5. Shareholders’ Equity

Equity Compensation Plans

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (the “Inducement Plan”) (collectively, the “Plans”). Under the Plans, 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 Stock Plan may only be granted to our employees. The Plans also allow for awards of non-qualified stock options, stock appreciation rights, RSAs and unrestricted stock awards, and RSUs.

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 value of RSUs is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. 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 stock option grants were estimated with the following weighted average assumptions:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Dividend yield		0	%		0	%		0	%		0	%
Expected life	3.3 years			3.3 years			3.3 years			3.2 years
Expected volatility		52	%		59	%		52	%		60	%
Risk-free interest rate		1.3	%		1.3	%		1.2	%		1.2	%

The impact on our results of operations of stock-based compensation expense for the three and six month periods ended June 30, 2015 and 2014 was as follows (in thousands, except per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
Cost of revenue — service	$	105	$	36		$	218	$	77
Selling, general and administrative		182		191			320		366
Research and development		18		(8	)		31		20
Total stock-based compensation expense	$	305	$	219		$	569	$	463
Per diluted share	$	0.02	$	0.02		$	0.05	$	0.04

Stock Option Activity

The following table summarizes stock option activity under the Plans for the six month period ended June 30, 2015:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2015		1,553,360		$	3.50
Granted		24,725			4.33
Exercised		(117,056	)		2.95
Forfeited		(58,429	)		3.29
Expired		(6,376	)		2.62
Balance at June 30, 2015		1,396,224		$	3.57		6.83	$	4,497,910
Vested and expected to vest at June 30, 2015		1,324,724		$	3.57		6.73	$	4,270,113
Exercisable at June 30, 2015		623,582		$	3.58		4.71	$	2,011,909

At June 30, 2015, total compensation cost related to stock options granted but not yet recognized was $517,752, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.0 year. The following table summarizes certain information about stock options for the three and six month periods ended June 30, 2015 and 2014:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted-average grant-date fair value of option grants for the period	$	1.88	$	1.88	$	1.92	$	1.68
Options in-the-money at period end		1,390,199		450,914		1,390,199		450,914
Aggregate intrinsic value of options exercised	$	302,895	$	110,347	$	350,776	$	241,224

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 Unit Activity

The following table summarizes RSU activity for the six month period ended June 30, 2015:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2014		80,179		$	3.40
Granted		50,728			6.32
Vested		(50,391	)		3.42
Forfeited		(8,976	)		3.15
Unvested at June 30, 2015		71,540		$	5.48
Expected to vest after June 30, 2015		68,810		$	5.51

At June 30, 2015, total compensation cost related to RSUs granted but not yet recognized was $318,008, 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 under the Plans as of June 30, 2015:

Stock options outstanding		1,396,224
RSUs outstanding		71,540
Stock awards available for future grant		1,602,411
Common stock reserved for future issuance		3,070,175

On June 16, 2015, our shareholders approved an amendment to the Stock Plan increasing the number of shares reserved and available for issuance by 750,000 shares. On June 26, 2015 our Board of Directors approved an increase in the number of shares reserved and available for issuance under the Inducement Plan by 200,000 shares. These additional shares reserved under both of the Plans are included in the “Stock awards available for future grant” total in the preceding table.