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Table of Contents

In fiscal year 2012, the Company awarded 225,000 shares of restricted stock to the Company's Chief Executive Officer that would vest
over a three-year period. The vesting conditions of 150,750 shares are tied to the subscriptions and annual gross margin performance. Each
quarterly period, the company estimates the probability of the achievement of these performance goals and recognizes any related stock
based compensation expense. If such performance goals are not probable of achieving, no compensation expense is recognized. The
remaining 74,250 shares are tied to the market value of the Company's common stock. The fair value of 74,250 shares of market-based
restricted stock awards was estimated using a Monte-Carlo analysis. The probability of satisfying a market condition is also considered in the
estimate of grant-date fair value when the Monte Carlo simulation is used. On March 28, 2013 the board approved the modification of 74,250
unvested shares of the market-based awards and extends the performance period to January 31, 2018. Total compensation cost recognized
was $628,000, $521,000 and $1.1 million for the fiscal years ended January 31, 2014, 2013 and 2012 respectively. As of January 31, 2014,
$270,000 of total unrecognized compensation cost related to these awards is expected to be recognized over the remaining vesting period of 4
years.
In fiscal year 2013, the Company awarded 250,000 shares of restricted stock to the Company's Chief Executive Officer that would vest
over a three-year period. The vesting conditions of 250,000 shares are tied to the annual Adjusted EBITDA performance or the market value
of the Company's common stock. The performance goals were met and $2.8 million in compensation cost was recognized for the fiscal year
ended January 31, 2013.
In fiscal year 2014, the Company awarded 275,000 shares of restricted stock to the Company's Chief Executive Officer that would vest
over the three-year period. The vesting conditions of 275,000 shares are tied to the annual Adjusted EBITDA performance or the market value
of the Company's common stock. In addition, the Company also awarded 150,248 shares of restricted stock to certain executive officers and
will vest immediately upon achievement of the goal. The performance goals were met and total compensation cost recognized was $3.6
million for the fiscal year ended January 31, 2014.

Total stock-based compensation for the twelve months ended January 31, 2014, 2013, and 2012, respectively is as follows:

  

Cost of service revenues $2,032 $1,241 $830
Cost of technology revenues 1,626 1,754 1,666
Cost of hardware revenues 304 269 207
Research and development 13,717 12,544 10,768
Sales and marketing 5,631 4,105 3,962
General and administrative 14,455 14,542 11,854
Change in deferred cost of technology revenues 113 302 559
Stock-based compensation before income taxes $37,878 $34,757 $29,846
Income tax benefit $(9,789)$—$—
Total stock-based compensation $28,089 $34,757 $29,846
As of January 31, 2014, $2.9 million of total unrecognized compensation cost related to stock options is expected to be recognized over a
weighted-average period of 2.13 years. As of January 31, 2014, $32.6 million of total unrecognized compensation costs related to unvested
restricted stock is expected to be recognized over a weighted-average period of 1.52 years.
The Company used the alternative transition method which included a simplified method to establish the beginning balance of the
additional paid in capital pool (APIC pool) related to the tax effects of employee share-based compensation, which is available to absorb tax
deficiencies recognized subsequent to stock option expensing.
The Company is required to use a valuation model to calculate the fair value of stock-based awards and has elected to use the Black-
Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rate. The expected
volatility is based on a combination of historical volatility of the Company’s common stock and implied volatility of market traded options on
the Company’s common stock. The
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