Accounting for Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Accounting for Stock-Based Compensation [Abstract]

Accounting for Stock-Based Compensation

Note 2. Accounting for Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of FASB Accounting Standards Codification (“ASC”) topic 718, Compensation-Stock Compensation (“ASC 718”), which established accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense over the employee's requisite service period of the award. All of the Company's stock compensation is accounted for as an equity instrument. The provisions of ASC 718 apply to all awards granted or modified after the date of adoption which was January 1, 2006. The unrecognized expense of awards not yet vested at the date of adoption will be recognized in net income (loss) in the periods after the date of adoption using the same Black-Scholes valuation method and assumptions determined under the original provisions of ASC 718.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted both before and after the adoption of ASC 718. The following table summarizes compensation costs related to our stock-based compensation awards (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Stock-based compensation in the form of employee stock options, included in:
Cost of revenue	$	20	$	5	$	40	$	15
Selling, general and administrative		183		103		359		200
Research and development		12		11		23		18
Total stock-based compensation		215		119		422		233
Tax effect on stock-based compensation		-		-		-		-
Net effect on net income	$	215	$	119	$	422	$	233
Effect on net income attributable to AXT, Inc. per common share:
Basic	$	0.01	$	0.00	$	0.01	$	0.01
Diluted	$	0.01	$	0.00	$	0.01	$	0.01

The amortization of stock compensation under ASC 718 for the period after our January 1, 2006 adoption is based on the single-option approach.

As of June 30, 2011, the compensation costs related to unvested stock options granted to employees under our stock option plan but not yet recognized was approximately $1.3 million, net of estimated forfeitures of $133,000. These costs will be amortized on a straight-line basis over a weighted-average period of approximately 2.5 years and will be adjusted for subsequent changes in estimated forfeitures. We elected not to capitalize any stock-based compensation to inventory as of June 30, 2011 due to the immateriality of the amount.

We estimate the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of ASC 718. There were no stock option grants made in the three and six months ended June 30, 2011 and 2010.

The following table summarizes the stock option transactions during the six months ended June 30, 2011 (in thousands, except per share data):

	Shares			Weighted- average Exercise Price		Weighted-  average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Options outstanding as of January 1, 2011		2,280		$	3.10
Granted		-			-
Exercised		(199	)		2.68
Canceled and expired		(10	)		39.80
Options outstanding as of June 30, 2011		2,071		$	2.97		6.08	$	11,471
Options vested and expected to vest as of June 30, 2011		2,004		$	2.94		6.00	$	11,155
Options exercisable as of June 30, 2011		1,213		$	2.43		4.34	$	7,397

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $8.48 on June 30, 2011, which would have been received by the option holder had all option holders exercised their options on that date. The total number of in-the-money options exercisable as of June 30, 2011 was 1,179,362.

The options outstanding and exercisable as of June 30, 2011 were in the following exercise price ranges:

Options Outstanding as of June 30, 2011							Options Exercisable as of June 30, 2011
Range of Exercise Price	Shares		Weighted- average Exercise Price		Weighted- average Remaining Contractual Life		Shares		Weighted- Average Exercise Price
$1.18 - $1.33		231,174	$	1.26		3.66		231,174	$	1.26
$1.34 - $1.40		191,494	$	1.38		2.16		191,494	$	1.38
$1.59 - $1.59		334,404	$	1.59		7.79		146,472	$	1.59
$1.88 - $1.98		15,000	$	1.93		3.85		15,000	$	1.93
$2.04 - $2.04		459,900	$	2.04		8.32		183,574	$	2.04
$2.19 - $2.19		212,500	$	2.19		1.40		212,500	$	2.19
$3.11 - $5.09		133,428	$	3.98		4.15		133,147	$	3.98
$5.83 - $5.83		365,750	$	5.83		9.09		0	$	0.00
$6.31 - $9.69		123,599	$	7.38		5.50		96,001	$	7.37
$12.12 - $12.12		4,000	$	12.12		0.36		4,000	$	12.12
		2,071,249	$	2.97		6.08		1,213,362	$	2.43

There were 99,000 and 199,000 options exercised in the three months and six months ended June 30, 2011, respectively. The total intrinsic value of options exercised for the three and six months ended June 30, 2011 was $612,000 and $1.2 million, respectively. Cash received from options exercised for the three and six months ended June 30, 2011 was $176,000 and $533,000, respectively.

Restricted stock awards

A summary of activity related to restricted stock awards for the six months ended June 30, 2011 is presented below:

Stock Awards	Shares			Weighted-Average Grant Date Fair Value
Non-vested as of January 1, 2011		218,405		$	3.30
Granted		16,548		$	7.25
Vested		(49,313	)	$	1.33
Non-vested as of June 30, 2011		185,640		$	4.17

As of June 30, 2011, we had $613,000 of unrecognized compensation expense, net of forfeitures, related to restricted stock awards, which will be recognized over the weighted average period of 2.1 years. During both the three and six months ended June 30, 2011, 49,313 shares of restricted stock were vested.