7. Shareholders’ Equity

Equity Compensation Plans

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (together with the Stock Plan, 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, restricted and unrestricted stock awards, and restricted stock units (“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 activities. 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,
	2018			2017			2018			2017
Dividend yield		0	%		0	%		0	%		0	%
Expected life	4.4 years			3.3 years			5.3 years			3.3 years
Expected volatility		56	%		52	%		55	%		52	%
Risk-free interest rate		2.7	%		1.7	%		2.5	%		1.7	%

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,
	2018		2017		2018		2017
Cost of revenue — professional engineering service	$	11	$	13	$	30	$	98
Selling, general and administrative		237		457		421		1,061
Research and development		57		70		169		191
Total stock-based compensation expense	$	305	$	540	$	620	$	1,350
Per diluted share	$	0.02	$	0.04	$	0.05	$	0.11

Stock Option Activity

The following table summarizes stock option activity under the Plans:

						Weighted Average
						Remaining
				Weighted Average		Contractual Life		Aggregate
	Number of Shares			Exercise Price		(in years)		Intrinsic Value
Balance at December 31, 2017		1,912,161		$	4.88		7.61	$	781,735
Granted		283,893			3.78
Exercised		(2,422	)		3.59
Forfeited		(385,736	)		4.94
Expired		(332,036	)		4.17
Balance at September 30, 2018		1,475,860		$	4.81		6.88	$	3,950
Vested and expected to vest at September 30, 2018		1,366,764		$	4.82		6.73	$	3,259
Exercisable at September 30, 2018		954,862		$	4.84		5.97	$	—

At September 30, 2018, total compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures, was $489,000. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.3 years. The following table summarizes certain information about stock options:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Weighted average grant-date fair value of options granted during the period	$	1.02	$	2.45	$	1.89	$	2.62
Options in-the-money (in shares)		26,000		1,261,705		26,000		1,261,705
Aggregate intrinsic value of options exercised during the period	$	-	$	31,338	$	1,853	$	89,171

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 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 under the Plans:

	Number of			Weighted Average
	Shares			Award Price
Unvested at December 31, 2017		116,968		$	5.33
Granted		159,760			3.06
Vested		(82,868	)		4.55
Forfeited		(52,441	)		4.53
Unvested at September 30, 2018		141,419		$	3.51
Expected to vest after September 30, 2018		125,050		$	3.46

At September 30, 2018, total compensation cost related to RSUs granted but not yet recognized, net of estimated forfeitures, was $232,000. This cost will be amortized on the straight-line method over a weighted-average period of approximately 0.7 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, 2018:

	September 30, 2018
Stock options outstanding		1,475,860
Restricted stock units outstanding		141,419
Stock options and restricted stock units available for future grant		1,515,816
Common stock reserved for future issuance		3,133,095