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EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

12 Months Ended

Dec. 31, 2019

EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

NOTE 13 – EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

In 2011, the Company’s Board of Directors approved and adopted a long term incentive plan, which was subsequently approved and amended by the shareholders. There were 28,955 shares eligible for grant, either as options or as restricted stock, at December 31, 2019.

Employee Stock Options – Following is a table reflecting the issuances during 2017 and their related exercise prices (No options were granted in 2018 or 2019):


Grant date		# of options		Exercise price
April 20, 2017		7,500		$	11.70

All granted options vest at the rate of 20% each year over five years beginning one year from the date granted and expire ten years from the grant date. A summary of the status of the stock options as of December 31, 2019, 2018 and 2017 and changes during the years ended December 31, 2019, 2018 and 2017 is as follows:


		2019					2018					2017
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
		Options		Exercise Price			Options		Exercise Price			Options		Exercise Price
Outstanding at beginning of the year		2,751,000		$	6.28		3,193,000		$	6.07		3,362,350		$	5.90
Issued		—			—		—			—		7,500			11.70
Forfeited or rescinded		(2,500)			11.70		(249,000)			6.09		(11,450)			10.12
Exercised		—			—		(193,000)			2.96		(165,400)			2.63

Outstanding at end of year		2,748,500		$	6.28		2,751,000		$	6.28		3,193,000		$	6.07

Exercisable at end of year		2,506,700		$	5.78		2,323,900		$	5.42		2,091,900		$	4.85

Weighted average fair value of options granted during the year				$	—				$	—				$	9.14

The Company uses the Black-Scholes option pricing model to calculate the fair-value of each option grant. The expected volatility is based on the historical price volatility of the Company’s common stock. We elected to use the simplified method for estimating the expected term as allowed by generally accepted accounting principles for options granted during the years ended December 31, 2017. No options were granted during 2018 or 2019. Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options. The following are the Black-Scholes weighted-average assumptions used for options granted during the periods ended December 31, 2017:


		Risk free interest rate		Expected life (years)		Dividend yield		Volatility
April 20, 2017		1.78	%	6.5		—		94	%

No options were granted during 2018 or 2019.

For the years ended December 31, 2019, 2018 and 2017, the Company incurred stock based compensation expense related to stock options of $625,855, $1,853,913 and $3,618,309, respectively. As of December 31, 2019, there was $702,934 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 1.5 years. The aggregate intrinsic value of options vested and expected to vest at December 31, 2019 was $278,400. The aggregate intrinsic value of options exercisable at December 31, 2019 was $278,400. The year-end intrinsic values are based on a December 31, 2019 closing price of $2.64.

Options exercised of 193,000 in 2018 and 165,400 in 2017 had an aggregate intrinsic value on the date of exercise of $1,470,230 and $1,744,047, respectively. No options were exercised in 2019.

The following table summarizes information related to the Company’s stock options outstanding at December 31, 2019:


		Options Outstanding
				Weighted-
				Average
				Remaining
		Number		Contractual Life		Number
Exercise price		Outstanding		(in years)		Exercisable
2.00		395,000		2.17		395,000
4.50		1,340,000		3.24		1,340,000
5.50		5,000		3.45		5,000
7.50		4,000		3.73		4,000
10.00		90,000		4.21		90,000
14.54		10,000		4.99		10,000
8.00		277,500		5.17		277,500
8.25		50,000		6.19		40,000
6.42		15,000		6.59		9,000
11.75		557,000		7.20		334,200
11.70		5,000		7.55		2,000
		2,748,500		4.20		2,506,700

Restricted stock grants – Following is a table reflecting the restricted stock grants during 2017, 2018 and 2019:


		# of shares of
Grant date		restricted stock
December 19, 2017		330,900
April 4, 2018		2,000
September 27, 2018		2,500
December 26, 2018		615,380
April 9, 2019		10,400
May 30, 2019		5,000
July 9, 2019		5,000
September 13, 2019		10,000
December 21, 2019		627,205

All restricted stock grants vest at the rate of 20% each year over five years beginning one year from the date granted. A summary of the status of restricted stock grants as of December 31, 2019, 2018 and 2017 and changes during the years ended December 31, 2019, 2018 and 2017 is as follows:


		2019					2018					2017
				Weighted-
				Average
				Grant					Weighted-					Weighted-
				Date Fair					Average Grant					Average Grant
		Restricted stock		Value			Restricted stock		Date Fair Value			Restricted stock		Date Fair Value
Outstanding at beginning of the year		878,360		$	7.33		330,900		$	13.44		—		$	—
Granted		657,605			2.63		619,880			4.78		330,900			13.44
Forfeited or rescinded		(6,940)			4.23		(7,800)			13.44		—			—
Vested		(187,136)			7.79		(64,620)			13.44		—			—

Outstanding at end of year		1,341,889		$	4.99		878,360		$	7.33		330,900		$	13.44

For the years ended December 31, 2019, 2018 and 2017, the Company incurred stock based compensation expense related to restricted stock grants of $2,456,770, $2,017,021 and $66,770. As of December 31, 2019, there was $4,451,903 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 1.8 years.

During 2019 and 2018, 187,136 and 64,620 shares of restricted stock vested, respectively. At the dates of vesting those shares had an aggregate intrinsic value of $494,605 and $304,360, respectively. No restricted stock vested during 2017.

401(k) Plan- In 2019, the Company initiated a sponsored 401(k) plan that is a defined contribution plan for the benefit of all eligible employees. The plan allows eligible employees to make pre-tax or after-tax contributions of up to 100% of their annual eligible compensation, not to exceed annual limits established by the federal government. The Company makes matching contributions of up to 6% of any employee's compensation. Employees are 100% vested in the employer contribution upon receipt.

The following table presents the matching contributions expense recognized for the Company's 401(k) plan for the year ended December 31, 2019. There were no matching contributions prior to 2019.


		2019
Employer safe harbor match		59,716