5. Stock-Based Compensation

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include option grants and restricted stock awards.

Stock-based compensation expense related to internal labor is capitalized to software and patents based on direct labor hours charged to capitalized software and patent costs.

Determining Fair Value

Stock Options

The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of stock options is determined on the date of the grant (measurement date), and is recognized over the vesting period of the option using the straight-line method.

There were no stock options granted during the three and six months ended June 30, 2016 and 2015.

The Company records stock-based compensation expense for stock option awards only for those awards that are expected to vest.

Restricted Stock

The fair value of restricted stock awarded is based on the fair market value of the Company’s common stock on the date of the grant (measurement date), and is recognized over the vesting period of the award using the straight-line method.

The Company records stock-based compensation expense for restricted stock awards only for those awards that are expected to vest.

Stock-based Compensation

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Stock-based compensation:
Cost of revenue	$	184	$	213	$	357	$	398
Sales and marketing		238		175		450		334
Research, development and engineering		379		328		704		615
General and administrative		544		484		1,045		1,002
Intellectual property		79		63		151		131
Stock-based compensation expense		1,424		1,263		2,707		2,480
Capitalized to software and patent costs		43		54		75		91
Total stock-based compensation expense	$	1,467	$	1,317	$	2,782	$	2,571

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans, including stock options and restricted stock:

As of

June 30,

2016

As of

December 31,

2015

Total unrecognized compensation costs

11,746

9,549

Total unrecognized compensation costs will be adjusted for any future changes in estimated forfeitures.

The Company expects to recognize the unrecognized compensation costs as of June 30, 2016 for stock options and restricted stock over weighted average periods through June 2020 as follows:

Stock

Options

Restricted

Stock

Weighted average period

0.0 years

1.4 years

As of June 30, 2016, under all of the Company’s stock-based compensation plans, equity awards to purchase an additional 1,307 shares were authorized for future grants under the plans. The Company issues new shares upon option exercises.

Stock Option Activity

The following table reconciles the outstanding balance of stock options:

Three months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at March 31, 2016		475		$	17.98	$	8.76
Options granted		—			—		—
Options exercised		(17	)		9.64		8.15
Options forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260

Six months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	17.73	$	8.69
Granted		—			—		—
Exercised		(32	)		9.64		7.28
Forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260
Exercisable at June 30, 2016		458		$	18.29			$	6,260

The aggregate intrinsic value is based on the closing price of $31.96 per share of Digimarc common stock on June 30, 2016, which would have been received by the optionees had all of the options with exercise prices less than $31.96 per share been exercised on that date.

Restricted Stock Activity

The following table reconciles the unvested balance of restricted stock:

Three months ended June 30, 2016:	Number of Shares			Weighted Average Grant Date Fair Value
Unvested balance, March 31, 2016		525		$	25.56
Granted		15		$	29.53
Vested		(68	)	$	25.96
Forfeited		(2	)	$	33.16
Unvested balance, June 30, 2016		470		$	25.59

Six months ended June 30, 2016:	Number of Shares			Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2015		408		$	24.30
Granted		177		$	28.63
Vested		(112	)	$	25.52
Forfeited		(3	)	$	32.31
Unvested balance, June 30, 2016		470		$	25.59

The following table indicates the fair value of all restricted stock awards that vested during the three and six months ended June 30, 2016 and 2015:

Three

Months

Ended

June 30,

2016

Three

Months

Ended

June 30,

2015

Six

Months

Ended

June 30,

2016

Six

Months

Ended

June 30,

2015

Fair value of restricted stock awards vested

1,839

1,666

3,117

2,879