6. 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 to purchase shares of our common stock may be granted with a fixed exercise price that is equal to the fair market value of our common stock 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. Expense is recorded for performance options over the requisite service periods when achievement of related performance targets are considered to be probable.

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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Dividend yield		0	%		0	%		0	%		0	%
Expected life	3.3 years			3.3 years			3.4 years			3.3 years
Expected volatility		55	%		53	%		55	%		52	%
Risk-free interest rate		1.0	%		1.3	%		1.1	%		1.2	%

The impact on our results of operations from stock-based compensation expense was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
Cost of revenue — service	$	(4	)	$	133	$	169	$	351
Selling, general and administrative		262			298		618		616
Research and development		22			23		121		55
Total stock-based compensation expense	$	280		$	454	$	908	$	1,022
Per diluted share	$	0.02		$	0.04	$	0.07	$	0.08

Stock Option Activity

The following table summarizes stock option activity under the Plans for the nine-month period ended September 30, 2016:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2016		1,778,697		$	4.43
Granted		307,700			5.48
Exercised		(273,320	)		3.19
Forfeited		(380,472	)		5.31
Expired		(51,367	)		6.13
Balance at September 30, 2016		1,381,238		$	4.61		7.31	$	1,176,876
Vested and expected to vest at September 30, 2016		1,305,619		$	4.55		7.21	$	1,165,259
Exercisable at September 30, 2016		773,084		$	4.02		6.24	$	948,542

At September 30, 2016, total compensation cost related to stock options granted but not yet recognized was $731,527, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.32 years. The following table summarizes certain information about stock options:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Weighted-average grant-date fair value of option grants for the period	$	2.53	$	3.16	$	2.83	$	3.10
Options in-the-money at period end		766,101		1,762,893		766,101		1,762,893
Aggregate intrinsic value of options exercised	$	226,430	$	265,641	$	568,516	$	616,417

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 nine-month period ended September 30, 2016:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2016		104,463		$	5.97
Granted		54,870			5.65
Vested		(56,081	)		5.94
Forfeited		(15,969	)		5.77
Unvested at September 30, 2016		87,283		$	5.83
Expected to vest after September 30, 2016		78,781		$	5.81

At September 30, 2016, total compensation cost related to RSUs granted but not yet recognized was $268,388, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.02 years.

Common Stock Reserved for Future Issuance

The following table summarizes our shares of common stock reserved for future issuance under the Plans as of September 30, 2016:

Stock options outstanding		1,381,238
RSUs outstanding		87,283
Stock awards available for future grant		1,105,715
Common stock reserved for future issuance		2,574,236