Note

- Shareholders' Equity

a.	Stock-Based Compensation Expense

We recorded non-cash stock compensation expense in each period as follows:

	2018		2017
Stock Options	$	817	$	642
Restricted Stock Grants		73		11
Total	$	890	$	653

These are more fully discussed as follows:

b.	Stock Options

We have various stock-based employee compensation plans, for which compensation cost is recognized in the financial statements. The cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).

Our shareholders have approved various equity-based plans that permit the grant of stock options, restricted stock and other equity-based awards. In addition, our shareholders have approved the grant of stock options outside of these plans.

June 2004,

our shareholders adopted the

2004

Long-Term Incentive Plan (

“2004

LTIP”) pursuant to which we were authorized to issue up to

750,000

shares of common stock and grant stock options, restricted stock awards, stock appreciation rights and other stock-based awards. Through shareholder approved amendments to the LTIP in

2006,

2008,

2011,

and

2013,

the total number of shares authorized under the

2004

LTIP was increased to

2,900,000.

June 2014,

our shareholders approved the

2014

Long-Term Incentive Plan (

“2014

LTIP”) as the successor plan to the

2004

LTIP that expired on

June 10, 2014.

Under the

2014

LTIP, a total of

1,750,000

shares of common stock will be available for grant of awards. However, of the total number of shares of common stock available for awards under the

2014

LTIP,

more than

800,000

shares of common stock

may

be used for awards other than stock options and stock appreciation rights. Grants under the

2014

LTIP

may

be awarded through

June 2, 2024.

Stock options granted under the LTIPs are either Incentive Stock Options (“ISOs”) or Non-Qualified Stock Options (“NQSOs”). Key employees are eligible to receive ISOs and NQSOs; however, directors and consultants are eligible to receive only NQSOs. Most ISOs vest over a

three

- year period and expire on the

seventh

anniversary of the grant date. As of

December 31, 2018,

there were

727,649

stock options outstanding under the

2004

LTIP and

848,438

stock options outstanding under the

2014

LTIP.

December 30, 2010,

pursuant to the terms of his employment agreement, we granted our President and Chief Executive Officer, Michael D. Popielec, options to purchase shares of common stock under the

2004

LTIP as follows: (i)

50,000

shares at

$6.42,

vesting in annual increments of

12,500

shares over a

four

-year period commencing

December 30, 2011; (

ii)

250,000

shares at

$6.42,

vesting in annual increments of

62,500

shares over a

four

-year period commencing

December 30, 2011; (

iii)

200,000

shares at

$10.00,

with vesting to begin on the date the stock reaches a closing price of

$10.00

per share for

trading days within a

-day trading period, with such vesting in annual increments of

50,000

shares over the

four

anniversary dates of that date; and (iv)

200,000

shares at

$15.00,

with vesting to begin on the date the stock reaches a closing price of

$15.00

per share for

trading days within a

-day trading period, with such vesting in annual increments of

50,000

shares over the

four

anniversary dates of that date. The options set forth in items (ii), (iii) and (iv) were subject to shareholder approval of an amendment to the

2004

LTIP, which approval was obtained on

June 7, 2011.

All such options in items (i) and (ii) were due to expire on

December 30, 2017.

April 19, 2017,

the Company’s Board of Directors extended the expiration date to

December 30, 2020.

Pursuant to Accounting Standards Codification Topic

718,

Compensation – Stock Compensation, the transaction was accounted for as an equity award modification. During the

second

quarter of

2017,

the Company recognized compensation cost of

$193

All such options in items (iii) and (iv) were due to expire as of the later of

December 30, 2017

and

five

years after the initial vesting commences, but in

event later than

December 30, 2020.

July 25, 2018,

the Company’s Board of Directors modified the option in item (iii) such that the option will vest immediately upon the Company’s common stock

first

reaching a closing price

$10.00

for

trading days in a

trading-day period. The option became fully vested during the

third

quarter of

2018

and expires

December 30, 2020.

The transaction has been accounted for as an equity award modification pursuant to Accounting Standards Codification Topic

718,

Compensation – Stock Compensation. During the

third

quarter

2018,

the Company recognized compensation cost of

$182

representing the incremental fair value of the modified award computed as of the modification date as the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. The incremental fair value was determined using a Monte Carlo simulation option-pricing model consistent with the valuation methodology used to value and recognize the original award. The market-based conditions for the option in item (iv) had

not

been met as of

December 31, 2018.

January 3, 2011,

pursuant to the terms of his employment agreement, we granted our President and Chief Executive Officer, Michael D. Popielec, an option to purchase

50,000

shares of common stock at

$6.58

under the

2004

LTIP. The option vested in annual increments of

12,500

shares over a

four

-year period commencing

December 30, 2011.

The option expired on

December 30, 2017.

As of

December 31, 2018,

there was

$521

of total unrecognized compensation costs related to outstanding stock options, which we expect to recognize over a weighted average period of

0.9

years.

We use the Black-Scholes option-pricing model to estimate fair value of stock-based awards. The following weighted average assumptions were used to value options granted during the years ended

December 31, 2018

and

2017:

	Years Ended December 31,
	2018			2017
Risk-free interest rate		2.6	%		1.7	%
Volatility factor		46.8	%		50.0	%
Weighted average expected life (years)		5.0			5.0
Forfeiture rate		10.0	%		10.0	%
Dividends		0.0	%		0.0	%

We used a Monte Carlo simulation option-pricing model to estimate the fair value of market performance stock-based awards, of which there were

new awards for the years ended

December 31, 2018

and

2017.

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. Forfeiture rates are calculated by dividing unvested shares forfeited by beginning shares outstanding. The pre-vesting forfeiture rate is calculated yearly and is determined using a historical

twelve

-quarter rolling average of the forfeiture rates.

The following tables summarize data for the stock options issued by us:

Year Ended December 31, 2018
	Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Shares under Option – January 1		1,860,211		$	5.96
Options Granted		217,500			9.68
Options Exercised		(422,793	)		4.49
Options Forfeited or Expired		(78,831	)		11.75
Shares under option – December 31		1,576,087		$	6.58		3.50	$	1,946
Vested and Expected to Vest - December 31		1,475,570		$	6.56		3.37	$	1,851

Options Exercisable – December 31		1,064,127		$	5.89		2.69	$	1,565

Year Ended December 31, 2017
	Number of Shares			Weighted Average Exercise Price Per Share
Shares under Option – January 1		2,323,581		$	6.22
Options Granted		244,750			5.60
Options Exercised		(333,305	)		4.29
Options Forfeited or Expired		(374,815	)		8.11
Shares under option – December 31		1,860,211		$	5.06

Options Exercisable – December 31		1,649,594		$	4.63

The following table represents additional information about stock options outstanding at

December 31, 2018:

			Option Outstanding						Options Exercisable
Range of Exercise Prices			Number of Outstanding Options – December 31, 2018		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number of Options Exercisable at December 31, 2018		Weighted- Average Exercise Price
$3.22	-	$3.99		346,148		2.56		3.79		346,148	$	3.79
$4.00	-	$5.99		451,023		4.72		4.94		217,979		4.72
$6.00	-	$9.99		528,916		3.79		7.72		300,000		6.42
$10.00	-	$15.00		250,000		2.00		11.00		200,000		10.00

$3.22	-	$15.00		1,576,087		3.50		6.58		1,064,127	$	5.89

The weighted average fair value of options granted during the years ended

December 31, 2018

and

2017

was

$4.22

and

$2.47,

respectively. The total intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the years ended

December 31, 2018

and

2017

was

$1,722

and

$588,

respectively.

Cash received from option exercises under our stock-based compensation plans for the years ended

December 31, 2018

and

2017

was

$1,568

and

$1,429,

respectively.

c.	Restricted Stock Awards

During

2014,

we awarded

49,200

restricted stock units under the

2014

LTIP to certain key employees. These units vest over

three

years and we estimated their weighted average grant date fair value to be

$3.24

per share.

$11

of expense was recorded in

2017

relating to these awards. In

September 2017,

12,900

shares of the awarded restricted stock vested and the Company repurchased

3,959

shares to satisfy the statutory tax withholding on shares vested for certain employees. Unrecognized compensation cost related to these restricted shares was

December 31, 2018

and

2017.

January 2018,

17,500

shares of restricted stock were awarded to certain of our employees. These shares vest in equal annual installments over

three

years. The weighted average grant date fair value of these awards was

$7.16

per share.

$73

of expense was recorded in

2018

relating to these awards. Unrecognized compensation cost related to these restricted shares was

$52

December 31, 2018.

d.	Reserved Shares

There were

726,858

shares of common stock available for future issuance under equity compensation plans as of

December 31, 2018.