11.	STOCK-BASED COMPENSATION:

The Company recognizes in the statements of income the grant-date fair value of equity based awards, such as shares issued under employee stock purchase plans, restricted stock awards, restricted stock units and performance unit awards issued to employees and directors.

The grant-date fair value of stock awards is based on the closing price of the stock on the date of grant. The fair value of share-based awards is recognized as compensation expense on a straight-line basis over the requisite service period, net of forfeitures. The Company issues new shares upon the respective grant, exercise or vesting of share-based payment awards, as applicable.

Performance unit awards are subject to either a performance-based or market-based vesting requirement. For performance-based vesting, the grant-date fair value of the award, based on fair value of the Company's common stock, is recognized over the service period based on an assessment of the likelihood that the applicable performance goals will be achieved, and compensation expense is periodically adjusted based on actual and expected performance. Compensation expense for performance unit awards with market-based vesting is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized over the service period on a straight-line basis.

Equity Compensation Plan

The Equity Compensation Plan provides for the granting of incentive and nonqualified stock options, shares of common stock, stock appreciation rights and performance units to employees, directors and consultants of the Company. Stock options are exercisable over periods determined by the Compensation Committee, but for no longer than 10 years from the grant date. Through June 30, 2018, the Company’s shareholders have approved increases in the number of shares reserved for issuance under the Equity Compensation Plan to 10,500,000, and have extended the term of the plan through 2024. As of June 30, 2018, there were 2,417,626 shares that remained available to be granted under the Equity Compensation Plan.

Stock Awards

Restricted Stock Awards and Units

The Company has issued restricted stock awards and units to employees and non-employees with vesting terms of one to six years. The fair value is equal to the market price of the Company’s common stock on the date of grant for awards granted to employees and equal to the market price at the end of the reporting period for unvested non-employee awards or upon the date of vesting for vested non-employee awards. Expense for restricted stock awards and units is amortized ratably over the vesting period for the awards issued to employees and using a graded vesting method for the awards issued to non-employees.

During the six months ended June 30, 2018, the Company granted 38,442 shares of restricted stock awards and restricted stock units to employees and non-employees, which had a total fair value of $4.7 million on the respective dates of grant, and will vest over three to five years from the date of grant, provided that the grantee is still an employee of the Company or is still providing services to the Company on the applicable vesting date.

For the three months ended June 30, 2018 and 2017, the Company recorded, as compensation charges related to all restricted stock awards and units to employees and non-employees, selling, general and administrative expense of $1.9 million and $2.1 million, respectively, research and development expense of $509,000 and $419,000, respectively, and cost of sales of $186,000 and $96,000, respectively. For the six months ended June 30, 2018 and 2017, the Company recorded, as compensation charges related to all restricted stock awards and units to employees and non-employees, selling, general, and administrative expense of $3.5 million and $4.1 million, respectively, research and development expense of $934,000 and $786,000, respectively, and cost of sales of $347,000 and $190,000, respectively.

In connection with the vesting of restricted stock awards and units during the three months ended June 30, 2018 and 2017, 52,874 and 50,630 shares, with aggregate fair values of $5.2 million and $4.3 million, respectively, were withheld in satisfaction of tax withholding obligations. For the six months ended June 30, 2018 and 2017, 80,147 and 81,343 shares, with aggregate fair values of $8.6 million and $6.8 million, respectively, were withheld in satisfaction of tax withholding obligations.

For the three months ended June 30, 2018 and 2017, the Company recorded as compensation charges related to all restricted stock units to non-employee members of the Scientific Advisory Board, research and development expense of $41,000 and $175,000, respectively. For the six months ended June 30, 2018 and 2017, the Company recorded as compensation charges related to all restricted stock units to non-employee members of the Scientific Advisory Board, research and development credit of $116,000 and expense of $445,000, respectively.

Board of Directors Compensation

The Company has granted restricted stock units to non-employee members of the Board of Directors with quarterly vesting over a period of approximately one year. The fair value is equal to the market price of the Company's common stock on the date of grant. The restricted stock units are issued and expense is recognized ratably over the vesting period. For the three months ended June 30, 2018 and 2017, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $1.1 million and $444,000, respectively. For the six months ended June 30, 2018 and 2017, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $2.1 million and $883,000, respectively. In connection with the vesting of the restricted stock, the Company issued 12,500 and 15,000 shares, during the six months ended June 30, 2018 and 2017, respectively, to non-employee members of the Board of Directors.

Performance Unit Awards

During the six months ended June 30, 2018, the Company granted 12,047 performance units, of which 6,022 are subject to a performance-based vesting and 6,025 are subject to a market-based vesting requirement and will vest over the terms described below. Total fair value of the performance unit awards granted was $1.4 million on the date of grant.

Each performance unit award is subject to both a performance-vesting requirement (either performance-based or market-based) and a service-vesting requirement.

The performance-based vesting requirement is tied to the Company's cumulative revenue growth compared to the cumulative revenue growth of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period. The market-based vesting requirement is tied to the Company's total shareholder return relative to the total shareholder return of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period.

The maximum number of performance units that may vest based on performance is two times the shares granted. Further, if the Company's total shareholder return is negative, the performance units may not vest at all.

For the three months ended June 30, 2018 and 2017, the Company recorded selling, general and administrative expense of $519,000 and credit of $279,000, respectively, research and development expense of $128,000 and credit of $87,000, respectively, and cost of sales of $56,000 and credit of $29,000, respectively, related to performance units. For the six months ended June 30, 2018 and 2017, the Company recorded selling, general and administrative expense of $945,000 and $161,000, respectively, research and development expense of $232,000 and $28,000, respectively, and cost of sales of $100,000 and $16,000, respectively, related to performance units.

In connection with the vesting of performance units during the six months ended June 30, 2018 and 2017, 25,208 and 19,217 shares with an aggregate fair value of $2.9 million and $1.6 million, respectively, were withheld in satisfaction of tax withholding obligations.

Employee Stock Purchase Plan

On April 7, 2009, the Board of Directors of the Company adopted an Employee Stock Purchase Plan (ESPP). The ESPP was approved by the Company’s shareholders and became effective on June 25, 2009. The Company has reserved 1,000,000 shares of common stock for issuance under the ESPP. Unless terminated by the Board of Directors, the ESPP will expire when all reserved shares have been issued.

Eligible employees may elect to contribute to the ESPP through payroll deductions during consecutive three-month purchase periods. Each employee who elects to participate will be deemed to have been granted an option to purchase shares of the Company’s common stock on the first day of the purchase period. Unless the employee opts out during the purchase period, the option will automatically be exercised on the last day of the period, which is the purchase date, based on the employee’s accumulated contributions to the ESPP. The purchase price will equal 85% of the lesser of the closing price per share of common stock on the first day of the period or the last business day of the period.

Employees may allocate up to 10% of their base compensation to purchase shares of common stock under the ESPP; however, each employee may purchase no more than 12,500 shares on a given purchase date, and no employee may purchase more than $25,000 of common stock under the ESPP during a given calendar year.

During the six months ended June 30, 2018 and 2017, the Company issued 5,532 and 5,928 shares, respectively, of its common stock under the ESPP, resulting in proceeds of $434,000 and $349,000, respectively.

For the three months ended June 30, 2018 and 2017, the Company recorded charges of $24,000 and $21,000, respectively, to selling, general and administrative expense, $33,000 and $23,000, respectively, to research and development expense, and $19,000 and $13,000, respectively, to cost of sales related to the ESPP equal to the amount of the discount and the value of the look-back feature.

For the six months ended June 30, 2018 and 2017, the Company recorded charges of $41,000 and $36,000, respectively, to selling, general and administrative expense, $56,000 and $47,000, respectively, to research and development expense, and $33,000 and $18,000, respectively, to cost of sales related to the ESPP equal to the amount of the discount and the value of the look-back feature.