3. Stock-based Compensation

ASC 718 - Compensation - Stock Compensation, requires companies to record compensation expense for stock options measured at fair value on the date of grant, using an option pricing model. The Company adopted the Black Scholes valuation model for stock options granted and stock purchased pursuant to the ESPP after June 30, 2010.

Fair value for stock options was estimated at the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions:

	Years Ended December 31,
	2015	2014	2013
Risk-free interest rate	0.96%	1.02%	0.49%
Time to maturity (in years)	3	4	4
Annualized volatility	57.59%	69.67%	30.30%
Expected dividend rate	0.00%	1.20%	0.98%

In November 2000, the Company adopted the 2000 Stock Incentive Plan (the “Stock Incentive Plan”) under which 300,000 shares of common stock were reserved for issuance to eligible employees, directors and consultants upon exercise of stock options and stock purchase rights. On October 21, 2013, the stockholders approved an increase by 900,000 in the number of shares of common stock available for issuance under the Stock Incentive Plan. The number of shares reserved for issuance under the Company's 2000 Stock Incentive Plan may be increased on the first day of the Company's fiscal year by the lesser of 680,000 shares, 5% of the fully diluted outstanding shares of the Company's common stock on that date or a lesser amount determined by the Company's Board of Directors. There was no increase on January 1, 2015, because the Board determined there were enough shares available for issuance in 2015 pursuant to the Plan. Stock options, restricted stock, restricted stock units (“RSUs”) or stock appreciation rights may be awarded under the 2000 Stock Incentive Plan.

The plan was amended and restated in 2010 to, among other things, extend the term under which awards may be granted under the plan until March 17, 2020, eliminate a 10 million share ceiling on the aggregate number of shares of common stock that may be issued under the plan, and to include certain qualifying performance criteria and annual award limits so that awards granted under the plan qualify as “performance-based compensation" under the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended.

Under the Stock Incentive Plan, participants may be granted RSUs, representing an unfunded, unsecured right to receive common stock on the date specified in the recipient's award. The RSUs granted under the plan generally vest over a term of two to five years. The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of the award.

During the year ended December 31, 2011, the Company granted 546,000 RSUs with a total grant-date fair value of $2.5 million. The resulting compensation expense recorded in the years ended December 31, 2014 and 2013 was approximately $0.4 million and $0.4 million, respectively. At December 31, 2015, there was $0.1 million of unrecognized compensation expense related to RSUs, which is expected to be realized over one year.

During the year ended December 31, 2013, the Company granted 342,000 RSUs with a total grant-date fair value of $2.3 million. The resulting compensation expense recorded in the year ended December 31, 2015 and 2014 was approximately $0.5 million and $0.8 million, respectively. At December 31, 2015, there was $0.1 million of unrecognized compensation expense related to RSUs, which is expected to be realized over one year.

During the year ended December 31, 2015, the Company granted 302,000 RSUs with a total grant-date fair value of $5.3 million. The resulting compensation expense recorded in the year ended December 31, 2015 was approximately $1.1 million. At December 31, 2015, there was $4.2 million of unrecognized compensation expense related to RSUs, of which $0.7 million is expected to be realized over two years and $3.5 million is expected to be realized over four years.

Options granted under the Stock Incentive Plan generally vest over four years and are exercisable for not more than ten years. However, most options granted in the past four years have been fully vested at the time of grant.

The following information relates to stock option activity for the year ended December 31, 2015:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
Options	Shares		Price		Life	Value
Outstanding at December 31, 2014	693,100		$	9.08
Granted	58,000			14.74
Exercised	(101,100	)		6.62
Forfeited	(78,400	)		11.88
Outstanding at December 31, 2015	571,600		$	9.71	7.75 Years	$	3,154,415
Vested and expected to vest at December 31, 2015	496,428		$	9.60	7.69 Years	$	2,796,239
Exercisable at December 31, 2015	164,167		$	6.95	6.27 Years	$	1,356,896

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the fourth quarter of fiscal 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2015. This amount changes based on the fair market value of the Company's common stock. The total intrinsic value of options exercised for the years ended December 31, 2015, 2014 and 2013 was $1.1 million, $1.3 million and $12.8 million, respectively.

Options to purchase 58,000 shares of common stock were granted during the year ended December 31, 2015. At December 31, 2015, there was $1.6 million of unrecognized compensation expense related to stock options, all of which is expected to be realized over four years.

The dividend rate was 0% and 0.15% for the years ended December 31, 2015 and 2014, respectively.

Information relating to stock options outstanding at December 31, 2015 is as follows:

			Options Outstanding		Options Exercisable
				Weighted
				Average	Weighted					Weighted
Range of			Number	Remaining	Average			Number	Average
Exercise			Outstanding	Contractual	Exercise			Exercisable	Exercise
Price			As of 12/31/15	Term	Price			As of 12/31/15	Price
	$3.88 -	$4.80	111,700	6.22		$	4.28	85,000		$	4.41
	$5.05 -	$6.03	22,500	1.46		$	5.32	22,500		$	5.32
	$6.87 -	$6.87	96,000	7.29		$	6.87	13,800		$	6.87
	$8.17 -	$12.32	82,000	8.51		$	11.22	600		$	8.17
	$12.50 -	$12.50	201,400	8.19		$	12.50	37,600		$	12.50
	$13.61 -	$18.36	58,000	11.25		$	14.74	4,667		$	16.32
			571,600	7.75		$	9.71	164,167		$	6.95

Options exercisable as of December 31, 2015 and 2014 were 164,167 and 118,161 at an average exercise price of $6.95 and $4.75 per share, respectively.

There were 487,824 shares available for future issuance under the Stock Incentive Plan as of December 31, 2015.

Employee Stock Purchase Plan

In November 2000, the Company adopted its ESPP. The Company reserved 600,000 shares of common stock for issuance under the ESPP. The ESPP was amended and restated in 2010. On April 29, 2011, the stockholders approved an increase by 600,000 in the number of shares of common stock available for issuance. On the first day of January of each year beginning January 1, 2001 through December 31, 2010, additional shares of common stock were reserved for issuance under the ESPP as determined by the Board of Directors. The ESPP limited the annual increase to the lesser of 1% of the Company's issued and outstanding common stock or 400,000 shares. The ESPP provides eligible employees with the opportunity to acquire shares of common stock at a price of 85% of the lower of the fair market value of the common stock on the first day of the offering period or the last day of the offering period, whichever is lower. The ESPP is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. However, the ESPP is not intended to be a qualified pension, profit sharing or stock bonus plan under Section 401(a) of the 1986 Code and is not subject to the provisions of the Employee Retirement Security Act of 1974. The Board may amend, suspend, or terminate the Plan at any time without notice. A total of 59,781 and 50,759 shares were issued under the ESPP in 2015 and 2014, respectively.

There were 208,360 shares available for future issuance under the ESPP as of December 31, 2015.

The following information relates to the ESPP:

	2015		2014		2013
Weighted average fair value per share of shares purchased	$	11.26	$	13.01	$	5.66
Total compensation expense for ESPP	$	324,250	$	461,980	$	409,079
Total amount of cash received from the purchase of stock through ESPP	$	672,899	$	660,621	$	521,308
Total intrinsic value of ESPP stock purchased at December 31	$	233,381	$	75,892	$	863,120

The following table summarizes employee stock-based compensation expense resulting from stock options, RSUs, and the ESPP (in thousands):

	Years Ended December 31,
	2015		2014		2013
Included in cost of revenue	$	513	$	491	$	373
Included in operating expenses:
Research and development		196		234		232
Sales, marketing and administrative		2,227		1,435		1,312
Total		2,423		1,669		1,544
Total stock-based compensation expenses	$	2,936	$	2,160	$	1,917