Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock option grants and restricted stock awards.

Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct labor hours charged to capitalized software and patent costs.

Valuation and Amortization Method. The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option valuation model. The Company amortizes the fair value of stock option awards on a straight-line basis over the vesting period of the award.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over three years and have contractual terms of ten years.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the expected life of the award.

Expected Dividend Yield. The expected dividend yield is derived by the Company’s expected annual dividend rate over the expected term divided by the fair value of the Company’s common stock at the grant date.

There were no stock options granted during the three months ended March 31, 2020 and 2019.

The fair value of restricted stock awarded is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized over the vesting period of the award using the straight-line method. Restricted stock awards granted generally vest over three to four years for employee grants and one to three years for director grants.

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2020		2019
Stock-based compensation:
Cost of revenue	$	190	$	182
Sales and marketing		479		519
Research, development and engineering		399		354
General and administrative		1,127		982
Stock-based compensation expense		2,195		2,037
Capitalized to software and patent costs		35		41
Total stock-based compensation	$	2,230	$	2,078

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans:

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

The Company expects to recognize the total unrecognized compensation costs as of March 31, 2020, for stock options and restricted stock over weighted average periods through March 31, 2024, as follows:

As of March 31, 2020, under all of the Company’s stock-based compensation plans, equity awards to purchase an additional 1,098 shares were authorized for future grants under the plans. The Company issues new shares upon option exercises.

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Grant Date		Intrinsic
Three months ended March 31, 2020:	Options			Price		Fair Value		Value
Outstanding at December 31, 2019		558		$	31.22	$	14.03
Granted		—			—		—
Exercised		(8	)		18.01		8.85
Forfeited or expired		—			—		—
Outstanding at March 31, 2020		550		$	31.40	$	14.10	$	—
Exercisable at March 31, 2020		383		$	29.95			$	—
Unvested at March 31, 2020		167		$	34.73			$	—

The aggregate intrinsic value is based on the closing price of $13.05 per share of Digimarc common stock on March 31, 2020, which would have been received by the optionees had all of the options with exercise prices less than $13.05 per share been exercised on that date.

				Weighted
				Average
	Number of			Grant Date
Three months ended March 31, 2020:	Shares			Fair Value
Unvested balance, December 31, 2019		435		$	27.05
Granted		186		$	34.05
Vested		(55	)	$	27.50
Forfeited		—		$	—
Unvested balance, March 31, 2020		566		$	29.31

The following table indicates the fair value of all restricted stock awards that vested:

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2020		2019
Fair value of restricted stock awards vested	$	1,811	$	1,240