11.

Capital Stock and Stock-Based Compensation

Employee Stock Purchase Plan (as amended, the ESPP)

Under the Company’s ESPP, participating employees can authorize the Company to withhold a portion of their base pay during consecutive

six

-month payment periods for the purchase of shares of the Company’s common stock. At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at

85%

of the lower of the fair market value of the Company’s common stock at the beginning or end of the period. Shares are issued under the ESPP for the

six

-month periods ending

June 30

and

December 31.

May 16, 2019,

the stockholders of the Company approved an increase of

350,000

shares of common stock in the number of shares available for issuance under the ESPP. Following such amendment,

1,400,000

shares of common stock are authorized for issuance, of which

1,081,404

shares were issued as of

December 31, 2019.

There were

shares issued under the ESPP during the period ended

March 31, 2020.

As of

March 31, 2020,

there were

318,596

shares available for issuance under the plan.

Third Amended and Restated

2000

Stock Option and Incentive Plan (as amended, the Third A&R Plan)

May 25, 2011,

the stockholders of the company approved the Third A&R Plan, which such plan currently authorizes the grant of stock options and stock-based awards to officers, employees, non-employee directors and other key persons of the Company and its subsidiaries. The Third Amendment to the Third A&R Plan (the Amendment) was adopted by the Board of Directors on

April 2, 2018.

Such Amendment was approved by the stockholders at the Company’s

2018

Annual Meeting of Stockholders. Pursuant to the Amendment, the aggregate number of shares authorized for issuance under the Third A&R Plan was increased by

3,400,000

shares to

20,908,929.

As of

March 31, 2020,

there were

275,419

shares available for issuance under the plan

Restricted Stock Units with a Market Condition (the Market Condition RSUs)

2019,

the Compensation Committee of the Board of Directors of the Company approved and granted deferred stock awards of Market Condition RSUs (the

2019

Market Condition RSUs) to certain members of the Company’s management team under the Third A&R Plan. The vesting of the

2019

Market Condition RSUs is based on a graded-vesting schedule (

one

third

at the end of each year for

three

years) and linked to the achievement of a relative total shareholder return of the Company’s common stock measured relative to the Nasdaq Biotechnology index from the

2019

Market Condition RSUs grant date to the earlier of (i) the anniversary date of the grant or (ii) upon a change of control.

As of

March 31, 2020,

the target number of these market condition restricted stock units that

may

be earned is

529,491

shares; the maximum amount is

150%

of the target number.

Stock-Based Payment Awards

The Company accounts for stock-based payment awards in accordance with the provisions of FASB ASC

718,

which requires it to recognize compensation expense for all stock-based payment awards made to employees and directors including stock options, restricted stock units, Market Condition RSUs and employee stock purchases related to the ESPP. The Company has elected as an accounting policy to account for forfeitures for service-based awards as they occur, with

adjustment for estimated forfeitures.

Stock option and restricted stock unit activity for the

three

months ended

March 31, 2020

were as follows:

	Stock Options					Restricted Stock Units					Market Condition RSU's
				Weighted
	Stock			Average		Restricted					Market
	Options			Exercise		Stock Units			Grant Date		Condition RSU's		Grant Date
	Outstanding			Price		Outstanding			Fair Value		Outstanding		Fair Value

Balance at December 31, 2019		2,266,122		$	3.93		1,590,450		$	2.27		529,491	$	1.67
Granted		42,373			2.58		142,766			3.00		-		-
Vested (RSUs)		-			-		(267,588	)		2.75		-		-
Cancelled / forfeited		(49,074	)		3.81		(31,795	)		3.02		-		-
Balance at March 31, 2020		2,259,421		$	3.90		1,433,833		$	2.24		529,491	$	1.67

For the

three

months ended

March 31, 2020,

the total compensation costs related to unvested awards

not

yet recognized is

$3.3

million and the weighted average period over which it is expected to be recognized is approximately

two

years.

Valuation and Expense Information under Stock-Based-Payment Accounting

Stock-based compensation expense for the

three

months ended

March 31, 2020

and

2019

was allocated as follows:

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Cost of product revenues	$	10	$	13
Sales and marketing		51		(7	)
General and administrative		696		551
Research and development		36		34
Total stock-based compensation	$	793	$	591

The Company did

not

capitalize any stock-based compensation.

The weighted-average estimated fair value per share of stock options granted during the

three

months ended

March 31, 2020

was

$1.18

using the Black Scholes option-pricing model with the following weighted-average assumptions:

	2020
Volatility		54.83	%
Risk-free interest rate		1.16	%
Expected holding period (in years)		4.6

The Company used historical volatility to calculate the expected volatility as of

March 31, 2020.

Historical volatility was determined by calculating the mean reversion of the daily adjusted closing stock price. The risk-free interest rate assumption is based upon observed U.S. Treasury bill interest rates (risk-free) appropriate for the term of the Company’s stock options. The expected holding period of stock options represents the period of time options are expected to be outstanding and were based on historical experience. The vesting period ranges from

one

four

years and the contractual life is

ten

years.

Earnings per share

Basic earnings per share is calculated by dividing net income by the number of weighted average common shares outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and Market Condition RSUs into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following:

	Three Months Ended March 31,
	2020		2019
Basic		38,328,791		37,644,684
Diluted		38,328,791		37,644,684

Excluded from the shares used in calculating the diluted earnings per common share in the above table are options, restricted stock units and Market Condition RSUs of approximately

4,222,745

and

3,691,304

shares of common stock for the

three

months ended

March 31, 2020

and

2019,

respectively, as the impact of these shares would be anti-dilutive.