Stock-Based Compensation | 8. Stock-Based Compensation The condensed consolidated statements of operations include $1.1 million of stock compensation expense for the three months ended June 30, 2018 and 2017, respectively. The condensed consolidated statements of operations include $1.8 million of stock compensation expense for the six months ended June 30, 2018 and 2017, respectively. T The stock-based compensation expense by type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Service-based awards $ 1,102 $ 1,054 $ 1,674 $ 1,679 Equity awards for short-term incentive plan (41 ) 46 0 88 Stock option and employee purchase plans 57 (12 ) 112 30 Total continuing operations 1,118 1,088 1,786 1,797 Discontinued operations 0 28 0 49 Total $ 1,118 $ 1,116 $ 1,786 $ 1,846 Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Cost of revenues $ 92 $ 72 $ 180 $ 133 Research and development 159 119 297 266 Sales and marketing 157 127 288 246 General and administrative 710 770 1,021 1,152 Total continuing operations 1,118 1,088 1,786 1,797 Discontinued operations 0 28 0 49 Total $ 1,118 $ 1,116 $ 1,786 $ 1,846 Restricted Stock – Service Based The Company grants restricted shares as employee and director incentives. When service-based restricted stock is granted, 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. During the first quarter 2018, the Company issued 420,977 service-based restricted stock awards to employees that vest in equal annual increments over three years. The following table summarizes service-based restricted stock activity for the six months ended June 30, 2018: Shares Weighted Average Fair Value Unvested Restricted Stock Awards - December 31, 2017 828,576 $ 5.66 Shares awarded 481,975 6.94 Shares vested (176,798 ) 6.42 Shares cancelled (1,500 ) 6.01 Unvested Restricted Stock Awards - June 30, 2018 1,132,253 $ 6.09 The intrinsic value of service-based restricted shares that vested during the three months ended June 30, 2017 was At June 30, 2018, total unrecognized compensation expense related to restricted stock was approximately $4.4 million to be recognized through 2021 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, 2018: Shares Weighted Average Fair Value Unvested Restricted Stock Units - December 31, 2017 31,800 $ 5.47 Units awarded 5,500 7.05 Units vested/Shares awarded (4,087 ) 5.79 Units cancelled (75 ) 7.49 Unvested Restricted Stock Units - June 30, 2018 33,138 $ 5.68 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 service-based restricted stock units vested during the three months ended June 30, 2018. As of June 30, 2018, 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 2021 over a weighted average period of 1.2 years. 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 ratably on a monthly basis 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, 2018 is as follows: Options Outstanding Weighted Average Exercise Price Outstanding at December 31, 2017 470,484 $ 7.24 Options granted 2,000 6.98 Options forfeited (84 ) 7.31 Options cancelled/expired (21,216 ) 9.11 Outstanding at June 30, 2018 451,184 $ 7.15 Exercisable at June 30, 2018 440,285 $ 7.19 The range of exercise prices for options outstanding and exercisable at June 30, 2018, was $5.00 to $10.46. The following table summarizes information about stock options outstanding under all stock option plans: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Contractual Life (Years) Weighted- Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 5.00 — $ 6.00 13,500 5.23 $ 5.05 5,739 $ 5.05 6.00 — 7.00 9,189 2.50 6.75 7,189 6.69 7.00 — 8.00 421,345 1.80 7.20 420,864 7.20 8.00 — 9.00 5,000 3.28 8.14 4,343 8.14 9.00 — 10.00 750 2.35 9.68 750 9.68 10.00 — 10.46 1,400 0.09 10.46 1,400 10.46 $ 5.00 — $ 10.46 451,184 1.93 $ 7.15 440,285 $ 7.19 The weighted average contractual life and intrinsic value of options outstanding and options exercisable at June 30, 2018, was the following: Weighted Average Contractual Life (years) Intrinsic Value Options Outstanding 1.93 $ 16 Options Exercisable 1.84 $ 7 The intrinsic value is based on the share price of $6.24 at June 30, 2018. There were 2,000 stock options granted during the six months ended June 30, 2018. The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model based upon the following assumptions during the six months ended June 30, 2018: June 30, 2018 Dividend yield 3.2% Risk-free interest rate 2.4% Expected volatility 33% Expected life (in years) 3.7 The fair value of each stock option outstanding was estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing 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 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 expected volatility was based on a five-year historical period of the Company’s stock price. The expected life for options granted was based on historical data of employee exercise performance. The Company records expense based on the graded vesting method. As of June 30, 2018, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $9, to be recognized through 2021 over a weighted average period of 1.3 years. Performance-based Equity Awards The Company had 110,500 unvested performance awards at June 30, 2018 and December 31, 2017, respectively. There was no activity related to performance awards during the six months ended June 30, 2018. As of June 30, 2018, the Company does not expect any of the outstanding performance awards to vest. Short-term incentive plan Incentive awards earned by certain executives and key managers under the Company’s 2018 short-term incentive plan (“STIP”) will be settled 50% in cash and 50% in shares of the Company’s stock for certain executives. The incentive awards for all other participants under the 2018 STIP will be 100% in cash. All incentive awards earned under the 2017 STIP were paid in cash. 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 $0.4 million from the issuance of 68,212 shares under the ESPP in February 2018 and received proceeds of $0.3 million from the issuance of 72,218 shares under the ESPP in February 2017. Based on the 15% discount and the fair value of the option feature of the ESPP, it 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: Employee Stock Purchase Plan 2018 2017 Dividend yield 3.2 % 3.8 % Risk-free interest rate 2.1 % 0.8 % Expected volatility 33 % 33 % 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 volatility was based on a five-year historical period of the Company’s stock price. The expected life was based on the offering period. Board of Director Equity Awards The Company grants equity awards under the PCTEL, Inc. Stock Plan (the “Stock Plan”) to members of its Board of Directors an annual retainer for committee service in shares of the Company’s stock. These awards vest upon issuance. New directors receive a one-time grant that vests over three years. During the quarter ended June 30, 2018, the Company issued 60,988 shares of the Company’s stock with a fair value of $0.4 million. During the quarter ended June 30, 2017, the Company issued 52,786 shares of the Company’s stock with a fair value of $0.4 million. 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 $0.3 million and $0.6 million during the six months ended June 30, 2018 and 2017, respectively. |