Note 2 - Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 2. - STOCK-BASED COMPENSATION

Stock Options

During the three months ended March 31, 2014, the Company issued no stock options without performance-based vesting conditions. During the three months ended March 31, 2013, the Company issued 9,000 stock options that vest over a four year period and expire ten years from the date of grant. The weighted average exercise price of these stock options is $2.48. Compensation expense related to stock options without performance-based vesting conditions was $55,000 and $118,000 for the three months ended March 31, 2014 and 2013, respectively.

During the three months ended March 31, 2014 and 2013, the Company issued no stock options with performance-based vesting conditions. Of the unvested stock options outstanding at March 31, 2014, 1,069,200 are subject to the achievement of certain performance conditions. The performance conditions related to approximately 18,000 of these stock options were deemed probable as of March 31, 2014. Compensation expense related to performance-based stock options, for which vesting was deemed probable, was $53,000 and $56,000 for the three months ended March 31, 2014 and 2013, respectively. The performance conditions related to the remaining options were not deemed probable at March 31, 2014; therefore no compensation expense related to these options has been recorded.

The weighted-average remaining contractual life of stock options outstanding and exercisable at March 31, 2014 and 2013 was 6.84 years and 4.31 years, respectively.

As of March 31, 2014, there were 1,215,450 unvested options expected to vest over a weighted-average period of 8.8 years. As of December 31, 2013, there were 1,586,076 unvested options expected to vest over a weighted-average period of 8.9 years.

The following table summarizes the combined stock option activity under all of the plans:

	Number of Options			Weighted Average Option Price
Balance, December 31, 2013		2,187,019		$	4.11
Granted		-			-
Exercised		-			-
Cancelled		(332,016	)		6.12
Balance, March 31, 2014		1,855,003		$	3.75

Option Valuation

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with weighted-average assumptions based on the grant date.

	Three months ended March 31,
	2014		2013
Risk free interest rate range		-		1.99	-	2.04	%
Weighted average life (in years)		10			10
Weighted average volatility		-			66.26		%
Volatility range		-		66.16	-	66.28	%
Expected dividend yield		-			-
Weighted average grant-date fair value per share of options granted		-	$		1.80

Restricted Stock

The Interphase Corporation 2004 Long-Term Stock Incentive Plan provided for grants of bonus stock awards (“restricted stock”) to its directors and certain employees at no cost to the recipient. Holders of restricted stock are entitled to cash dividends, if declared, and to vote their respective shares. Restrictions limit the sale or transfer of these shares during a predefined vesting period of approximately one year and in some cases vesting is subject to the achievement of certain performance conditions. There were no shares of restricted stock issued during the three months ended March 31, 2014 or 2013. Upon issuance of restricted stock under the plan, unearned compensation equivalent to the market value at the date of grant is recorded as a reduction to shareholders’ equity and subsequently amortized to expense over the respective restriction periods. Compensation expense related to previously granted restricted stock was $15,000 and $31,000 for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, there was $109,000 of total unamortized compensation cost related to unvested restricted stock remaining to be recognized. The expense is expected to be recognized over a weighted-average period of 1.0 year. As of December 31, 2013, there was $124,000 of total unamortized compensation cost related to unvested restricted stock remaining to be recognized. The expense is expected to be recognized over a weighted-average period of 1.2 years. The following table summarizes the restricted stock activity for the three months ended March 31, 2014:

	Restricted Stock Shares			Weighted Average Grant Value
Nonvested restricted stock at December 31, 2013		61,656		$	3.21
Granted		-			-
Vested		(15,836	)		1.82
Cancelled/Forfeited		-			-
Nonvested restricted stock at March 31, 2014		45,820		$	3.69