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8. Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Stockholders' Equity

8. Stockholders' Equity

Dividends Declared and Paid

Dividends declared and paid on common stock were $2,827,276 and $3,204,813 for the nine months ended September 30, 2019 and 2018, respectively. The Company’s Board of Directors approved a quarterly dividend on November 11, 2019 of $0.0625 per share payable in cash on December 13, 2019 to stockholders of record as of November 29, 2019 (see Note 13).

Stock Options

Effective August 12, 2014, the Company adopted the 2014 Equity Participation Plan (the “2014 Plan”) pursuant to which a maximum of 700,000 shares of Common Stock of the Company are authorized to be issued pursuant to the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and stock bonuses. Incentive stock options granted under the 2014 Plan expire no later than ten years from the date of grant (except no later than five years for a grant to a 10% stockholder). The Board of Directors or the Compensation Committee determines the expiration date with respect to non-statutory stock options and the vesting provisions for restricted stock granted under the 2014 Plan.

The results of operations for the three months ended September 30, 2019 and 2018 include stock-based compensation expense related to the 2014 Plan totaling approximately $19,800 and $1,000, respectively. The results of operations for the nine months ended September 30, 2019 and 2018 include stock-based compensation expense related to stock options totaling approximately $20,800 and $5,000, respectively. Stock-based compensation expense related to stock options is net of estimated forfeitures of approximately 17% for the three months and nine months ended September 30, 2019 and 2018. Such amounts have been included in the condensed consolidated statements of operations and comprehensive income (loss) within other operating expenses.

Stock-based compensation expense for the nine months ended September 30, 2019 and 2018 is the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period, for the entire portion of the award less an estimate for anticipated forfeitures. The Company uses the “simplified” method to estimate the expected term of the options because the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. The weighted average estimated fair value of stock options granted during the nine months ended September 30, 2019 was $1.91 per share. No options were granted during the nine months September 30, 2018. The fair value of stock options at the grant date was estimated using the Black-Scholes option-pricing model. The following weighted average assumptions were used for grants during the following periods:

		Nine months ended
		September 30,
		2019				2018

Dividend Yield			2.87	%			n/a
Volatility			36.11	%			n/a
Risk-Free Interest Rate			1.61	%			n/a
Expected Life			3.25 years				n/a

The Black-Scholes Option Valuation Model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s 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, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.

A summary of stock option activity under the Company’s 2014 Plan for the nine months ended September 30, 2019 is as follows:

Stock Options		Number of Shares				Weighted Average Exercise Price per Share				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value

Outstanding at January 1, 2019			37,500			$	8.36				2.24			$	349,950

Granted			50,000			$	8.72							$	-
Exercised			(3,000	)		$	7.85							$	6,270
Forfeited			(2,500	)		$	7.85				2.04			$	13,588

Outstanding at September 30, 2019			82,000			$	8.61				3.63			$	11,390

Vested and Exercisable at September 30, 2019			50,000			$	8.45				2.41			$	15,075

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2019 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the $8.52 closing price of the Company’s Common Stock on September 30, 2019. The total intrinsic value of options exercised during the nine months ended September 30, 2019 was $6,270, determined as of the date of exercise. The total intrinsic value of options forfeited during the nine months ended September 30, 2019 was $13,588, determined as of the date of forfeiture.

Participants in the 2014 Plan may exercise their outstanding vested options, in whole or in part, by having the Company reduce the number of shares otherwise issuable by a number of shares having a fair market value equal to the exercise price of the option being exercised (“Net Exercise”), or by exchanging a number of shares owned for a period of greater than one year having a fair market value equal to the exercise price of the option being exercised (“Share Exchange”). The Company received cash proceeds of $23,552 from the exercise of options for the purchase of 3,000 shares of Common Stock during the nine months ended September 30, 2019. The Company received cash proceeds of $74,139 from the exercise of options for the purchase of 12,750 shares of Common Stock during the nine months ended September 30, 2018. The Company received 7,855 shares from the exercise of options under a Share Exchange for the purchase of 30,000 shares of Common Stock during the nine months ended September 30, 2018. The remaining 132,500 options exercised during the nine months ended September 30, 2018 were Net Exercises, resulting in the issuance of 54,231 shares of Common Stock.

As of September 30, 2019, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $59,000. Unamortized compensation cost as of September 30, 2019 is expected to be recognized over a remaining weighted-average vesting period of 1.99 years.

As of September 30, 2019, there were 390,338 shares reserved for grants under the 2014 Plan.

Restricted Stock Awards

A summary of the restricted common stock activity under the Company’s 2014 Plan for the nine months ended September 30, 2019 is as follows:

Restricted Stock Awards		Shares				Weighted Average Grant Date Fair Value per Share				Aggregate Fair Value

Balance at January 1, 2019			120,499			$	17.66			$	2,129,175

Granted			120,586			$	15.51			$	1,870,487
Vested			(44,410	)		$	17.18			$	(763,103	)
Forfeited			(10,459	)		$	15.79			$	(165,171	)

Balance at September 30, 2019			186,216			$	16.47			$	3,071,388

Fair value was calculated using the closing price of the Company’s Common Stock on the grant date. For the three months ended September 30, 2019 and 2018, stock-based compensation for these grants was approximately $388,000 and $196,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2019 and 2018, stock-based compensation for these grants of approximately $1,096,000 and $477,000, respectively, for these grants is included in other operating expenses in the condensed consolidated statements of operations and comprehensive income (loss). These amounts reflect the Company’s accounting expense and do not correspond to the actual value that will be recognized by the directors, executives and employees.