Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 8 – Stock-Based Compensation

The Company has a stock-based compensation program that provides its Board of Directors broad discretion in creating employee equity incentives. The Company has granted stock options under various option plans and agreements in the past and currently grants stock options under the 2007 Long Term Incentive Plan (“2007 Plan”), which authorizes the granting of up to 10,000 shares of common stock. Under the terms of the 2007 Plan, the Company can grant both Incentive Stock Options and Nonstatutory Stock Options.  Grants issued under the 2007 Plan vest and become exercisable at a rate of 25% on each anniversary of the date of grant and become fully vested on the fourth anniversary of the date of grant provided that the participant remains an employee or service provider of the Company or a related company.  Each option granted under the 2007 Plan is non-transferable and expires over terms not exceeding ten years from the date of grant or 30 days after an option holder's voluntary termination from the Company.  If an option holder's employment is terminated involuntarily for misconduct, the option will terminate immediately and may no longer be exercised.  Involuntary termination not for misconduct allows for the option holder to exercise options within a period of three months after such termination of service occurs.  The 2007 Plan provides for longer expiration periods for employees who terminate, but who were employed with the Company in excess of five years.  Pursuant to the provisions set forth in the 2007 Plan, the option expiration will be extended anywhere from three months to one year, dependent upon the employee's years of service.  These provisions apply to options that expire as the result of involuntary termination not for misconduct. As of June 30, 2011, there were 1,066 shares of common stock available for grant under the 2007 Plan.

The following table sets forth the total stock-based compensation for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Cost of revenues	$	6	$	4	$	10	$	6
Research and development		45		26		78		45
Selling, general and administrative		200		123		363		214
Stock-based compensation expense before income taxes		251		153		451		265
Income tax benefit		-		-		-		-
Total	$	251	$	153	$	451	$	265

There were $0 and $20 of cash proceeds from the exercise of stock options for the three months ended June 30, 2011 and 2010, respectively.  The Company presents excess tax benefits from the exercise of stock options, if any, as financing cash flows.

The fair value of stock-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for stock options granted during the three and six months ended June 30, 2011 and 2010:

	Three Months Ended						Six Months Ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Expected life (in years)		5.0			-			5.0			5.0
Risk-free interest rate		1.67	%		-	%		2.16	%		2.62	%
Volatility		121	%		-	%		122	%		104	%
Dividend		-			-			-			-
Per share weighted average fair value at grant date (1)	$	10.19		$	-		$	9.28		$	6.11

(1) The amount for the three and six months ended June 30, 2010 has been restated to reflect the Company's 1-for-5 reverse stock split described in Note 1 to these condensed consolidated financial statements.

The Company's computation of expected volatility was based on historical volatility. The Company's computation of expected life was based on historical exercise patterns. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield in effect at the time of grant.

The Company has not in the past and does not plan to issue dividends in the future.

Stock option activity for the six months ended June 30, 2011 was as follows:

	Number of Options			Weighted Average Exercise Price		Remaining Contractual Weighted Average Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		1,287		$	4.49
Granted		252		$	11.07
Exercised		(13	)	$	5.24
Cancelled or expired		(24	)	$	8.88
Outstanding at June 30, 2011		1,502		$	5.52		6.78	$	10,593
Vested and expected to vest at June 30, 2011		1,342		$	5.17		6.52	$	9,929
Exercisable at June 30, 2011		910		$	3.85		5.47	$	7,931

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between Southwall's closing stock price on the last trading day of its second quarter of fiscal 2011 and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options on June 30, 2011.  This amount changes based on the fair market value of Southwall's stock.  Total intrinsic value of options exercised was $86 for the six months ended June 30, 2011. There were no options exercised during the three months ended June 30, 2011.

As of June 30, 2011, $2,299 of total unrecognized compensation cost, net of forfeitures, related to stock options was expected to be recognized over a weighted-average period of approximately 3.16 years.