The condensed consolidated statements of operations include $0.4 million and $0.9 million of stock compensation expense for the three months ended September 30, 2020 and 2019, respectively. The condensed consolidated statements of operations include $2.0 million and $3.2 million of stock compensation expense for the nine months ended September 30, 2020 and 2019, respectively. The stock compensation expense for the three and nine months ended September 30, 2020 reflects the reduced estimates for the Company’s performance-based awards under the long-term incentive plans. The Company accounts for forfeitures as they occur. The Company did not capitalize any stock compensation expense during the three and nine months ended September 30, 2020 and 2019.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020		2019
Service-based awards	$	462		$	472	$	1,749	$	1,942
Performance-based awards - short-term incentive plan		0			361		0		990
Performance-based awards - long-term incentive plan		(88	)		56		67		170
Employee stock purchase plan		59			29		180		143
Stock options		0			0		0		1
Total	$	433		$	918	$	1,996	$	3,246

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of revenues	$	61	$	87	$	207	$	292
Research and development		121		158		403		507
Sales and marketing		115		158		429		521
General and administrative		136		515		957		1,926
Total	$	433	$	918	$	1,996	$	3,246

The following table presents a summary of the remaining unrecognized share-based compensation expense related to outstanding share-based awards as of September 30, 2020:

Award Type	Remaining Unrecognized Compensation Expense		Weighted Average Life (Years)
Service-based awards	$	1,793		1.3
Performance-based awards	$	495		2.0
Stock options	$	1		0.6

The Company grants service-based stock awards to employees under its long-term incentive plan, the PCTEL, Inc. 2019 Stock Incentive Plan (“LTIP”). For the annual awards granted to executives and key managers in the three months ended March 31, 2020 and 2019, respectively, the awards were comprised one-third of service-based restricted awards and two-thirds of performance-based awards. 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.

The following table summarizes service-based restricted stock activity for the nine months ended September 30, 2020:

	Shares			Weighted Average Fair Value
Unvested Restricted Stock Awards - December 31, 2019		477,187		$	6.11
Shares awarded		201,233			7.91
Shares vested		(236,698	)		6.20
Shares cancelled		(3,000	)		5.92
Unvested Restricted Stock Awards - September 30, 2020		438,722		$	6.89

In February 2020, the Company issued to employees 153,694 service-based restricted stock awards under the LTIP that vest in three substantially equal annual increments commencing in 2021. In April 2020, as part of our efforts to reduce expenses and conserve cash, the Company reduced the salary of each executive and key manager by 10% and in connection therewith issued restricted stock, under the LTIP, with a one-year vesting period to such employee equal to 5% of his/her salary. In total 47,539 service-based restricted stock awards were issued. The intrinsic value of service-based restricted shares that vested during the three months ended September 30, 2020 and 2019 was $18 and $32, respectively. The intrinsic value of service-based restricted shares that vested during the nine months ended September 30, 2020 and 2019 was $1.9 million and $2.2 million, respectively.

The Company grants service-based 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 nine months ended September 30, 2020:

	Shares			Weighted Average Fair Value
Unvested Restricted Stock Units - December 31, 2019		8,117		$	5.83
Units awarded		6,448			7.48
Units vested/Shares awarded		(5,482	)		5.80
Unvested Restricted Stock Units - September 30, 2020		9,083		$	7.02

The intrinsic value of service-based restricted stock units that vested and were issued as shares during the nine months ended September 30, 2020 and 2019 was $44 and $30, respectively. No service-based restricted stock units vested during the three months ended September 30, 2020 or 2019.

The Company may grant new employees stock options to purchase common stock. The Company issues stock options with exercise prices no less than the fair value of the Company’s stock on the grant date. Employee stock options are subject to installment vesting typically over a period of not less than three years. Stock options may be exercised at any time prior to their expiration date or within 180 days of termination of employment, or such shorter time as may be provided in the related stock option agreement. Under the LTIP, new options can have a ten-year life. The stock options outstanding at September 30, 2020 have a seven-year life.

A summary of the Company’s stock option activity for the nine months ended September 30, 2020 is as follows:

	Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2019		150,246		$	7.11
Options exercised		(61,767	)		7.13
Options forfeited		(188	)		5.00
Options cancelled/expired		(72,041	)		7.23
Outstanding at September 30, 2020		16,250		$	6.54
Exercisable at September 30, 2020		15,431		$	6.53

During the nine months ended September 30, 2020, the Company received proceeds of $0.1 million from the exercise of options for 9,412 shares and issued 10,194 shares for the exercise of 52,355 options. The intrinsic value of the options exercised was $0.1 million. During the nine months ended September 30, 2019, the Company received minimal proceeds from the exercise of options for 500 shares. The intrinsic value of the options exercised was also minimal. The Company did not grant stock options during the nine months ended September 30, 2020 or 2019.

The range of exercise prices for options outstanding and exercisable at September 30, 2020, was $5.06 to $8.21. 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
$ 5.06	7,000	2.96	$5.06		6,895	$5.06
$ 6.98 - $ 7.55	4,750	2.41	7.22		4,036	7.26
$ 8.09 - $ 8.21	4,500	1.17	8.12		4,500	8.12
$ 5.06 - $ 8.21	16,250	2.30	$	6.54	15,431	$6.53

The weighted average contractual life and intrinsic value of options outstanding and options exercisable at September 30, 2020, was the following:

Weighted

Average

Contractual

Life (years)

Intrinsic

Value

Options Outstanding

2.30

Options Exercisable

2.20

There were no stock options granted during the nine months ended September 30, 2020. For outstanding stock options, the Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. 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 is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate is based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The expected volatility is based on a five-year historical period of the Company’s stock price. The expected life for options granted is based on historical data of employee exercise performance. The Company records expense based on the graded vesting method.

Incentive compensation earned by executives and key managers under the Company’s 2020 Short-Term Incentive Plan (“STIP”) will be settled 50% in cash and 50% in shares of the Company’s stock as was the case with the 2019 STIP. Under both the 2020 STIP and

2019 STIP, payouts are earned based on revenue and adjusted EBITDA targets. Shares valued at $1.2 million earned pursuant to the 2019 STIP were issued to executives and key managers during the first quarter 2020. For the 2019 STIP, the Company issued 129,285 shares net of shares withheld for taxes.

The Company grants performance-based awards to executives and key managers to encourage sustainable growth, consistent earnings, and management retention. Based on the fair value of the shares on the grant date, the Company records stock compensation expense over the performance period based on the estimated achievement of the award.

At Target	Awards		Weighted Average Fair Value
Unvested Performance Awards - December 31, 2019		171,437	$	5.27
Awards granted		145,289		8.70
Unvested Performance Awards - September 30, 2020		316,726	$	6.84

The Company granted performance awards under its long-term incentive plan to executives and key managers in February 2020 (“2020 LTIP”) and in February 2019 (“2019 LTIP”). Under both the 2020 LTIP and 2019 LTIP, shares of the Company’s stock can be earned based on achievement of a three-year revenue growth target with a penalty if a certain adjusted EBITDA level is not maintained. If the Company achieves less than the target growth over the performance period, the participant will receive fewer shares than the target award, determined on a straight-line basis. If the Company achieves greater than the target growth, the participant will receive more shares than the target award on an accelerated basis. Participants are required to be in service at the determination date of the award following the end of the performance period in order to receive the award. Shares earned under the 2020 LTIP and 2019 LTIP will be fully vested shares. The Company records stock compensation expense over the performance period based on the Company’s estimate of the aggregate number of shares that will be earned under the incentive plan.

The performance period for the 2020 LTIP is from January 1, 2020 through December 31, 2022. At target, the total fair market value of the award was $1.3 million based on the share price of $8.70 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 145,289 and the maximum number of aggregate shares that could be earned was 254,256.

The performance period for the 2019 LTIP is from January 1, 2019 through December 31, 2021. At target, the total fair market value of the award was $0.9 million based on the share price of $5.27 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 174,117 and the maximum number of aggregate shares that could be earned was 300,015. During the year ended December 31, 2019, the target and maximum shares that can be earned declined by 2,680 and 4,690, respectively due to employee terminations.

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 77,297 shares under the ESPP in April 2020. The Company received proceeds of $0.4 million from the issuance of 85,483 shares under the ESPP in August 2019 and received proceeds of $0.3 million from the issuance of 95,376 shares under the ESPP in February 2019.

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
	2020			2019
Dividend yield		4.1	%		4.1	%
Risk-free interest rate		0.1	%		2.5	%
Expected volatility		44	%		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 volatility was based on a five-year historical period of the Company’s stock price. The expected life was based on the offering period.

The Company grants equity awards to members of its Board of Directors as an annual retainer and for committee service. These awards are shares of the Company’s stock that vest upon issuance. In addition, new directors receive a one-time grant that vests over three years. In the second quarter of 2020, the Company issued 60,998 shares with a fair value of $0.4 million to directors for their annual retainer and committee service. The shares vested immediately upon issuance.

	Shares			Weighted Average Fair Value
Outstanding - December 31, 2019		4,831		$	6.90
Shares awarded		60,998			6.59
Shares vested		(63,413	)		6.60
Outstanding - September 30, 2020		2,416		$	6.90

For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards, stock option exercises and short-term and long-term incentive plan stock awards for the value of the statutory withholding taxes. For everyone 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 $1.1 million and $0.8 million during the nine months ended September 30, 2020 and 2019, respectively.

On November 6, 2019, the Board of Directors approved a share repurchase program, which was reauthorized on March 10, 2020 pursuant to which the Company was authorized to repurchase up to $7.0 million of its common stock through the end of 2020. The Company spent $2.0 million to repurchase 375,046 shares at an average price of $5.36 during the three months ended March 31, 2020. The Company cancelled the repurchased shares. Due to uncertainties related to the COVID-19 pandemic and to protect the Company’s cash position, on April 1, 2020 the Board of Directors approved the termination of the stock repurchase program. On November 4, 2020, the Board of Directors approved a new, $5.0 million share repurchase program. Please refer to Note 14 for additional information.

On May 29, 2020, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (i) changing the Company’s name from “PC-Tel, Inc.” to “PCTEL, Inc.” and (ii) decreasing the number of authorized shares of common stock from 100,000,000 shares to 50,000,000 shares.