Share Based Compensation

12 Months Ended

Dec. 31, 2018

Share-based Payment Arrangement [Abstract]

SHARE BASED COMPENSATION

15. SHARE BASED COMPENSATION

(a) Share-based awards under the 2007 Plan

In order to provide additional incentives to employees and to promote the success of the Group's business, the Group adopted a share incentive plan in (the "2007 Plan") December 2007, which was last amended in February 2011. The 2007 Plan allows the Group to grant options to employees, directors, consultants or members of the board of directors of the Group. Under the 2007 Plan, the maximum aggregate number of shares that may be issued shall not exceed 38,700,000. The terms of the options shall not exceed ten years from the date of grant. 25% of the shares subject to the options shall vest on the first anniversary of the vesting commencement date, and 1/48 of the shares subject to the options shall vest each month thereafter over the next three years, provided the optionee continues to be a service provider to the Group. Thus, there is an explicit service condition of 4 years. In addition, the options contain a performance condition whereby vesting will commence upon the earlier to occur of an initial public offering or a change in control as defined in the 2007 Plan, provided there is continued employment of the optionees on such date.

During the year ended December 31, 2016 and the period ended August 18, 2017, the Group granted 610,000 and 9,085,000 shares of options, respectively, to purchase ordinary shares to employees, officers, and directors with the exercise price of $0.56 and $0.678 ~ $0.859 per share, respectively.

The following table summarizes the Group's option activities under the 2007 Plan:

	Number of options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
				($)		(Years)		($)
Outstanding, January 1, 2016		32,037,240			0.30		4.97		308
Granted		610,000			0.56
Forfeited		(5,190,297	)		0.34
Outstanding, December 31, 2016		27,456,943			0.30		5.26		308
Vested and expected to vest at December 31, 2016		27,456,943			0.30		5.26		308
Outstanding, January 1, 2017		27,456,943			0.30		5.26		308
Granted		9,085,000			0.70
Forfeited		(8,007,606	)		0.04
Outstanding, August 18, 2017		28,534,337			0.48		6.99		-
Vested and expected to vest at August 18, 2017		28,534,337			0.48		6.99		-

As of August 18, 2017, no options were vested and exercisable given the performance condition in place described above. Historically, compensation cost related to performance options that only vest upon the consummation of an initial public offering or change in control event was recognized when the offering or change in control event was consummated. Accordingly, the Group did not recognize any compensation cost under the 2007 Plan.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the fair value of the underlying stock at each reporting date, for those awards that have an exercise price below the estimated fair value of the Group's shares.

As of December 31, 2016 and August 18, 2017, the Group had options outstanding to purchase an aggregate of 5,500,000 shares and nil with an exercise price below the fair value of the Group's shares, resulting in an aggregate intrinsic value of $308 and nil, respectively.

(b) Consummation of reverse acquisition in 2017

Upon the consummation of the Merger, the holders of Borqs International issued and outstanding options had their options assumed by the Company and now hold options to acquire a total of 2,695,194 of the Company's ordinary shares upon exercise of those options. In addition, the performance condition whereby vesting will commence upon the earlier to occur of an initial public offering or a change in control (collectively, "IPO condition") as defined in the 2007 Plan was removed.

Pursuant to ASC 718, the cancellation of the terms or conditions of an equity award under original award in exchange for a new award should be treated as modification. As the IPO condition was not expected to be satisfied as of the modification date, the original grant-date fair value is no longer used to measure compensation cost for the awards. As a result, the compensation cost recognized for the replacement awards would be based on the modification date fair value of the awards. For those awards that were fully vested at the time of the modification, the Group recognized a one-time catch up of $5,658 in share-based compensation expense upon the Merger.

The Group granted 180,000 shares of options to directors to purchase ordinary shares with the exercise price of $5.30 share on August 18, 2017 and nil shares of options during the year ended December 31, 2018.

	Number of options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
				($)		(Years)		($)
Converted under Assumed Options:
Outstanding, August 18, 2017		2,695,194			5.08		6.99		6,561
Granted		180,000			5.30
Forfeited		(49,804	)		6.58
Outstanding, December 31, 2017		2,825,390			5.38		6.43		6,860
Vested and expected to vest at December 31, 2017		2,825,390			5.38		6.43		6,860
Outstanding, January 1, 2018		2,825,390			5.38		6.43		6,860
Granted		-			-
Forfeited		(316,585	)		3.09
Outstanding, December 31, 2018		2,508,805			5.29		6.01		312
Vested and expected to vest at December 31, 2018		2,508,805			5.29		6.01		312

As of August 18, 2017, December 31, 2017 and 2018, the Group had options outstanding to purchase an aggregate of 2,583,250, 2,735,174 and 521,847 shares with an exercise price below the fair value of the Group's shares, resulting in an aggregate intrinsic value of $6,561, $6,860 and $312, respectively.

At the IPO of the predecessor company of Pacific Special Acquisition Corp (“PSAC”) in October 2015, an option was issued to the underwriter of the IPO, EarlyBird Capital, Inc., to purchase up to 400,000 units at $10.00 per unit ("Unit Purchase Option"), where each unit of the option consists of one ordinary share of the Company, one right (convertible into one tenth of an ordinary share) and one warrant to purchase one half of one ordinary share at $12 per whole share. The option is fully vested at the merger of PSAC with Borqs International Holding Corp, and expires five years from the IPO, which is October 2020.

The Group calculated the estimated fair value of the options on the respective grant dates using the binomial-lattice option valuation model with the following assumptions for each applicable period which takes into account variables such as volatility, dividend yield, and risk-free interest rate, contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option:

	Year 2016			Year 2017			Year 2018
Risk-free interest rates		1.58%-2.60	%		1.06%-2.32	%		*
Expected life (years)		10 years			10 years			*
Expected volatility		45%-46	%		31.9%-43.9	%		*
Expected dividend yield		0	%		0	%		*
Exercise multiple		2.20			2.20			*
Post-vesting forfeit rate		10	%		10	%		*
Fair value of underlying ordinary shares	$	0.615-$0.697		$	7.45			*
Fair value of share option	$	0.309-$0.315		$	2.34-$7.45			*

Total compensation expenses relating to share options granted to employees recognized for the years ended December 31, 2017 and 2018 were as follows:

	For the years ended December 31,
	2017		2018
Cost of revenues		-		-
Sales and marketing expenses		1,470		359
General and administrative expenses		1,277		254
Research and development expenses		3,143		363
		5,890		976

(c) Ordinary shares issued in 2017

On March 17, 2017, the Group issued 450,000 ordinary shares to certain employees and a non-employee for a total proceed of $62 recorded as general and administrative expenses. The fair value of the ordinary shares in excess of the proceeds received by the Group was immediately recognized as compensation expense which amounted to $324. The 450,000 ordinary shares were fully vested as of December 31, 2017.