Note 11 – Share-based Compensation



We allocate share-based compensation expense to cost of sales, selling, general and administrative expense, and research and development expense based on the award holder’s employment function. For the three months ended December 31, 2020 and 2019, we recorded share-based compensation expenses as follows:



We have issued share-based awards to employees and non-executive directors under the Company’s approved equity plans. Upon the exercise of share-based awards, new shares are issued from authorized common stock.



Equity Plans



In March 2018, the Company’s stockholders approved the Company's 2018 Equity Incentive Plan (as amended, the “2018 Plan”). A total of 11.0 million shares are authorized for issuance under the 2018 Plan. As of December 31, 2020, 3,659,905 shares remain available for issuance under the 2018 Plan. 



In July 2017, the Company’s stockholders approved the Company's 2017 Equity Incentive Plan (the “2017 Plan”). A total of 4.7 million shares are authorized for issuance under the 2017 Plan. As of December 31, 2020, 99 shares remain available for issuance under the 2017 Plan. The 2017 Plan replaced the Company's 2008 Stock Incentive Plan (the “2008 Plan”), and no further awards will be made under the 2008 Plan.



Stock Options



Each option grants the holder the right to purchase from us one share of our common stock at a specified price, which is generally the closing price per share of our common stock on the date the option is issued. Options generally vest on a pro-rata basis on each anniversary of the issuance date within three years of the date the option is issued. Options may be exercised after they have vested and prior to the specified expiry date provided applicable exercise conditions are met, if any. The expiry date can be for periods of up to ten years from the date the option is issued. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions established at that time. The Company accounts for forfeitures as they occur and does not estimate forfeitures as of the option grant date.



The following table outlines the weighted average assumptions for options granted during the three months ended December 31, 2020 and 2019:



During the three months ended December 31, 2020 and 2019, the Company used historical volatility of our common stock over a period equal to the expected life of the options to estimate their fair value. The dividend yield assumption is based on the Company’s recent history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term.



The following table summarizes the stock options outstanding and exercisable at December 31, 2020: 



The aggregate intrinsic values in the table above are before income taxes and represent the number of in-the-money options outstanding or exercisable multiplied by the closing price per share of the Company’s common stock on the last trading day of the quarter ended December 31, 2020 of $8.65, less the respective weighted average exercise price per share at period end.  



The total intrinsic value of options exercised during the three months ended December 31, 2020 and 2019 was approximately $2.4 million and $2,000, respectively. Cash received from options exercised during the three months ended December 31, 2020 was approximately $624,000.  During the three months ended December 31, 2019, there was no cash received for option exercises as options to purchase 1,666 shares of common stock were exercised using the cashless exercise feature available under the 2017 Plan, which resulted in the issuance of 867 shares of common stock. There were no options exercised using the cashless exercise feature during the three months ended December 31, 2020.



As of December 31, 2020, the Company had unrecognized compensation expense of approximately $5.7 million related to unvested stock options. This expense is expected to be recognized over a weighted average period of 1.8 years.



Stock Appreciation Rights



In connection with the closing of the APP Acquisition, the Company issued stock appreciation rights based on 50,000 and 140,000 shares of the Company’s common stock to an employee and an outside director, respectively, that vested on October 31, 2018. The stock appreciation rights have a ten-year term and an exercise price per share of $0.95, which was the closing price per share of the Company’s common stock as quoted on NASDAQ on the trading day immediately preceding the date of the completion of the APP Acquisition. Upon exercise, the stock appreciation rights will be settled in common stock issued under the 2017 Plan. As of December 31, 2020, vested stock appreciation rights based on 50,000 shares of common stock remain outstanding.