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STOCK BASED COMPENSATION

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

14.

STOCK BASED COMPENSATION

The Company accounts for compensation expense associated with stock options and RSUs based on the fair value of the options and units on the date of grant.

The Company’s net loss for the years ended December 31, 2019 and 2018, includes approximately $763,000 and $718,000 of stock based compensation expense, respectively, for the grant of stock options and RSUs.

In January 2019, the Company granted 75,350 RSUs to its board of directors as partial compensation for the 2019 year. In April 2019, the Company granted 6,677 RSUs to one of its board members as partial compensation for the 2019 year. In June 2019, a board member retired and 6,593 of his unvested RSUs were forfeited which were valued at approximately $47,000. In June 2019, two board members were granted an additional 2,725 RSUs as partial compensation for the 2019 year. In January 2018, the Company granted 58,578 RSUs to its board of directors as partial compensation for the 2018 year. RSUs vest quarterly on a straight-line basis over a one-year period. The Company’s net loss for the years ended December 31, 2019 and 2018 includes approximately $480,000 and $542,000, respectively, of non-cash compensation expense related to the RSU grants to the board of directors. This expense is recorded as a component of selling, general and administrative expenses.

In April 2019, the Company granted 94,972 shares of common stock to various employees. In the event that any of these employees voluntarily terminates their employment prior to certain dates, portions of the shares may be forfeited. In addition, if certain Company performance criteria are not achieved, portions of these shares may be forfeited. In November 2019, the Company’s former Chief Financial Officer forfeited an aggregate of 38,906 shares of restricted stock upon his termination by the Company without cause, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016. Shares of restricted stock that we grant will be expensed during various periods through March 2023 based upon the service and performance thresholds. For the year ended December 31, 2019, approximately $191,000 of compensation expense is included in selling, general and administrative expenses and approximately $63,000 of compensation expense is included in cost of sales for this grant.

In January 2018, the Company granted 58,578 RSUs to its board of directors as partial compensation for the 2018 year. On January 1, 2017, the Company granted 59,395 RSUs to its board of directors as partial compensation for the 2017 year. RSUs vest quarterly on a straight-line basis over a one-year period. The Company’s net income (loss) for the year ended December 31, 2018 and 2017 includes approximately $524,000 and $550,000, respectively, of noncash compensation expense related to the RSU grants to the board of directors. This expense is recorded as a component of selling, general and administrative expenses. In addition, for the year ended December 31, 2018, the Company granted 5,130 shares of common stock to various employees and approximately $10,000 of compensation expense is included in selling, general and administrative expenses and approximately $36,000 of compensation expense is included in cost of sales for this grant. In addition, for the year ended December 31, 2017, the Company granted 5,550 shares of common stock to various employees and approximately $13,300 of compensation expense is included in selling, general and administrative expenses and approximately $37,500 of compensation expense is included in cost of sales for this grant.

In March 2018, the Company granted 68,764 shares of common stock to various employees. In the event that any of these employees voluntarily terminates their employment prior to certain dates, portions of the shares may be forfeited. In addition, if certain Company performance criteria are not achieved, portions of these shares may be forfeited. These shares will be expensed during various periods through March 2022 based upon the service and performance thresholds. For the years ended December 31, 2019 and 2018, approximately $104,000 and $88,100, respectively, of compensation expense is included in selling, general and administrative expenses and approximately $23,000 and $18,400, respectively, of compensation expense is included in cost of sales for this grant.

In August 2016 and March 2017, the Company granted 98,645 and 73,060 shares of common stock, respectively, to various employees. In the event that any of these employees voluntarily terminates their employment prior to certain dates, portions of the shares may be forfeited. In addition, if certain Company performance criteria are not achieved, portions of these shares may be forfeited. These shares will be expensed during various periods through March 2021 based upon the service and performance thresholds. For the years ended December 31, 2019 and 2018, approximately $77,000 and $0, respectively, of compensation expense is included in selling, general and administrative expenses and approximately $17,000 and $0, respectively of compensation expense is included in cost of sales for this grant.

In November 2019, 38,906 shares valued at $116,000 were forfeited as a result of the termination of employment of an officer.

In December 2019, shares valued at $54,000 were forfeited because the Company failed to achieve certain performance criteria for the year ended December 31, 2019.

In April 2019, 11,193, 8,299 and 8,593 of the shares granted in 2016, 2017 and 2018, respectively, were forfeited because the Company failed to achieve certain performance criteria for the year ended December 31, 2018. In addition, on April 2, 2019, these employees returned 9,806 common shares, valued at approximately $52,000, to pay the employees’ withholding taxes.

On February 12, 2019, employees returned 1,221 common shares, valued at approximately $20,000, to pay the employees’ withholding taxes.

In March 2018, 12,330 and 9,130 of the shares granted in 2016 and 2017, respectively, were forfeited because the Company failed to achieve certain performance criteria for the year ended December 31, 2017. In addition, on March 22, 2018, these employees returned 7,552 common shares, valued at approximately $62,000, to pay the employees’ withholding taxes.

In April 2019, the Company granted 4,950 shares of common stock to various employees. For the year ended September 30, 2019, approximately $6,000 of compensation expense is included in selling, general and administrative expenses and approximately $26,000 of compensation expense is included in cost of sales for this grant. In January 2018, the Company granted 5,130 shares of common stock to various employees. For the year ended December 31, 2018, approximately $10,000 of compensation expense is included in selling, general and administrative expenses and approximately $36,000 of compensation expense is included in cost of revenue for this grant.

In 2009, the Company adopted the Performance Equity Plan 2009 (the “2009 Plan”). The 2009 Plan reserved 500,000 common shares for issuance. The 2009 Plan provides for the issuance of either incentive stock options or nonqualified stock options to employees, consultants or others who provide services to the Company.

The Company has 133,016 shares available for grant under the 2009 Plan.

In 2016, the Company adopted the 2016 Long Term Incentive Plan (the “2016 Plan”). The 2016 Plan reserved 600,000 common shares for issuance, provided that, no more than 200,000 common shares be granted as incentive stock options. Awards may be made or granted to employees, officers, directors and consultants in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards.

The Company has 57,345 shares available for grant under the 2016 Plan.

The Company did not grant any stock options in 2019 or 2018.

A summary of the status of the Company’s stock option plans is as follows:

	Options			Weighted Average Exercise Price		Average remaining contractual term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2018		41,772		$	7.58		0.29		—
Exercised		(35,000	)	$	6.60		—		—
Forfeited		(6,772	)	$	12.67		—		—
Outstanding and Exercisable at December 31, 2019		—			—		—		—

During the year ended December 31, 2019, 35,000 stock options were exercised, pursuant to the provisions of the stock option plan, where the Company received no cash and 34,478 shares of its common stock in exchange for the 35,000 shares issued in the exercise. The 34,478 shares that the Company received were valued at $231,003, the fair market value of the shares on the date of exercise.