4. Stockholders’ Equity and Employee Stock Option Plans:

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three months ended March 31, 2014 and 2013 and its allocation within the condensed consolidated statements of operations (in thousands):



	Three Months Ended
	March 31,
	2014		2013
Cost of revenues:
Cost of product	$	108	$	143
Cost of service	27		15
Operating expenses:
Product development	343		542
Sales and marketing	89		308
General and administrative	316		375
Total	$	883	$	1,383

Stock Award Activity

The total intrinsic value of options exercised during the three month periods ended March 31, 2014 and 2013 was $3,000 and $0., respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the options.

The total fair value of RSUs vested and released during the three months ended March 31, 2014 and 2013 was approximately $28,000 and $26,000, respectively. The fair value is calculated by multiplying the fair market value of the Company’s stock on the vesting date by the number of shares vested.

Stock-based Compensation Expense for Awards with Financial-Based Performance Vesting Requirements

As of March 31, 2014, there were 195,000 unvested RSUs and RSAs that were subject to service-based vesting conditions as well as certain financial or other performance-based vesting requirements that must be achieved before vesting can occur.

Through June 30, 2012, cumulative compensation expense of $375,000 associated with these 195,000 unvested RSUs and RSAs was recognized. From the date of grant through June 30, 2012, the Company had believed it was probable that the associated performance requirements would be achieved and therefore recognized expense on these awards. During the third quarter of 2012, the Company believed that the performance condition was no longer probable of achievement; however the Company had also not yet determined that the performance condition was improbable of achievement. Hence, expense recognition was discontinued beginning in the third quarter of 2012. As of December 31, 2013, the Company determined that the performance condition was improbable of achievement and therefore the cumulative compensation expense of $375,000 associated with these awards was reversed. The Company continues to believe that the performance condition is improbable of achievement and therefore no expense was booked during the three months ended March 31, 2014.