Equity-Based Compensation Expense

9 Months Ended

Sep. 30, 2011

Equity-Based Compensation Expense [Abstract]

Equity-Based Compensation Expense

(6) Equity-Based Compensation Expense, in thousands

The Company accounts for stock-based compensation in accordance with authoritative guidance, under which stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period, net of estimated forfeitures.

The Company currently estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of its stock over the option's expected term, the risk-free interest rate over the option's expected term, and its expected annual dividend yield. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. These amounts, and the amounts applicable to future quarters, are also subject to future quarterly adjustments based upon a variety of factors, which include, but are not limited to, the issuance of new share-based awards.

The risk-free interest rate utilized is based upon published U.S. Treasury yield curves at the date of the grant for the expected option term. Expected stock price volatility is based upon the historical volatility of our common stock price over the expected term of the option. We use historical exercise, forfeiture, and cancellation information to determine expected term and forfeiture rates.

The following table summarizes the weighted average assumptions we utilized for grants of share-based awards during the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011(1)		2010		2011(1)		2010
Risk-free interest rates		—		1.0% – 2.0%		—		1.0% – 2.0%
Expected dividend yield		—		None		—		None
Expected term		—		6.2 Years		—		6.2 Years
Expected volatility		—		65.9%		—		65.9%

⁽¹⁾  No stock options were granted during the nine months ended September 30, 2011.

During the three and nine months periods ended September 30, 2011, we granted restricted stock awards of 14 and 36 shares, respectively. During the three and nine month periods ended September 30, 2010 we granted restricted stock awards of 45 and 120 shares, respectively. Restricted stock awards are valued at the fair market value at the grant date.

During the nine month period ended September 30, 2011, we modified existing restricted stock awards and options. On April 4, 2011, we accelerated the vesting of 14 shares of restricted stock awarded to a member of our Board of Directors who passed away during the year, resulting in a net expense of $75 during the periods. On April 4, 2011, we also increased the exercise period on 20 shares of his previously vested options from 90 days to one year after separation resulting in an additional $1 in compensation expense. On May 1, 2011, in connection with the resignation of our former CEO and Director, we accelerated the vesting of 5 shares of restricted stock awards resulting in a net expense decrease of $4 as we reversed compensation expense for shares that did not vest. On May 1, 2011, we also modified 23 unvested shares of restricted stock and unvested stock options to purchase 83 shares of our Class A Common Stock held by her as of her resignation date with the addition of a performance condition that would allow the restricted stock and options to vest if a "Change in Control", as defined in the severance agreement between the Company and its former CEO dated April 15, 2010, is consummated on or before November 1, 2011. The compensation expense valued for this modification will be recognized at such time as the performance condition is deemed probable or at its occurrence. The performance period has been completed and the condition has not been satisfied, therefore, no incremental expense was recorded.

All options granted have a contractual ten-year term. All options granted subsequent to January 1, 2006 vest in equal installments on the first, second, third, and fourth year anniversaries over a four year period of continuous employee service. All restricted stock awards made prior to January 1, 2010 vest in equal installments on the first, second, third, fourth and fifth year anniversaries over a five year period of continuous employee service. All restricted stock awards made subsequent to January 1, 2010 vest in twenty equal installments on the quarterly anniversaries from the date of grant over a five-year period.

The Company's results for the three months ended September 30, 2011 and 2010 include $135 and $293, respectively, and for the nine months ended September 30, 2011 and 2010 include $488 and $778, respectively, of share-based compensation within the applicable expense classification where it reports the share-based award holders' compensation expense.

The following table presents share-based compensation expense included in the Company's condensed consolidated statements of operations:

	Three Months  Ended September 30,				Nine Months  Ended September 30,
	2011		2010		2011		2010
Cost of revenue-software licenses	$	—	$	1	$	—	$	3
Cost of revenue-services		1		10		11		47
Marketing and selling		6		5		23		30
Research and development		55		91		219		281
General and administrative		73		186		235		417
	$	135	$	293	$	488	$	778