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Stock-Based Compensation

9 Months Ended

Sep. 30, 2021

Note 9. Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”), which established accounting for stock-based awards exchanged for employee services. Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period of the award. All of our stock compensation is accounted for as an equity instrument.

The following table summarizes compensation costs related to our stock-based awards (in thousands, except per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Cost of revenue	$	188	$	28	$	263	$	83
Selling, general and administrative		1,252		496		2,694		1,480
Research and development		199		124		473		369
Total stock-based compensation		1,639		648		3,430		1,932
Tax effect on stock-based compensation		—		—		—		—
Net effect on net income	$	1,639	$	648	$	3,430	$	1,932

As of September 30, 2021, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was approximately $0.5 million, net of estimated forfeitures of $90,000. These costs will be amortized on a straight-line basis over a weighted-average period of approximately 1.8 years and will be adjusted for subsequent changes in estimated forfeitures. We did not capitalize any stock-based compensation to inventory as of September 30, 2021 and December 31, 2020 due to the immateriality of the amount.

We estimate the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of ASC 718. There were no options granted in the three and nine months ended September 30, 2021 and 2020.

The following table summarizes the stock option transactions during the nine months ended September 30, 2021 (in thousands, except per share data):


				Weighted-
				average
		Weighted-		Remaining
	Number of	average		Contractual	Aggregate
	Options	Exercise		Life	Intrinsic
Stock Options	Outstanding	Price		(in years)	Value
Balance as of January 1, 2021	1,885	$	4.42	6.17	$	9,713
Granted	—		—
Exercised	(482)		3.30
Canceled and expired	—		—
Balance as of September 30, 2021	1,403	$	4.80	5.78	$	5,094
Options vested as of September 30, 2021 and unvested options expected to vest, net of forfeitures	1,397	$	4.81	5.77	$	5,064
Options exercisable as of September 30, 2021	1,081	$	5.13	5.16	$	3,605

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $8.33 on September 30, 2021, which would have been received by the option holder had all option holders exercised their options on that date.

Restricted stock awards

A summary of activity related to restricted stock awards for the nine months ended September 30, 2021 is presented below (in thousands, except per share data):


		Weighted-Average
		Grant Date
Stock Awards	Shares	Share Value
Non-vested as of January 1, 2021	1,022	$	5.27
Granted	67	$	11.58
Vested	(139)	$	5.85
Forfeited	(12)	$	5.29
Non-vested as of September 30, 2021	938	$	5.64

As of September 30, 2021, the unamortized compensation costs related to unvested restricted stock awards was approximately $3.8 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.2 years.

At-Risk, Performance Shares

In February 2021, the Company issued at-risk, performance shares classified as equity awards. Expense is recognized quarterly on a straight-line method over the requisite service period, based on the probability of achieving the specified financial performance metric, with changes in expectations recognized as an adjustment to earnings in the period of change. Compensation cost is not recognized for at-risk, performance shares that do not vest because service or performance conditions are not satisfied and any previously recognized compensation cost is reversed. At-risk, performance shares are eligible to receive dividend equivalents under the Company's 2015 Equity Incentive Plan (the “Plan”), as determined by the Board of Directors. The Company will recognize forfeitures as they occur.

The Company's at-risk, performance shares are classified as equity and contain performance and service conditions that must be satisfied for an employee to receive the shares. The financial performance metric is based upon year-end 2020 actual results as compared to the Company’s year-end actual results in 2021. All performance shares, if earned, are still subject to annual vesting over a four-year period except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the year 2021.

The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on the first day after the public issuance of the Company’s earnings release for the most recent fiscal quarter, following the Compensation Committee and Board of Directors approval, which is considered the grant date. The fair value per share of the at-risk, performance shares classified as equity awards granted in February 2021 was $15.37. None of the at-risk, performance shares had vested as of September 30, 2021.

On February 17, 2021, the Compensation Committee recommended, and the Board approved, at-risk, performance shares under the Plan, wherein 75,420 shares were granted to Dr. Morris Young, our Chief Executive Officer, and 25,650 shares were granted to Gary Fischer, our Chief Financial Officer and Corporate Secretary.

A summary of the status of our unvested at-risk, performance shares as of September 30, 2021 is presented below (in thousands, except per share data):


		Weighted-Average
		Grant Date
Stock Awards	Shares*	Share Value
Non-vested as of January 1, 2021	—	$	—
Granted	152	$	15.37
Vested	—	$	—
Forfeited	—	$	—
Non-vested as of September 30, 2021	152	$	15.37

*The number of share presented is based on achieving 150% of the targeted financial performance metric as defined in the at-risk, performance shares agreement.

As of September 30, 2021, there was $1.4 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.6 years.