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Shareholders' Equity

12 Months Ended

Dec. 31, 2019

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 for the years ended December 31, 2019 and 2018:

Year ended December 31		2019				2018
Cost of sales		$	14,000			$	11,000
Selling			121,000				102,000
Marketing			12,000				71,000
General and administrative			275,000				226,000
		$	422,000			$	410,000

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


						2018
Stock Options:
Expected life (years)							6.5
Expected volatility							51	%
Dividend yield							0	%
Risk-free interest rate							2.8	%

		2019				2018
Stock Purchase Plan Options:
Expected life (years)			1.0				1.0
Expected volatility			57	%			66	%
Dividend yield			0	%			0	%
Risk-free interest rate			2.6	%			1.8	%

There were no options granted during the year ended December 31, 2019.

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”), the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) and the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan replaced the 2013 Plan upon its ratification by shareholders in July 2018. No further awards may be granted under the 2013 Plan or the 2003 Plan. Awards granted under the 2003 Plan and 2013 Plan will remain in effect until they are exercised or expire according to their terms.

Under the terms of the 2018 Plan, the number of shares of our common stock that may be the subject of awards and issued under the 2018 Plan was initially 900,000 plus any shares remaining available for future grants under the 2013 Plan on the effective date of the 2018 Plan. All equity awards made during 2019 were under the 2018 Plan.

Under the terms of the 2018 Plan, the Company may grant 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.

The following table summarizes activity under the 2003, 2013 and 2018 Plans:

		Plan Shares Available for Grant				Plan Options Outstanding				Weighted Average Exercise Price Per Share				Aggregate Intrinsic Value
Balance at January 1, 2018			297,000				366,346			$	2.41
Shares reserved			900,000				—
Restricted stock units and awards granted - 2013 Plan			( 178,000	)
Restricted stock units and awards granted - 2018 Plan			( 165,667	)			—
Stock options granted - 2018 Plan			( 119,515	)			119,515				1.95
Stock options exercised			—				( 2,276	)			1.18			$	705
Cancelled or forfeited - 2013 Plan options			51,230				( 51,230	)			2.17
Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units			39,884				—				1.22
Cancelled or forfeited - 2003 Plan options			—				( 59,428	)			2.09
Balance at December 31, 2018			824,932				372,927				2.36

Restricted stock units and awards granted - 2018 Plan			( 70,755	)			—
Cancelled or forfeited - 2018 Plan options			13,570				( 13,570	)			1.95
Cancelled or forfeited - 2018 Plan restricted stock and restricted stock units			13,570				—				1.95
Cancelled or forfeited - 2013 Plan options			20,492				( 20,492	)			2.10
Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units			21,748				—				1.72
Cancelled or forfeited - 2003 Plan options			—				( 41,666	)			2.46

Balance at December 31, 2019			823,557				297,199				2.38

The number of options exercisable under the Plans was:

December 31 2019	191,254
December 31 2018	253,412

The following table summarizes information about the stock options outstanding at December 31, 2019:

Options Outstanding
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		148,291	6.93 years	$	1.74		42,346	$	1.22
$	2.05 - $3.09		106,557	3.05 years		2.61		106,557		2.61
$	4.02		42,351	0.40 years		4.02		42,351		4.02
			297,199	4.61 years	$	2.38		191,254	$	2.61

Options outstanding under the Plans expire at various dates during the period from May 2020 through August 2028. Options outstanding at December 31, 2019 had no intrinsic value. Options exercisable at December 31, 2019 had a weighted average remaining life of 2.39 years and no intrinsic value. No options were granted in 2019. The weighted average grant-date fair value of options granted during the year ended December 31, 2018 was $1.04.

No restricted stock or restricted stock unit awards were granted in 2019 to employees. During the year ended December 31, 2018, the Company issued 297,515 restricted stock units under the 2013 Plan and the 2018 Plan. The shares underlying the awards were assigned a weighted average value of $1.84 per share, which was the closing price of the Company’s common stock on the date of grants. These awards are scheduled to vest over three years or four years with the first vesting at the end of year two.

During June 2019, non-employee members of the Board of Directors received restricted stock grants totaling 70,755 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $1.06 per share, which was the closing price of the Company’s common stock on the date of grants, for a total value of $75,000, and are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting. During July 2018, non-employee members of the Board of Directors received restricted stock grants totaling 46,152 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $1.95 per share, which was the closing price of the Company’s common stock on the date of grants, for a total value of $90,000, and vested on June 5, 2019, the date of the 2019 annual shareholder meeting.

Restricted stock and restricted stock unit transactions during the years ended December 31, 2019 and 2018 are summarized as follows:

		Number of Shares				Weighted average grant date fair value
Unvested shares at January 1, 2018			322,479			$	1.69
Granted			343,667				1.86
Vested			(132,940	)			1.47
Forfeited or surrendered			(39,884	)			1.22
Unvested shares at December 31, 2018			493,322			$	1.90
Granted			70,755				1.06
Vested			(210,742	)			1.59
Forfeited or surrendered			(37,973	)			1.84
Unvested shares at December 31, 2019			315,362			$	1.92

As of December 31, 2019, there was approximately $58,000 of total unrecognized compensation costs related to outstanding stock options, which is expected to be recognized over a weighted average period of 2.61 years.

As of December 31, 2019, there was approximately $230,000 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 1.68 years.

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “ESPP”) 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 years ended December 31, 2019 and 2018, respectively, participants purchased 32,471 and 107,341 shares under the ESPP. At December 31, 2019, 245,909 shares were reserved for future employee purchases of common stock under the ESPP. For the years ended December 31, 2019 and 2018, the Company recognized $55,000 and $58,000, respectively, of stock-based compensation expense related to the ESPP.

Share Repurchase Programs. On April 5, 2018, the Board authorized the repurchase of up to $3,000,000 of the Company’s common stock on or before March 31, 2020. The plan allows the repurchases to be made in open market or privately negotiated transactions. The plan does not obligate the Company to repurchase any particular number of shares and may be suspended at any time at the Company’s discretion. For the year ended December 31, 2019, the Company did not repurchase any shares.

Dividends. The Company has not historically paid dividends, other than one-time dividends declared in 2011 and 2016. 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.