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Shareholders' Equity

12 Months Ended

Dec. 31, 2017

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Stock-Based Compensation. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which subject to approval by the Board of Directors, selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

The following table summarizes the stock-based compensation expense that was recognized in the Company’s statements of operations and comprehensive loss for the years ended December 31, 2017 and 2016:

Year ended December 31		2017				2016
Cost of sales		$	52,000			$	28,000
Selling			75,000				52,000
Marketing			51,000				1,000
General and administrative			209,000				123,000
		$	387,000			$	204,000

The Company uses the Black-Scholes option pricing model to estimate fair value of stock-based awards with the following weighted average assumptions:

		2017				2016
Stock Options:
Expected life (years)			2.0				2.5
Expected volatility			46	%			41	%
Dividend yield			0	%			0	%
Risk-free interest rate			1.0	%			1.0	%

			2017				2016
Stock Purchase Plan Options:
Expected life (years)			1.0				1.0
Expected volatility			51	%			31	%
Dividend yield			0	%			0	%
Risk-free interest rate			0.9	%			0.6	%

The Company uses the graded attribution method to recognize expense for unvested stock-based awards. The amount of stock-based compensation recognized during a period is based on the value of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company re-evaluates the forfeiture rate annually and adjusts it as necessary.

Stock Options, Restricted Stock, Restricted Stock Units, and Other Stock-Based Compensation Awards. The Company maintains the 2003 Incentive Stock Option Plan (the “2003 Plan”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”). The 2013 Plan replaced the 2003 Plan upon its ratification by shareholders in 2013. Awards granted under the 2003 Plan will remain in effect until they are exercised or expire according to their terms. Since May 2013, all equity awards have been made under the 2013 Plan.

In 2015, the 2013 Plan was amended to increase the total number of shares available to a total of 1,100,000 shares. Under the terms of the 2013 Plan, as amended, the Company may grant up to 1,100,000 awards in a variety of instruments including stock options, restricted stock and restricted stock units to employees, consultants and directors generally at an exercise price at or above 100% of fair market value at the close of business on the date of grant. Stock options expire 10 years after the date of grant and generally vest over three years. The Company issues new shares of common stock upon grant of restricted stock, when stock options are exercised, and when restricted stock units are vested and/or settled.

In 2016, our Board of Directors amended the 2003 Incentive Stock Option Plan (the “2003 Plan”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) to permit equitable adjustments to outstanding awards in the event of a special dividend. In March 2017, the Board of Directors approved the modification of all outstanding stock option awards to provide option holders with substantially equivalent economic value after the effect of the dividend. The modification resulted in the grant of options to purchase 150,474 additional shares. Total stock-based compensation expense for the modification was approximately $79,000, which was recorded during 2017.

The following table summarizes activity under the 2003 and 2013 Plans:

		Plan Shares Available for Grant				Plan Options Outstanding				Weighted Average Exercise Price Per Share				Aggregate Intrinsic Value
Balance at January 1, 2016			477,534				895,161			$	2.73
Shares reserved			—				—
Stock awards granted			( 54,036	)			—
Restricted stock units and awards granted			( 189,875	)			—
Stock options granted			( 20,000	)			20,000				2.90
Stock options exercised			—				( 227,833	)			1.72			$	143,531
Cancelled or forfeited - 2013 Plan options			237,500				( 237,500	)			2.86
Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units			50,499				—				2.72
Cancelled or forfeited - 2003 Plan options			—				( 30,666	)			3.22
Balance at December 31, 2016			501,622				419,162				3.18
Shares reserved			—				—
Options granted for modification			( 61,814	)			150,474
Stock awards granted			( 72,115	)			—
Restricted stock units and awards granted			( 203,424	)			—
Stock options granted			—				—
Stock options exercised			—				—
Cancelled or forfeited - 2013 Plan options			103,349				( 103,349	)			2.20
Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units			29,382				—				2.01
Cancelled or forfeited - 2003 Plan options			—				( 99,941	)			2.20
Balance at December 31, 2017			297,000				366,346				2.41

The number of options exercisable under the Plans was:

	December 31, 2017				366,346
	December 31, 2016				381,836

The following table summarizes information about the stock options outstanding at December 31, 2017:

			Options Outstanding									Options Exercisable
Ranges of Exercise Prices			Number Outstanding			Weighted Average Remaining Contractual Life			Weighted Average Exercise Price Per Share			Number Exercisable			Weighted Average Exercise Price Per Share
$	1.18 - $2.04			94,485			4.57 years		$	1.35			94,485		$	1.35
$	2.05 - $3.09			215,848			4.83 years			2.46			215,848			2.46
$	4.02			56,013			2.40 years			4.02			56,016			4.02
				366,346			4.39 years		$	2.41			366,346		$	2.41

Options outstanding under the Plans expire at various dates during the period from May 2018 through June 2025. Options outstanding at December 31, 2017 had an aggregate intrinsic value of $453. Options exercisable at December 31, 2017 had a weighted average remaining life of 4.39 years and an aggregate intrinsic value of $453. The weighted average grant-date fair value of options granted during the year ended December 31, 2016 was $0.56.

The Company granted shares of common stock to the non-employee members of our Board of Directors, pursuant to the 2013 Plan. The total number of shares granted to the non-employee directors was 72,115 and 54,036 during the years ended December 31, 2017 and 2016, respectively. The shares were issued at a weighted average value of $1.04 per share in 2017 and $2.19 per share in 2016, based on the stock price on the date of grant, for a total value and expense of $75,000 in 2017 and a total value of $119,000 in 2016, of which $109,000 is included in stock-based compensation expense for the year ended December 31, 2016.

During the year ended December 31, 2017, the Company issued 60,000 shares of restricted stock under the 2013 Plan. The shares underlying the award were assigned a value of $1.09 per share, which was the closing price of our common stock on the date of grant, and are scheduled to vest over the two years following the date of grant. During the year ended December 31, 2016, the Company issued 100,000 shares of restricted stock under the 2013 Plan. The shares underlying the award were assigned a value of $2.33 per share, which was the closing price of our common stock on the date of grant, and is scheduled to vest over the five years following the date of grant.

During the year ended December 31, 2016, the Company issued 21,875 performance-based restricted stock units under the 2013 Plan. Each unit represents the right to acquire one share of the Company’s common stock. The units were assigned a weighted average value of $0.85 per unit, based on market condition assumptions, and are scheduled to vest with respect to 80% of the units if the price of the Company’s common stock during the applicable measurement period exceeds a minimum performance threshold or 100% if a maximum performance threshold is exceeded. No performance-based restricted stock units were offered during the year ended December 31, 2017.

During the year ended December 31, 2017, the Company issued 143,424 restricted stock units under the 2013 Plan. The units were assigned a weighted average value of $1.13 per share, based on the stock price on the date of the grant, and vest and settle in shares of common stock on a 1:1 basis over two years. During the year ended December 31, 2016, the Company issued 68,000 restricted stock units under the 2013 Plan. The units were assigned a weighted average value of $2.20 per share, based on the stock price on the date of the grant, and vest over two years.

Restricted stock and restricted stock unit transactions during the years ended December 31, 2017 and 2016 are summarized as follows:

		Number of Shares				Weighted average grant date fair value
Unvested shares at January 1, 2016			88,666			$	2.72
Granted			189,875				2.11
Vested			(23,167	)			2.68
Forfeited or surrendered			(50,499	)			2.72
Unvested shares at December 31, 2016			204,875			$	2.16
Granted			203,424				1.12
Vested			(56,438	)			1.05
Forfeited or surrendered			(29,382	)			2.01
Unvested shares at December 31, 2017			322,479			$	1.69

As of December 31, 2017, there was approximately $294,288 of total unrecognized compensation costs related to restricted stock and restricted stock units, which is expected to be recognized over a weighted average period of 1.5 years.

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “Plan”) that enables employees to contribute up to 10% of their base compensation toward the purchase of the Company’s common stock at 85% of its market value on the first or last day of the year. During the year ended December 31, 2017, employees purchased 48,320 shares under the Plan. There were no purchases for the year ended December 31, 2016. At December 31, 2017, 85,721 shares were reserved for future employee purchases of common stock under the Plan. For the years ended December 31, 2017 and 2016, the Company recognized $29,000 and $0, respectively, of stock-based compensation expense related to the Plan.

Stock Repurchase Plans.

On October 30, 2015, the Board authorized the repurchase of up to $5,000,000 of the Company’s common stock on or before October 30, 2017. The plan allowed the repurchases to be made in open market or privately negotiated transactions. The plan did not obligate the Company to repurchase any particular number of shares.

For the year ended December 31, 2016, the Company repurchased approximately 128,000 shares at a total cost of $312,000. There were no share repurchases under the plan during 2017.

Dividends. We have not historically paid dividends, other than one-time dividends declared in 2011 and 2016. On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016, paid on January 6, 2017. Outside of these special dividends, the Board of Directors intends to retain earnings for use in the Company’s business and does not anticipate paying cash dividends in the foreseeable future.