. Stock-based Compensation

(a) Valuation of Options, SARs, and RSUs Granted

The Company has elected to use the Black-Scholes-Merton ("BSM") option-pricing model to estimate the fair value of stock options and SARs that it grants. The BSM model incorporates various assumptions including volatility, expected term of the option from the date of grant to the time of exercise, risk-free interest rates, and dividend yields. The weighted average fair value of options and SARs granted during the years ended December 31, 2016, 2015, and 2014, was $2.55, $4.54, and $14.70, respectively, and was determined using the following weighted average assumptions:



	Year ended December 31,
	2016	2015	2014
Expected dividend yield	—%	—%	—%
Risk-free interest rate	1.2%	1.7%	2.0%
Expected volatility	58.1%	56.3%	66.3%
Expected term (in years)	5.12	5.08	5.98

The expected dividend yield reflects the fact that the Company has not paid any dividends in the past and does not currently intend to pay dividends in the foreseeable future. The risk-free interest rate assumption is based on U.S. Treasury yields in effect at the time of grant for the expected term of the option. The expected volatility is based on both the historical volatility of the Company's common stock over the most recent period commensurate with the expected life of the option as well as on implied volatility calculated from the market traded options on the Company's stock. The expected term has been calculated by applying the simplified method calculation to the 10-year term option grants made during 2014, 2015, and 2016, as the Company does not have relevant and adequate exercise history for such options. Prior to this, the expected term had been calculated by applying a Monte Carlo simulation model that incorporated the Company's historical data on post-vest exercise activity and employee termination behavior.

The grant date fair value of RSUs and RSAs granted to employees is determined by multiplying the fair market value of the Company's stock on the grant date times the number of RSUs and RSAs awarded. During the years ended December 31, 2016, 2015 and 2014, the Company issued a limited number of RSUs to non-employee consultants. The final measurement date for these awards is determined at the earlier of the date at which a commitment for performance by the consultant to earn the RSUs is reached, or the date at which the consultant's performance necessary for the RSUs to vest has been completed. Between the date of issuance and the final measurement date, which is expected to be the date the consultants' performance is complete and the awards vest, the awards are remeasured based on the fair market value of the Company's stock at each reporting date. During the year ended December 31, 2016, awards granted to non-employee consultants and the related share-based payment expense was not significant.

(b) Equity Compensation Expense for RSUs and RSAs with Financial or other Performance-Based Vesting Requirements

As of December 31, 2016, and 2015, there were no equity compensation awards outstanding that contained financial or other performance-based vesting requirements.

As of December 31, 2014, there were 70,080 non-vested RSUs and RSAs that were granted in 2010, 2011, and 2014 which 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. The following table contains pertinent information regarding these outstanding awards as of December 31, 2014 (in thousands except for number of awards granted):



Grant Date	# of Awards Granted and Outstanding	Fair Value on Grant Date		Cumulative Expense Recognized		Unearned Compensation Expense		Latest Date Performance Condition Could be Met
August 2010	8,000	$	596	$	—	$	596	April 2015
November 2011	5,000	277		—		277		April 2015
June 2014	57,080	1,404		324		1,080		December 2014
Total	70,080	$	2,277	$	324	$	1,953

Through June 30, 2012, cumulative compensation expense of $264,000 associated with the 13,000 unvested RSUs and RSAs granted in 2010 and 2011 had been 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. Accordingly, 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 $264,000 associated with these awards was reversed in the quarter ended December 31, 2013. No further compensation expense associated with these awards has been recorded. These awards expired unvested in April 2015.

In addition to the awards issued in 2010 and 2011, there were 95,330 non-vested RSAs as of December 31, 2014 with a grant date fair value of $2.3 million that were granted on June 10, 2014, which were also subject to service-based vesting conditions as well as certain performance-based vesting requirements that must be achieved before vesting can occur. These awards vested over a nine month period ending March 14, 2015, provided the performance conditions were met as of December 31, 2014. Of these RSAs issued in June 2014, 30,200 awards with a total fair value of approximately $743,000 were granted to employees of the Grid business. As of September 30, 2014, in conjunction with the sale of the Grid business, the Company reversed all compensation expense previously recognized associated with these awards as they will not vest. Additionally, as of December 31, 2014, 8,050 awards with a grant date fair value of approximately $198,000 were granted to employees who terminated their employment during 2014. Accordingly, the Company reversed all compensation expense previously recognized associated with these awards as they will not vest. As of December 31, 2014, the Company determined that the performance conditions associated with a portion of the remaining unvested awards with a grant date fair value of $965,000 would not be achieved and therefore any previously recorded expense associated with these awards was reversed and no additional expense was recorded during the year ended December 31, 2014.

c) Expense Allocation

Compensation expense for all share-based payment awards has been recognized using the multiple-option approach. As discussed in Note 1, during the fourth quarter of 2016, the Company elected to early adopt ASU 2016-09, Compensation – Stock Compensation (Topic 718), with retrospective application to January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was to the Company's accounting policy for forfeited equity compensation awards. Prior to the adoption of ASU 2016-09, the Company's stock-based compensation expense was calculated using an estimated forfeiture rate. Following the adoption, the Company recognizes the impact of forfeitures on stock-based compensation expense as they occur. As stock-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2015, and 2014 is based on awards ultimately expected to vest, it was reduced for estimated forfeitures, which were estimated based on historical experience.

As of December 31, 2016, total compensation cost related to non-vested stock options and other equity based awards not yet recognized was $1.9 million, which is expected to be recognized over the next 1.2 years on a weighted-average basis.

The following table summarizes stock-based compensation expense for the years ended December 31, 2016, 2015, and 2014 and its allocation within the consolidated statements of operations (in thousands):



	Year ended 31 December,
	2016		2015			2014

Cost of revenues	$	48	$	(74	)	$	292
Product development	173		304			(73		)
Sales and marketing	57		(92		)	206
General and administrative	468		155			1,114
Discontinued operations	—		—			(342		)
Total stock based compensation expense related to stock options and share awards	746		293			1,197
Tax benefit	—		—			—
Stock-based compensation expense related to stock options and share awards, net of tax	$	746	$	293		$	1,197

As of December 31, 2016, and 2015, stock-based compensation expense capitalized as part of the cost of inventory and deferred cost of goods sold was immaterial.