The Company accounts for stock-based compensation granted to employees and directors, including employees stock option awards, restricted stock and restricted stock units (“RSUs”) in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s service period. The Company recognizes compensation expense on a ratable basis over the requisite service period of the award.

The Company values options using the Black-Scholes option pricing model. Time-based RSUs are valued at the grant date fair value of the underlying common shares. Performance-based RSUs without market conditions are valued at grant date fair value of the underlying common shares. Performance-based RSUs granted with market conditions and performance-based stock options with market conditions are valued using the Monte Carlo simulation model. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock. The Monte Carlo simulation model incorporates assumptions for the holding period, risk-free interest rate, stock price volatility and dividend yield.

The terms of awards granted during the six months ended July 2, 2022 were consistent with those described in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 1, 2022.

The following table shows stock-based compensation expense included in the condensed consolidated statements of operations for the three and six months ended July 2, 2022 and July 3, 2021:


	Three Months Ended				Six Months Ended
(in thousands)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Cost of revenues	$	60	$	46	$	120	$	93
Research and development		32		14		61		50
Sales and marketing		59		41		181		139
General and administrative		193		179		366		364
	$	344	$	280	$	728	$	646

Stock-based compensation expense capitalized to inventory was immaterial for the six months ended July 2, 2022 and July 3, 2021.

As of July 2, 2022, there was $2.4 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of 1.74 years.

The following table summarizes stock options information during the six months ended July 2, 2022:


	Number of Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value (thousands)
Outstanding as of January 2, 2022		1,772,621		$	5.07
Granted		54,000			4.44
Exercised		(6,063	)		2.25
Canceled or forfeited		(83,346	)		8.50
Outstanding as of July 2, 2022		1,737,212		$	4.90	$	146

The weighted average grant date fair value of the options granted was $2.68 and $3.86 per share for the six months ended July 2, 2022 and July 3, 2021, respectively.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock-based awards (options) with the following weighted average assumptions:


	Three Months Ended						Six Months Ended
	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Average risk free interest rate		3.16	%		0.79	%		2.59	%		0.77	%
Expected life (in years)	4.5			4.45			4.5			4.45
Dividend yield		—	%		—	%		—	%		—	%
Average volatility		76	%		73	%		76	%		73	%

Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of the Company’s stock price history over a period commensurate with the expected term of the options, trading volume of the Company’s stock, look-back volatilities and Company-specific events that affected volatility in a prior period. The expected term of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is based on the history of exercises and cancellations on all past option grants made by the Company, the contractual term, the vesting period and the expected remaining term of the outstanding options. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. No dividend yield is included as the Company has not issued any dividends and does not anticipate issuing any dividends in the future.

Information regarding stock options outstanding, vested, expected to vest, and exercisable as of July 2, 2022 is summarized below:


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (thousands)
Options outstanding		1,737,212	$	4.90		5.19	$	146
Options vested and expected to vest		1,652,151	$	4.89		5.14	$	142
Options exercisable		833,881	$	4.75		4.28	$	95

The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based on the Company’s closing price as of July 2, 2022, that would have been received by option holders had all option holders exercised their stock options as of that date. This amount changes based on the fair market value of the Company’s common stock. The total intrinsic value of options exercised for the six months ended July 2, 2022 and July 3, 2021 was approximately $19 thousand and $70 thousand, respectively.

Information regarding RSUs activity for the six months ended July 2, 2022 is summarized below:


	Number of Shares
Outstanding as of January 1, 2022		253,761
RSUs granted		137,360
RSUs released		(95,242	)
RSUs forfeited		(6,638	)
Outstanding as of July 2, 2022		289,241