Employee Benefit Plans and Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Employee Benefit Plans and Stock-based Compensation

Stock-Based Compensation

Note 10. Employee Benefit Plans and Stock-based Compensation

Stock Option Plans and Equity Incentive Plans

In May 2007, our stockholders approved our 2007 Equity Incentive Plan (the “2007 Plan”), which provides for the grant of incentive and non-qualified stock options to our employees, consultants and directors. The 2007 Plan is a restatement of the 1997 Stock Option Plan which expired in 2007. The 1,928,994 share reserve of the 1997 Stock Option Plan became the reserve of the 2007 Plan, together with 1,300,000 additional shares approved for issuance under the 2007 Plan. In May 2013, the stockholders approved an additional 2,000,000 shares to be issued under the 2007 plan. Awards may be made under the 2007 Plan are stock options, stock appreciation rights, restricted stock, restricted stock

units, performance shares, performance units, deferred compensation awards and other stock-based awards. Stock options and stock appreciation rights awarded under the 2007 Plan may not be repriced without stockholder approval. Stock options and stock appreciation rights may not be granted below fair market value. Stock options or stock appreciation rights generally shall not be fully vested over a period of less than three years from the date of grant and cannot be exercised more than 10 years from the date of grant. Restricted stock, restricted stock units, and performance awards generally shall not vest faster than over a three-year period (or a twelve-month period if vesting is based on a performance measure). In December 2008, the 2007 Plan was amended to comply with the applicable requirements under Section 409A of the Internal Revenue Code.

In May 2015, our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan is a replacement of the 2007 Plan. The 399,562 share reserve of the 2007 Plan became the reserve of the 2015 Plan, together with 3,000,000 additional shares approved for issuance under the 2015 Plan. In May 2019, our stockholders approved 1,600,000 of additional shares for issuance under the 2015 Plan. In May 2021, our stockholders approved 3,600,000 of additional shares for issuance under the 2015 Plan. Awards that may be made under the 2015 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock-based awards. Stock options and stock appreciation rights awarded under the 2015 Plan may not be repriced without stockholder approval. Stock options and stock appreciation rights may not be granted below fair market value. Stock options or stock appreciation rights generally shall not be fully vested over a period of less than four years from the date of grant and cannot be exercised more than 10 years from the date of grant. Restricted stock, restricted stock units, and performance awards generally shall not vest faster than over a three-year period (or a twelve-month period if vesting is based on a performance measure). However, options granted to consultants and restricted stock awards granted to independent board members typically vest in one year and the 2015 Plan does allow for similar vesting to employees. As of December 31, 2023, approximately 1.7 million shares were available for grant under the 2015 Plan.

Stock Options

The following table summarizes the stock option transactions for each of the years ended December 31, 2021, 2022 and 2023 (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	(507)		3.30
Canceled and expired	—		—
Balance as of December 31, 2021	1,378	$	4.83	5.60	$	5,573
Granted	—		—
Exercised	(172)		3.02
Canceled and expired	—		—
Balance as of December 31, 2022	1,206	$	5.09	5.08	$	630
Granted	—		—
Exercised	(4)		2.30
Canceled and expired	(4)		4.12
Balance as of December 31, 2023	1,198	$	5.10	4.09	$	14
Options vested as of December 31, 2023 and unvested options expected to vest, net of forfeitures	1,198	$	5.10	4.09	$	14
Options exercisable as of December 31, 2023	1,198	$	5.10	4.09	$	14

The options outstanding and exercisable as of December 31, 2023 were in the following exercise price ranges (in thousands, except per share data):

									Options Vested and
					Options Outstanding as of				Exercisable as of
					December 31, 2023				December 31, 2023
								Weighted‑average
Range of						Weighted‑average		Remaining		Weighted‑Average
Exercise Price					Shares	Exercise Price		Contractual Life	Shares	Exercise Price
$	2.14	-	$	2.14	8	$	2.14	0.33	8	$	2.14
$	2.18	-	$	2.18	54	$	2.18	1.84	54	$	2.18
$	2.47	-	$	2.47	15	$	2.47	0.84	15	$	2.47
$	2.56	-	$	2.56	10	$	2.56	2.01	10	$	2.56
$	3.06	-	$	3.06	330	$	3.06	5.85	330	$	3.06
$	5.21	-	$	5.21	352	$	5.21	2.82	352	$	5.21
$	5.77	-	$	5.77	245	$	5.77	4.85	245	$	5.77
$	7.95	-	$	7.95	60	$	7.95	3.08	60	$	7.95
$	9.50	-	$	9.50	124	$	9.50	3.82	124	$	9.50
					1,198	$	5.10	4.09	1,198	$	5.10

There were 4,000, 172,000 and 507,000 options exercised in the years ended December 31, 2023, 2022 and 2021, respectively. The total intrinsic value of options exercised for the years ended December 31, 2023, 2022 and 2021, was $7,000, $0.8 million and $3.7 million, respectively.

As of December 31, 2023, the unamortized compensation costs related to unvested stock options granted to employees under our 2015 plan was $0. We did not capitalize any stock-based compensation to inventory as of December 31, 2023 and 2022, as the amount was insignificant.

Restricted Stock Awards

A summary of activity related to restricted stock awards for the years ended December 31, 2021, 2022 and 2023 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	274	$	9.07
Vested	(407)	$	5.70
Forfeited	(14)	$	5.38
Non-vested as of December 31, 2021	875	$	6.26
Granted	513	$	4.67
Vested	(387)	$	6.01
Forfeited	(17)	$	5.34
Non-vested as of December 31, 2022	984	$	5.55
Granted	692	$	2.20
Vested	(446)	$	5.25
Forfeited	(10)	$	6.37
Non-vested as of December 31, 2023	1,220	$	3.75

Total fair value of stock awards vested during the years ended December 31, 2023, 2022 and 2021 was $2.3 million, $2.3 million and $3.8 million, respectively. As of December 31, 2023, we had $4.1 million of unrecognized compensation expense related to restricted stock awards, which will be recognized over the weighted average period of 1.5 years.

At-Risk, Performance Shares

In February 2021 and 2022 and March 2023, 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 for the at-risk, performance shares issued in February 2021 is based upon year-end 2020 actual results as compared to the Company’s year-end actual results in 2021. The financial performance metric for the at-risk, performance shares issued in February 2022 is based upon year-end 2021 actual results as compared to the Company’s year-end actual results in 2022. The financial performance metrics for the at-risk, performance shares issued in March 2023 are based upon the Company’s year-end actual results in 2023. The financial performance metric for the at-risk, performance shares issued in February 2024 is based upon the Company’s year-end actual results in 2024. 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, 2022 and 2023, respectively.

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 and 2022 and March 2023 was $15.37, $7.83 and $3.71, respectively.

On February 17, 2021, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young, our Chief Executive Officer, of 113,130 at-risk, performance shares under the Plan. On February 17, 2021, the Compensation Committee approved the grant to Gary Fischer, our Chief Financial Officer and Corporate Secretary, of 38,475 at-risk, performance shares under the Plan. On March 14, 2022, the Compensation Committee met and certified that the year-over-year annual revenue growth rate achieved for fiscal year 2021, expressed as a percentage, was 44%. Therefore, all of the at-risk performance shares became eligible to vest.

On February 15, 2022, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 114,320 at-risk, performance shares under the Plan. On February 15, 2022, the Compensation Committee approved the grant to Gary Fischer of 32,100 at-risk, performance shares under the Plan. If the performance financial metric is less than 50% achieved these shares are forfeited. If the performance financial metric is between 50% and 200% achieved, then a corresponding pro rata portion of the 114,320 shares issued to Dr. Young would be eligible to vest and a corresponding pro rata portion of the 32,100 shares issued to Mr. Fischer would be eligible to vest. Any shares that are not eligible to vest are forfeited. If the target financial metric exceeds 200%, then the maximum number of at-risk performance shares that would be eligible to vest is 114,320 for Dr. Young and 32,100 for Mr. Fischer. On February 14, 2023, the Compensation Committee met and certified the year-over-year annual revenue growth rate achieved for fiscal year 2022, expressed as a percentage, was 2.7%. Therefore, none of the at-risk performance shares became eligible to vest.

On March 15, 2023, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 223,590 at-risk, performance shares under the Plan. On March 15, 2023, the Compensation Committee approved the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year 2023 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If the target financial metric is exceeded and an additional financial metric for fiscal year 2023 is achieved, then additional shares above the target number of shares are earned based on such performance formula and the maximum number of additional shares earned is capped at 100% of the target. If the minimum financial metric for fiscal year 2023

is not achieved, then these awards are forfeited. On February 20, 2024, the Compensation Committee met and certified that the minimum revenue metric for fiscal year 2023 was not achieved. Therefore, none of the at-risk performance shares became eligible to vest.

On February 20, 2024, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 223,590 at-risk, performance shares under the Plan. On February 20, 2024, the Compensation Committee approved the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year 2024 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If the target financial metric is exceeded, then additional shares above the target number of shares are earned based on such performance formula and the maximum number of additional shares earned is capped at 100% of the target. If the minimum financial metric for fiscal year 2024 is not achieved, then these awards are forfeited.

A summary of the status of our unvested at-risk, performance shares as of December 31, 2023 is presented below (in thousands, except per share data):

			Weighted-Average
			Grant Date
Stock Awards	Shares		Share Value
Non-vested as of January 1, 2022	152	*	$	15.37
Granted	74		$	7.83
Vested	(76)		$	15.37
Forfeited	(74)		$	7.83
Non-vested as of December 31, 2022	76		$	15.37
Granted	13		$	3.71
Vested	(38)		$	15.37
Forfeited	(13)		$	3.71
Non-vested as of December 31, 2023	38		$	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 December 31, 2023, there was $0.1 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 0.85 years.

Common Stock

The following number of shares of common stock were reserved and available for future issuance as of December 31, 2023 (in thousands, except per share data):

Options outstanding	1,198
Restricted stock awards outstanding	1,257
Stock available for future grant: 2015 Equity Incentive Plan	1,743
Total	4,198

Stock-based Compensation

We recorded $3.5 million, $4.0 million and $4.5 million of stock-based compensation in our consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021, respectively. The following table summarizes compensation costs related to our stock-based compensation awards (in thousands, except per share data):

	Year Ended
	December 31,
	2023		2022		2021
Cost of revenue	$	414	$	379	$	368
Selling, general and administrative		2,502		2,947		3,514
Research and development		624		680		637
Net effect on net income (loss)	$	3,540	$	4,006	$	4,519
Shares used in computing basic net income (loss) per share		42,643		42,104		41,367
Shares used in computing diluted net income (loss) per share		42,643		42,715		42,720
Effect on basic net income (loss) per share	$	0.08	$	0.10	$	0.11
Effect on diluted net income (loss) per share	$	0.08	$	0.09	$	0.11

We estimate the fair value of stock options using a Black-Scholes option pricing model. There were no stock options granted during 2023, 2022 and 2021.

The expected term for stock options is based on the observed historical option exercise behavior and post-vesting forfeitures of options by our employees, and the contractual term, the vesting period and the expected term of the outstanding options. Expected volatility is based on the historical volatility of our common stock. The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options.

Retirement Savings Plan

We have a 401(k) Savings Plan (“Savings Plan”) which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. All full-time U.S. employees are eligible to participate in the Savings Plan after 90 days from the date of hire. Employees may elect to reduce their current compensation by up to the statutory prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. We provide matching to employee contributions up to 4% of the employees’ base pay if employees contribute at least 6% of their base pay. If the contribution rate is less than 6% of the base pay, the matching percentage is prorated. Our contributions to the Savings Plan were $186,000, $191,000 and $208,000 for the years ended December 31, 2023, 2022 and 2021, respectively.