Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

4. Stock-Based Compensation

Stock Plans

          On July 28, 2005, our Shareholders approved the 2005 Stock Option / Stock Issuance Plan (“2005 Plan”). The 2005 Plan, which became effective the same date, replaced the 1995 Stock Option / Stock Issuance Plan (“1995 Plan”), which expired on May 24, 2005. All outstanding options under the 1995 Plan remained outstanding, but no further grants will be made under that Plan.

          The 2005 Plan provides for the issuance of non-qualified or incentive stock options and restricted stock to employees, non-employee members of the board and consultants. The exercise price per share for options is not to be less than the fair market value per share of the Company’s common stock on the date of grant. The Board of Directors has the discretion to determine the vesting schedule. Options may be exercisable immediately or in installments, but generally vest over a four-year period from the date of grant. In the event the holder ceases to be employed by the Company, all unvested options terminate and all vested options may be exercised within a period following termination. In general, options expire ten years from the date of grant. Restricted stock is valued using the closing stock price on the date of the grant. The total value is expensed over the vesting period of 12 to 48 months. The maximum number of shares of the Company’s common stock that were available for issuance over the term of the original 2005 Plan could not exceed 5,000,000 shares, plus that number of additional shares equal to 2.5% of the number of shares of common stock outstanding on the last trading day of the calendar year commencing with calendar year 2006 (but not in excess of 750,000 shares). On October 11, 2007, our shareholders voted to approve an amendment to the 2005 Plan to increase the maximum number of shares of common stock that may be issued under the 2005 Plan from 5,000,000 shares (plus an annual increase) to 7,000,000 shares (plus an annual increase).

Employee Stock Purchase Plan

          The Company has a shareholder approved employee stock purchase plan (“ESPP”), under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning and end of six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 10% of the employee’s compensation and employees may not purchase more than the lesser of $25,000 of stock, or 1,000 shares, for any calendar year. Additionally, no more than 1,000,000 shares may be purchased under the plan.

Stock Compensation Expense

          The Company accounts for all stock-based payment awards made to employees and directors based on their fair values and recognized as compensation expense over the vesting period using the straight-line method over the requisite service period for each award as required by FASB ASC Topic No. 718, Compensation-Stock Compensation.

          Stock-based non-cash compensation expenses related to stock options, restricted stock grants and the employee stock purchase plan were recorded in the financial statements as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(unaudited)				(unaudited)
Cost of revenues	$	5	$	25	$	22	$	53
Selling and marketing		511		631		1,095		1,263
Research and development		344		616		850		1,202
General and administrative		1,009		1,139		2,009		2,150
Total non-cash stock compensation expense	$	1,869	$	2,411	$	3,976	$	4,668

          Total share-based compensation for each quarter includes cash payment of income taxes related to grants of restricted stock in the amount of $0.4 million and $0.5 million in the three months ended June 30, 2011 and 2010, respectively. The cash payment of income taxes related to grants of restricted stock totaled $1.3 million and $1.0 million for the six months ended June 30, 2011 and 2010, respectively.

Valuation of ESPP

          The Company’s initial six-month offering period began on October 1, 2010 and ended on March 31, 2011. A total of 43,335 shares were purchased/granted in the offering period with a fair value of $3.98 per share. The next six-month offering period began on April 1, 2011 and will end on September 30, 2011. The fair value of $3.61 per share was estimated on the date of grant using a Black-Scholes valuation model that uses the assumptions noted in the following table. The risk-free rate is based on the U.S. treasury yield curve in effect at the time of grant. Expected volatility was based on the historical volatility on the day of grant.

	Offering Period Ended			Offering Period Ending
Assumptions	March 31, 2011			September 30, 2011
Risk-free interest rate (average)		0.18	%		0.12	%
Expected dividend yield		—			—
Weighted average expected life (years)		0.5			0.5
Volatility (average)		72.0	%		72.0	%

Stock Options

          There were stock options to purchase 25,000 shares granted during the three and six months ended June 30, 2011. The weighted average grant-date fair value of stock options granted during the three and six months ended June 30, 2011 was $1.16. There were stock options to purchase 20,000 shares granted during the three and six months ended June 30, 2010. The weighted average grant-date fair value of stock options granted during the three and six months ended June 30, 2010 was $2.97. The assumptions used to compute the stock-based compensation costs for the stock options granted during the three and six months ended June 30, 2011 and 2010, using the Black-Scholes option pricing model, were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
Assumptions	2011			2010			2011			2010
	(unaudited)						(unaudited)
Risk-free interest rate (average)		0.19	%		0.32	%		0.19	%		0.32	%
Expected dividend yield		—			—			—			—
Weighted average expected life (years)		1.0			1.0			1.0			1.0
Volatility (average)		73.0	%		72.0	%		73.0	%		72.0	%
Forfeiture rate		—			—			—			—

          A summary of the Company’s stock options outstanding under the 2005 Plan as of June 30, 2011, and the activity during the six months then ended, are as follows:

				Weighted Ave.		Aggregate
	Shares			Exercise Price		Intrinsic Value
	(in thousands except per share amounts)
Outstanding as of December 31, 2010		2,706		$	11.69
Granted (unaudited)		25		$	4.07
Exercised (unaudited)		(7	)	$	1.84
Cancelled (unaudited)		(105	)	$	16.31
Outstanding as of June 30, 2011 (unaudited)		2,619		$	11.45	$	—
Exercisable as of June 30, 2011 (unaudited)		2,602		$	11.46	$	—

          During the six months ended June 30, 2011, options to acquire 6,688 shares were exercised with an intrinsic value of $16,000, resulting in cash proceeds to the Company of $12,000. As of June 30, 2011, all compensation costs related to stock options granted under the Plan have been recognized. At June 30, 2011, there were 1.6 million shares available for future grants under the 2005 Stock Issuance / Stock Option Plan.

          Additional information regarding options outstanding as of June 30, 2011 is as follows:

			Options outstanding				Options exercisable
			Weighted average		Weighted				Weighted
Range of	Number		remaining		average		Number		average
exercise	outstanding		contractual		exercise		exercisable		exercise
prices	(in thousands)		life (years)		price		(in thousands)		price
$0.24 - $4.00		157		2.7	$	1.62		157	$	1.62
$4.01 - $6.00		492		4.4	$	4.91		492	$	4.91
$6.01 - $12.00		179		6.3	$	8.81		169	$	8.87
$12.01 - $14.00		894		5.6	$	12.65		891	$	12.65
$14.01 - $16.00		603		5.7	$	15.18		602	$	15.18
$16.01 - $19.00		294		5.9	$	17.97		291	$	17.99
		2,619		5.3	$	11.45		2,602	$	11.46

Restricted Stock Awards

          Grants of restricted stock are valued using the closing stock price on the date of grant. In the six months ended June 30, 2011, a total of 0.9 million shares of restricted stock, with a total value of $8.2 million, were granted to key officers and employees of the Company. This cost will be amortized over a period of 48 months. In addition, 50,000 shares of restricted stock, with a total value of $0.4 million, were granted to members of the Board of Directors. This cost will be amortized over a period of 12 months.

          A summary of the Company’s restricted stock awards outstanding under the 2005 Plan as of June 30, 2011, and the activity during the six months then ended, are as follows (in thousands):

	Shares
Unvested at December 31, 2010		1,604
Granted (unaudited)		935
Cancelled/forfeited (unaudited)		(218	)
Vested (unaudited)		(453	)
Unvested at June 30, 2011 (unaudited)		1,868