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

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

Valuation and Amortization Method. The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option valuation model. The Company amortizes the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over three years and have contractual terms of ten years.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the expected life of the award.

Expected Dividend Yield. The expected dividend yield is derived by the Company’s expected annual dividend rate over the expected term divided by the fair value of the Company’s common stock at the grant date.

There were no stock options granted during the six months ended June 30, 2019 and 2018.

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. Restricted stock awards granted generally vest over three to four years for employee grants and one to three years for director grants.

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2019		2018		2019		2018
Stock-based compensation:
Cost of revenue	$	179	$	167	$	361	$	322
Sales and marketing		489		411		1,008		756
Research, development and engineering		357		350		711		648
General and administrative		927		814		1,839		1,615
Intellectual property		64		67		134		139
Stock-based compensation expense		2,016		1,809		4,053		3,480
Capitalized to software and patent costs		49		49		90		93
Total stock-based compensation	$	2,065	$	1,858	$	4,143	$	3,573

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

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

The Company expects to recognize the total unrecognized compensation costs as of June 30, 2019 for stock options and restricted stock over weighted average periods through June 30, 2023 as follows:

As of June 30, 2019, under all of the Company’s stock-based compensation plans, equity awards to purchase an additional 1,388 shares were authorized for future grants under the plans. The Company issues new shares upon option exercises.

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Grant Date		Intrinsic
Three months ended June 30, 2019:	Options			Price		Fair Value		Value
Outstanding at March 31, 2019		503		$	28.89	$	13.26
Granted		—			—		—
Exercised		(13	)		14.99		8.12
Forfeited or expired		—			—		—
Outstanding at June 30, 2019		490		$	29.26	$	13.40	$	7,414

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Grant Date		Intrinsic
Six months ended June 30, 2019:	Options			Price		Fair Value		Value
Outstanding at December 31, 2018		513		$	28.52	$	13.10
Granted		—			—		—
Exercised		(23	)		12.77		6.81
Forfeited or expired		—			—		—
Outstanding at June 30, 2019		490		$	29.26	$	13.40	$	7,414
Exercisable at June 30, 2019		332		$	28.88			$	5,144
Unvested at June 30, 2019		158		$	30.05			$	2,270

The aggregate intrinsic value is based on the closing price of $44.39 per share of Digimarc common stock on June 28, 2019, the last trading day before the end of the second fiscal quarter, which would have been received by the optionees had all of the options with exercise prices less than $44.39 per share been exercised on that date.

				Weighted
				Average
	Number of			Grant Date
Three months ended June 30, 2019:	Shares			Fair Value
Unvested balance, March 31, 2019		628		$	26.59
Granted		18		$	32.75
Vested		(76	)	$	27.61
Forfeited		(45	)	$	27.13
Unvested balance, June 30, 2019		525		$	26.61

				Weighted
				Average
	Number of			Grant Date
Six months ended June 30, 2019:	Shares			Fair Value
Unvested balance, December 31, 2018		426		$	28.85
Granted		273		$	23.93
Vested		(128	)	$	28.13
Forfeited		(46	)	$	27.13
Unvested balance, June 30, 2019		525		$	26.61

The following table indicates the fair value of all restricted stock awards that vested:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2019		2018		2019		2018
Fair value of restricted stock awards vested	$	3,992	$	2,016	$	5,232	$	3,272