Shareholders' Equity

6 Months Ended

Jun. 30, 2011

Shareholders' Equity

Shareholders' Equity

4. Shareholders' Equity

Stock Options

We have a stock plan (the "Plan") under which stock options may be granted with a fixed exercise price that is equivalent to fair market value on the date of grant. These options have a term of up to 10 years and vest over a predetermined period, generally four years. Incentive stock options granted under the Plan may only be granted to our employees, have a term of up to 10 years, and must be granted with an exercise price equal to the fair market value of our stock on the date of grant. The Plan also allows for awards of stock appreciation rights, RSAs and unrestricted stock awards, and RSUs. The Plan allows for an automatic annual increase in the number of shares reserved for issuance under the Plan. Such automatic annual increase is in an amount equal to the lesser of: (i) four percent of our outstanding shares at the end of the previous fiscal year, (ii) an amount determined by our Board of Directors, or (iii) 375,000 shares.

Stock-Based Compensation

The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. We estimate forfeitures based on historical experience and expected future activity. The fair values of RSAs and RSUs are determined based on the number of shares granted and the quoted price of our common stock on the date of grant, less our estimation of future forfeitures. The fair value of stock option awards is estimated at the grant date based on the fair value of each vesting tranche as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. The fair values of our equity awards, primarily stock option grants, were estimated with the following weighted average assumptions:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Dividend yield		0	%		0	%		0	%		0	%
Expected life		4 years			4 years			4 years			4 years
Expected volatility		74	%		72	%		74	%		71	%
Risk-free interest rate		1.3	%		1.8	%		1.5	%		1.9	%

The impact on our results of operations of recording stock-based compensation expense for the three and six months ended June 30, 2011 and 2010 was as follows (in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of revenue — service	$	157	$	46	$	376	$	119
Selling, general and administrative		415		62		654		140
Research and development		35		10		77		19
Total stock-based compensation expense	$	607	$	118	$	1,107	$	278
Per diluted share	$	0.05	$	0.01	$	0.09	$	0.03

Stock Option Activity

The following table summarizes stock option activity for the six months ended June 30, 2011:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2011		1,942,723		$	3.66
Granted at fair value		384,640			8.15
Exercised		(141,617	)		2.94
Forfeited		(20,436	)		3.13
Expired		(5,212	)		31.81
Balance at June 30, 2011		2,160,098		$	4.44		4.89	$	4,962,000
Vested and expected to vest at June 30, 2011		2,042,126		$	4.35		4.80	$	4,808,000
Exercisable at June 30, 2011		1,467,373		$	3.87		4.11	$	3,842,000

At June 30, 2011, total compensation cost related to stock options granted to employees but not yet recognized was $1,294,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.67 years.

The following table summarizes certain information about stock options for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Weighted-average grant-date fair value of option grants for the period	$	3.99	$	1.62	$	4.61		1.60
Options in-the-money at period end		1,365,882		249,164		1,365,882		249,164
Aggregate intrinsic value of options exercised	$	209,000	$	5,000	$	751,000	$	7,000

The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options that were in-the-money at period end or that were exercised during the period. We issue new shares of common stock upon exercise of stock options.

Restricted Stock Award Activity

The following table summarizes RSA activity for the six months ended June 30, 2011:

	Number of Shares			Weighted Average Grant-Date Fair Value Per Share
Unvested at December 31, 2010		42,000		$	3.38
Granted		21,000			7.33
Vested		(27,000	)		3.26
Forfeited		—			—
Unvested at June 30, 2011		36,000		$	5.78
Expected to vest after June 30, 2011		32,040		$	5.78

At June 30, 2011, total compensation cost related to RSAs granted but not yet recognized was $110,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 0.5 years. Currently, only non-employee members of our Board of Directors receive restricted RSAs.

Restricted Stock Unit Activity

The following table summarizes RSU activity for the six months ended June 30, 2011:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2010		346,776		$	4.47
Granted		21,966			8.87
Vested		(77,979	)		3.30
Forfeited		(16,549	)		4.86
Unvested at June 30, 2011		274,214		$	5.13
Expected to vest after June 30, 2011		255,235		$	5.13

At June 30, 2011, total compensation cost related to RSUs granted but not yet recognized was $743,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.0 year.

Common Stock Reserved for Future Issuance

The following table summarizes our shares of common stock reserved for future issuance at June 30, 2011:

	June 30, 2011
Stock options outstanding		2,160,098
Restricted stock units outstanding		274,214
Stock options available for future grant		388,461
Common stock reserved for future issuance		2,822,773