Stock-Based Compensation | 8. Stock-Based Compensation The condensed consolidated statements of operations include $1.1 million and $1.8 million of stock compensation expense for the three and six months ended June 30, 2017, respectively. Stock compensation expense for the three months ended June 30, 2017 consists of $1.1 million for service-based restricted stock awards and $48 for the Employee Stock Purchase Plan (“ESPP”) offset by for stock options net forfeitures of $13. Stock compensation expense for the six months ended June 30, 2017 consists of $1.7 million for service-based restricted stock awards, $29 for stock options and $93 for the ESPP. The condensed consolidated statements of operations include $1.4 million and $2.2 million of stock compensation expense for the three and six months ended June 30, 2016, respectively. Stock compensation expense for the three months ended June 30, 2016 consists of $0.7 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.2 million for stock bonus expenses, $41 for stock option expenses and $42 for stock purchase plan expenses. Stock compensation expense for the six months ended June 30, 2016 consists of $1.4 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.2 million for stock bonus expenses, $129 for stock option expenses and $89 for stock purchase plan expenses. The Company did not capitalize any stock compensation expense during the three and six months ended June 30, 2017 or 2016. Effective January 1, 2017, the Company has elected to account for forfeitures as they occur. Prior to fiscal year 2017, the Company estimated the number of stock-based awards that were expected to vest, and only recognized compensation expense for such awards. Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows: Three Months Ended Six Months Ended June 30 June 30 2017 2016 2017 2016 Cost of revenues $ 72 $ 73 $ 133 $ 141 Research and development 119 175 266 342 Sales and marketing 127 161 246 301 General and administrative 770 892 1,152 1,306 Total continuing operations 1,088 1,301 1,797 2,090 Discontinued operations 28 81 49 152 Total $ 1,116 $ 1,382 $ 1,846 $ 2,242 Restricted Stock – Service Based The Company grants restricted shares as employee incentives. When service-based restricted stock is granted to employees, the Company records deferred stock compensation within additional paid in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares. These grants vest over various periods, but typically vest over four years. During the first quarter 2017, the Company issued 285,000 service-based restricted stock awards to employees as long-term incentives that cliff vest in two years. The following table summarizes service-based restricted stock activity for the six months ended June 30, 2017: Weighted Average Grant Date Shares Fair Value Unvested Restricted Stock Awards - December 31, 2016 1,120,960 $ 5.83 Shares awarded 337,786 6.13 Shares vested (260,883 ) 6.66 Shares cancelled (32,200 ) 5.99 Unvested Restricted Stock Awards - June 30, 2017 1,165,663 $ 5.72 The intrinsic value of service-based restricted shares that vested during the three months ended June 30, 2017, and 2016, was $0.2 million and $6, respectively. The intrinsic value of service-based restricted shares that vested during the six months ended June 30, 2017, and 2016, was $1.2 million and $0.5 million, respectively. At June 30, 2017, total unrecognized compensation expense related to restricted stock was approximately $4.1 million to be recognized through 2020 over a weighted average period of 1.5 years. Restricted Stock Units – Service Based The Company grants restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units. The following table summarizes the restricted stock unit activity during the six months ended June 30, 2017: Weighted Average Grant Date Units Fair Value Unvested Restricted Stock Units - December 31, 2016 36,388 $ 5.57 Units awarded 5,000 5.97 Units vested (6,588 ) 6.44 Unvested Restricted Stock Units - June 30, 2017 34,800 $ 5.47 The intrinsic value of service-based restricted stock units that vested and were issued as shares during the three months ended June 30, 2017 was $17. No units vested during the three months ended June 30, 2016. As of June 30, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was approximately $0.1 million, to be recognized through 2020 over a weighted average period of 1.0 year. Stock Options The Company grants stock options to purchase common stock as long-term incentives. The exercise price of the stock options is no less than the fair value of the Company’s stock on the grant date. The stock options have a seven-year life and generally vest over a period of four years, 25% after one year, and monthly thereafter. Stock options may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement. A summary of the Company’s stock option activity for the six months ended June 30, 2017 is as follows: Weighted Average Options Exercise Outstanding Price Outstanding at December 31, 2016 825,561 $ 7.30 Exercised (94,300 ) 7.09 Expired or Cancelled (62,747 ) 8.50 Forfeited (30,901 ) 6.79 Outstanding at June 30, 2017 637,613 $ 7.24 Exercisable at June 30, 2017 611,448 $ 7.29 There were no stock options granted during the six months ended June 30, 2017. The range of exercise prices for options outstanding and exercisable at June 30, 2017, was $5.00 to $10.46. The following table summarizes information about stock options outstanding under all stock option plans: Options Outstanding Options Exercisable Weighted Average Weighted- Weighted Range of Number Contractual Life Average Number Average Exercise Prices ($) Outstanding (# Years) Exercise Price Exercisable Exercise Price $ 5.00 -- $ 6.00 19,753 5.89 $ 5.11 1,253 $ 5.87 6.01 -- 7.00 39,789 0.84 6.80 39,789 6.80 7.01 -- 8.00 524,039 2.77 7.20 521,755 7.19 8.01 -- 9.00 35,732 1.99 8.26 30,509 8.28 9.01 -- 10.00 16,900 1.20 9.62 16,742 9.62 10.01 -- 10.46 1,400 1.09 10.46 1,400 10.46 $ 5.00 -- $ 10.46 637,613 2.66 $ 7.24 611,448 $ 7.29 The weighted average contractual life and intrinsic value at June 30, 2017, was the following: Weighted Average Contractual Life (years) Intrinsic Value Options Outstanding 2.66 $ 49 Options Exercisable 2.53 $ 12 The intrinsic value is based on the share price of $7.08 at June 30, 2017. The fair value of each stock option outstanding was estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. The Company calculated the volatility based on a five-year historical period of the Company’s stock price. The expected life used for options granted was based on historical data of employee exercise performance. The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The volatility was based on a five-year historical period of the Company’s stock price. The Company records expense based on the grading vesting method. As of June 30, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $0.1 million to be recognized through 2020 over a weighted average period of 1.1 years. Performance-based Equity Awards Performance awards are restricted shares that vest if certain annual performance measures are met. The Company had 262,500 unvested performance awards at June 30, 2017. As of June 30, 2017, the Company does not expect any of these performance awards to vest. There were forfeitures of 34,000 awards during the six months ended June 30, 2017 due to employee attrition. The following table summarizes the performance-based equity activity during the six months ended June 30, 2017: Weighted Average Grant Date Units Fair Value Unvested Performance Units - December 31, 2016 296,500 $ 7.95 Units cancelled (34,000 ) 7.89 Unvested Performance Units - June 30, 2017 262,500 $ 7.95 Short-term incentive plan For the Company’s 2016 short-term incentive plan (“STIP”), executives were paid in shares of the Company’s stock. During the first quarter 2017, the Company issued 112,916 shares with a fair value of $0.6 million earned under the 2016 STIP. The Company recorded the expense during the year ended December 31, 2016. No shares were issued for the STIP during the second quarter 2017. Because all bonuses earned for the 2017 STIP will be paid in cash, there was no stock compensation expense recorded related to the STIP during the six months ended June 30, 2017. The accrual for the 2017 STIP and the cash portion of the 2016 STIP is included in the accrual for payroll, bonuses, and other employee benefits at June 30, 2017 and December 31, 2016, respectively in the liabilities section of Note 7. The Company expects to pay the 2017 STIP in March 2018. Employee Stock Purchase Plan (“ESPP”) The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is approximately six months. The Company received proceeds of $0.3 million from the issuance of 72,218 shares under the ESPP in February 2017 and received proceeds of $0.4 million from the issuance of 78,415 shares under the ESPP in February 2016. Based on the 15% discount and the fair value of the option feature of this plan, this plan is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions: June 30, 2017 2016 Dividend yield 3.6 % 4.2 % Risk-free interest rate 0.8 % 0.6 % Expected volatility 33 % 34 % Expected life (in years) 0.5 0.5 The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The expected life used is based on the offering period. Employee Withholding Taxes on Stock Awards For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stock awards for the value of the statutory withholding taxes. For each individual receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $0.7 million and $0.4 million during the six months ended June 30, 2017 and 2016, respectively. Stock Repurchases No shares have been repurchased during 2017. The Company repurchased 783,212 shares at an average price of $5.23 during the first quarter 2016. There are no current programs to repurchase shares. |