0.0%
Fair value of underlying stock	$3.87 to $5.04	$3.87 to $5.04
Employee Stock Purchase Plan
Risk free interest rate	0.1%	0.1%
Expected term	0.5 years	0.5 years
Expected volatility	75.2%	75.2%
Expected dividend yield	0.0%	0.0%
Fair value of underlying stock	$4.15	$4.15

The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company's expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company's limited historical experience. In addition, due to the Company's limited historical data, the estimated volatility was calculated based upon the historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time.

The Company recognized stock-based compensation expense related to stock options and employee stock purchase plan rights is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of sales	$	36	$	24	$	62	$	41
Research and development		186		82		331		141
Selling, general and administrative		1,010		235		1,790		657
Total	$	1,232	$	341	$	2,183	$	839

As of June 30, 2011, there was approximately $12,150,000 and $298,000 of total unrecognized compensation costs related to outstanding options and employee stock purchase plan rights, which is expected to be recognized over weighted average periods of 3.22 years and 0.67 years, respectively.

In accordance with accounting guidance for stock-based compensation, the Company re-measured the fair value of stock option grants to non-employees at each reporting date and recognized the related income or expense during their vesting period. Expense recognized for stock options to consultants was immaterial for the six months ended June 30, 2011 and 2010.

Information with respect to the number and weighted average exercise price of stock options and restricted stock units is summarized as follows (number of shares in thousands):

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2010		1,479		$	3.35
Granted		1,964			4.48
Exercised		(4	)		3.18
Canceled/Forfeited		(50	)		3.96
Outstanding at June 30, 2011		3,389		$	4.01