Annual report pursuant to Section 13 and 15(d)

Note 7 - Stock-based Compensation

v3.8.0.1
Note 7 - Stock-based Compensation
 12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
7
.
Stock-based compensation
 
 
2010
Incentive Plan:
 
In
July 2010,
the Company approved a stock incentive plan, the
2010
SMTC Incentive Plan (the
“2010
Plan”). The
2010
Plan permitted the issuance of up to
350,000
shares plus an additional number of shares determined by the Board of Directors but
not
to exceed
1%
of the total number of fully diluted shares outstanding per year. Options vest over a
one
to
three
year period and expire
five
to
ten
years from their respective date of grant.
 
In the years
2011
to
2015,
the authorized number of shares increased by
1,944,022
under the
2010
Plan as approved by the Board of Directors and approved by the stockholders, in addition to annual increases authorized based on the evergreen annual increase formula of the
2010
Plan. In
2016,
the Company
’s stockholders approved an increase in the number of shares available for issuance under the
2010
Plan by
1,500,000
shares. The evergreen annual increases based on the formula of the
2010
Plan was
182,171
shares in
2016
and
194,394
shares in
2017.
The total number of shares remaining available for future issuance under the
2010
Plan as at
December 31, 2017
is
1,148,459.
 
Stock options
 
The Company settles its stock options in shares of common stock. A summary of stock option activity under the Incentive Plans for the years ended
January 3, 2016,
January 1, 2017
and
December 31, 2017
is as follows:
 
   
Total
Outstanding
options
    
Weighted
average
exercise
price
    
Aggregate
intrinsic
value
    
Weighted
average
remaining
contractual
term (years)
  
Outstanding balance at December 2
8, 2014
    
817,212
     $
2.07
      
 
      
 
  
Options granted
    
—
     $
—
      
 
      
 
  
Options forfeited
    
(95,431
)
   $
2.03
      
 
      
 
  
Options expired
    
(66,667
)
   $
3.11
      
 
      
 
  
Options exercised
    
—
     $
—
      
 
      
 
  
Outstanding
balance at January 3, 2016
    
655,114
     $
1.98
      
 
      
 
  
Options granted
    
387,255
     $
1.33
      
 
      
 
  
Options forfeited
    
(363,847
)
   $
1.46
      
 
      
 
  
Options expired
    
(61,756
)
   $
3.46
      
 
      
 
  
Options exercised
    
—
     $
—
      
 
      
 
  
Outstanding balance at January
1, 2017
    
616,766
     $
1.82
      
 
      
 
  
Options granted
    
1,468,716
     $
1.29
      
 
      
 
  
Options forfeited
    
(40,722
 )   $
1.80
      
 
      
 
  
Options expired
    
(174,007
 )   $
1.89
      
 
      
 
  
Options exercised
    
—
     $
—
      
 
      
 
  
                                 
Outstanding balance at
December 31, 2017
    
1,870,753
     $
1.39
     $
61
      
8.6
  
                                 
Exercisable balance at
December 31, 2017
    
324,696
     $
1.86
     $
—
      
5.1
  
 
The estimated fair value of
stock options is determined using the Black-Scholes option pricing model (excluding stock options that contain performance vesting conditions) and are amortized over the vesting period on a straight line basis. The Company estimates the expected term of the stock options based on evaluating historical exercise data. The Company considers exercise data based on employee behavior when developing the expected term assumptions. The computation of expected volatility is based on the Company’s historical volatility from its traded common stock over the expected term of the stock option grants. The interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The following weighted average assumptions were used in calculating the estimated fair value of stock options used to compute stock-based compensation expenses:
 
 
   
Year ended
December
3
1,
2017
   
Year ended
January
1
,
201
7
    
Year ended
January 3
,
2016
 
Black-Scholes weighted-average assumptions
  
 
 
 
  
 
 
 
  
 
 
 
                         
Expected dividend yield
    
N/A
      
0.0
%
    
N/A
  
Expected volatility
    
N/A
      
43.8
%
    
N/A
  
Expected forfeiture
    
N/A
      
29.0
%
    
N/A
  
Risk-free interest rate
    
N/A
      
1.33
%
    
N/A
  
Expected
stock option life in years
    
N/A
      
4.0
      
N/A
  
                         
Weighted-average stock option fair value per
stock
option granted
   $
N/A
     $
0.48
     $
N/A
  
 
Certain stock options granted during
2017
have
market-based performance conditions such that tranches of stock awards vest and are issuable only if the Company’s common stock meets or exceeds a specified target market prices during the vesting period as defined by the administrator of the
2010
Plan. If the market-based performance conditions are
not
met during the option life (
10
years), the stock options will
not
vest and will expire. These stock options with market-based performance conditions have been valued using the Binomial Model. The following weighted average assumptions were used in calculating the estimated fair value of awards with market-based performance conditions used to compute stock-based compensation expenses:
 
   
Year ended
December 31,
2017
   
Year ended
January 1,
2017 (1)
    
Year ended
January 3,
2016 (1)
  
Binomial Model weighted-average assumptions
  
 
 
 
  
 
 
 
  
 
 
 
                         
Stock Price
    
1.29
      
N/A
      
N/A
  
Expected volatility
    
43.0
 %    
N/A
      
N/A
  
Expected forfeiture
    
30.0
 %    
N/A
      
N/A
  
Risk-free interest rate
    
1.02
 %    
N/A
      
N/A
  
Expected stock option life in years
    
4.9
      
N/A
      
N/A
  
                         
Weighted-average stock option fair value per award granted
   $
0.30
     $
N/A
     $
N/A
  
 
(
1
)
No
stock options with market-based performance conditions were granted in fiscal
2016
or
2015.
 
During the years ended
December 31, 2017,
January 1, 2017
and
January 3, 2016,
the Company recorded stock-based compensation expense and a corresponding increase in additional paid in capital of $
75,
$78
and
$175,
respectively.
 
During the years ended
December 31, 2017,
January 1, 2017
and
January 3, 2016,
53,622,
112,739
and
257,430
options vested, respectively. As at
December 31, 2017,
compensation expense of
$460
related to non-vested stock options has
not
been recognized.
 
The following table presents information about stock options outstanding as of
December 31, 2017:
 
Outstanding
options
    
Weighted
average
exercise
price
    
Exercisable
options
    
Weighted
average
exercise
price
  
355,881      
1.80
      
200,977
      
1.80
  
50,000      
2.02
      
50,000
      
2.02
  
50,000      
2.19
      
50,000
      
2.19
  
71,156      
1.33
      
23,719
      
1.33
  
1,007,787      
1.23
      
—
      
—
  
335,929      
1.26
      
—
      
—
  
1,870,753     $
1.39
      
324,696
     $
1.86
  
 
 
 
Restricted Stock Units
 
Restricted Stock Units (“RSU”) are settled in shares of common stock. RSUs are issued under the
2010
Plan and have same terms and conditions as other equity compensation awards issued under the
2010
Plan. RSUs are valued at the closing stock price on the date the RSUs are granted. RSUs
have vesting terms of
one
to
three
years. The compensation expense is recorded on a straight line basis over the vesting period.
 
Certain RSUs granted during
2016
have
market-based performance conditions such that the awards vest and are issuable only if the market price of the Company’s common stock meets or exceeds a specified target during the vesting period as defined by the administrator of the
2010
Plan. If the market-based performance condition is
not
met, the RSUs will
not
vest and will be forfeited. The RSUs with market-based performance conditions have been valued using the Binomial Model. The following weighted average assumptions were used in calculating the estimated fair value of awards with market-based performance conditions used to compute stock-based compensation expenses:
 
 
   
Year ended
December
3
1,
2017
(1)
    
Year ended
January 1
,
2017
    
Year ended
January 3
,
2016 (1)
  
Binomial Model weighted-average assumptions
  
 
 
 
  
 
 
 
  
 
 
 
                         
Stock Price
    
N/A
      
1.34
      
N/A
  
Expected volatility
    
N/A
      
42.2
 %    
N/A
  
Expected forfeiture
    
N/A
      
29.0
 %    
N/A
  
Risk-free interest rate
    
N/A
      
0.60
 %    
N/A
  
RSU term
in years
    
N/A
      
3.0
      
N/A
  
                         
Weighted-average RSU fair value per award granted
   $
N/A
     $
0.42
     $
N/A
  
 
 
(
1
)
No
RSU
’s with market-based performance conditions were granted in
2017
or
2015.
The RSU’s granted in
2017
only contained a time condition for vesting.
 
   
Outstanding
options
    
Weighted
average
stock
price
   
Weighted
average
remaining
contractual
term (years)
  
                         
Outstanding balanc
e at December 28, 2014
    
520,433
     $
1.94
      
 
  
RSU granted
    
91,818
     $
1.47
      
 
  
RSU forfeited
    
(64,908
)
   $
1.89
      
 
  
RSU converted into common shares
    
(67,779
)
   $
1.80
      
 
  
                         
Outstanding balance at
January 3, 2016
    
479,564
     $
1.88
      
1.51
  
                         
RSU granted
    
987,764
     $
0.84
      
 
  
RSU forfeited
    
(352,077
)
   $
0.87
      
 
  
RSU converted into common shares
    
(25,125
)
   $
1.99
      
 
  
                         
Outstanding balance at January 1
, 2017
    
1,090,126
     $
1.22
      
1.01
  
                         
RSU granted
    
229,950
     $
1.50
      
 
  
RSU forfeited
    
(261,606
 )   $
0.89
      
 
  
RSU converted into common shares
    
(482,447
 )   $
1.72
      
 
  
                         
Outstanding balance at
December 31, 2017
    
576,023
     $
1.13
      
1.84
  
 
During the periods ended
December 31, 2017,
January 1, 2017
and
January 3, 2016,
the Company recorded stock-based compensation expense and a corresponding increase in additional paid in capital of
$357,
$345,
and
$335,
respectively, with respect to RSUs.