8. Stock-Based Compensation

The condensed consolidated statements of operations include $0.7 million of stock compensation expense for the three months ended March 31, 2018 and 2017, respectively. The Company accounts for forfeitures as they occur.

The stock-based compensation expense by type is as follows:

	Three Months Ended March 31,
	2018		2017
Service-based awards	$	572	$	624
Equity awards for short-term incentive plan		41		0
Stock option and employee purchase plans		55		84
Total continuing operations		668		708
Discontinued operations		0		21
Total	$	668	$	729

Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows:

	Three Months Ended March 31,
	2018		2017
Cost of revenues	$	88	$	61
Research and development		138		146
Sales and marketing		131		119
General and administrative		311		382
Total continuing operations		668		708
Discontinued operations		0		21
Total	$	668	$	729

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. 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 three months ended March 31, 2018:

	Shares			Weighted Average Fair Value
Unvested Restricted Stock Awards - December 31, 2017		828,576		$	5.66
Shares awarded		420,977			7.00
Shares vested		(115,800	)		6.33
Unvested Restricted Stock Awards - March 31, 2018		1,133,753		$	6.09

The intrinsic value of service-based restricted shares that vested during the three months ended March 31, 2018, and 2017 was $0.8 million and $1.0 million, respectively.

At March 31, 2018, total unrecognized compensation expense related to restricted stock was approximately $5.1 million to be recognized through 2021 over a weighted average period of 1.6 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 three months ended March 31, 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 - March 31, 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 March 31, 2018 and 2017 was $29 and $23, respectively.

As of March 31, 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 three months ended March 31, 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		(12,400	)		9.12
Outstanding at March 31, 2018		460,000		$	7.19
Exercisable at March 31, 2018		447,782		$	7.23

There were no stock options exercised during the three months ended March 31, 2018.

The range of exercise prices for options outstanding and exercisable at March 31, 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		5.48	$	5.05		4,999	$	5.05
6.00 — 7.00		9,189		2.75		6.75		7,189		6.69
7.00 — 8.00		422,261		2.04		7.20		421,420		7.20
8.00 — 9.00		7,500		2.40		8.25		6,624		8.28
9.00 — 10.00		6,150		0.50		9.66		6,150		9.66
10.00 — 10.46		1,400		0.34		10.46		1,400		10.46
$ 5.00 — $ 10.46		460,000		2.14	$	7.19		447,782	$	7.23

The weighted average contractual life and intrinsic value of options outstanding and options exercisable at March 31, 2018, was the following:

Weighted

Average

Contractual

Life (years)

Intrinsic

Value

Options Outstanding

2.14

Options Exercisable

2.05

The intrinsic value is based on the share price of $7.18 at March 31, 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 three months ended March 31, 2018:

		March 31,
		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 volatility was 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 Company records expense based on the graded vesting method.

As of March 31, 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 1.4 years.

Performance-based Equity Awards

The Company had 110,500 unvested performance awards at March 31, 2018 and December 31, 2017, respectively. There was no activity related to performance units during the first quarter of 2018. As of March 31, 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 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 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:

	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

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 three months ended March 31, 2018 and 2017, respectively.