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 nine months ended October 2, 2021 were consistent with those described in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2021.

The following table shows stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended October 2, 2021 and September 26, 2020:

	Three Months Ended						Nine Months Ended
(in thousands)	October 2, 2021			September 26, 2020			October 2, 2021		September 26, 2020
Cost of revenues	$	180		$	46		$	273	$	105
Research and development		(2	)		(27	)		48		(34	)
Sales and marketing		273			149			412		322
General and administrative		166			75			530		381
	$	617		$	243		$	1,263	$	774

Stock-based compensation expense capitalized to inventory was immaterial for the nine months ended October 2, 2021 and September 26, 2020.

As of October 2, 2021, there was $3.0 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 2.21 years.

The following table summarizes stock options information during the nine months ended October 2, 2021:

	Number of Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value (thousands)
Outstanding as of January 2, 2021		1,649,540		$	4.67
Granted		331,663			6.62
Exercised		(53,220	)		3.29
Canceled or forfeited		(132,023	)		4.47
Outstanding as of October 2, 2021		1,795,960		$	5.09	$	4,920

The weighted average grant date fair value of the options granted was $3.79 and $1.06 per share for the nine months ended October 2, 2021 and September 26, 2020, 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						Nine Months Ended
	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020
Average risk free interest rate		0.89	%		0.22	%		0.87	%		0.25	%
Expected life (in years)	4.45 years			4.55 years			4.45 years			4.55 years
Dividend yield		—	%		—	%		—	%		—	%
Average volatility		74	%		63	%		74	%		62	%

Performance stock options granted with market conditions are valued using a Monte Carlo simulation model in combination with a Black-Scholes option pricing model.

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 October 2, 2021 is summarized below:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (thousands)
Options outstanding		1,795,960	$	5.09		5.61	$	4,920
Options vested and expected to vest		1,602,919	$	5.12		5.48	$	4,405
Options exercisable		699,535	$	5.80		4.34	$	1,751

The aggregate intrinsic value in the table above represents the pre-tax intrinsic value, based on the Company’s closing price as of October 2, 2021, 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 nine months ended October 2, 2021 and September 26, 2020 was approximately $207 thousand and $0 thousand, respectively.

Information regarding RSUs activity for the nine months ended October 2, 2021 is summarized below:

	Number of Shares
Outstanding as of January 2, 2021		524,851
RSUs granted		166,598
RSUs released		(381,036	)
RSUs forfeited		(60,164	)
Outstanding as of October 2, 2021		250,249

During the three months ended October 2, 2021, 56,900 stock awards were modified to clarify the performance condition. The total incremental expense for these modifications resulted in an additional stock-based compensation expense of $0.4 million recorded within cost of sales and operating expenses on the condensed consolidated statement of operations for the three months ended October 2, 2021.