4. Stockholders’ Equity and Employee Stock Option Plans:

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2014 and 2013 and its allocation within the condensed consolidated statements of operations (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014		2013
Cost of revenues:
Cost of product	$	33		$	(86	)	$	141	$	57
Cost of service	4			10			31		25
Operating expenses:
Product development	(249		)	(285		)	94		257
Sales and marketing	216			163			305		471
General and administrative	419			37			735		412
Total	$	423		$	(161	)	$	1,306	$	1,222

The current quarter negative expense for the product development department is primarily due to the impact of reversal of expense from cancellation of awards/ options for certain employees whose employment terminated in the second quarter of 2014.

Stock Award Activity

The total intrinsic value of options exercised during the three and six month periods ended June 30, 2014 was $0 and $3,000, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2013 was $0. 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 and six months ended June 30, 2014 was approximately $1.9 million and $2.0 million, respectively. The total fair value of RSUs vested and released during the three and six months ended June 30, 2013 was approximately $712,000 and $738,000, 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 June 30, 2014, there were 175,000 unvested RSUs and RSAs, issued in prior years, 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 $317,000 associated with these 175,000 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 $317,000 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 and six months ended June 30, 2014.

On June 10, 2014, the Company issued performance RSU's as part of the annual refresh grants to employees, that were subject to service-based vesting conditions as well as certain performance-based vesting requirements that must be achieved before vesting can occur. The total value of the RSU's issued was $2.3 million. These awards vest over a nine month period ending March 14, 2015, provided the performance conditions are met in that timeframe.