Note 3. Stock-based Compensation

The Company recognizes compensation expense for stock options in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, “Stock Based Compensation”. The expense of the option is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is typically the vesting period. For grants subject to a service condition, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. In accordance with ASC 718, the Company estimates the number of options for which the requisite service is expected to be rendered. At March 31, 2020, the Company had three active stock-based compensation plans which are described in the 2019 Form 10-K Report.

The Company did not grant any options during the three month period ended March 31, 2020. The Company granted 65,104 stock options with a vesting period of 4 years during the three month period ended March 31, 2019. The weighted average grant-date fair value was $3.84. There were 74,000 common stock options exercised in the three month period ended March 31, 2020, and no common stock options were exercised during the three month period ended March 31, 2019.

A summary of the Company’s stock options is presented below.



			Weighted average
			remaining
		Weighted average	contractual	Aggregate
	Shares	exercise price	term (years)	intrinsic value
Outstanding at January 1, 2020	1,311,604	$ 8.24	3.11	$ 6,203,523
Granted	-	-	-	-
Exercised	-	-	-	-
Expired	(74,000)	8.38	-	-
Forfeited	(8,000)	9.39	-	-
Outstanding at March 31, 2020	1,229,604	$ 8.22	2.95	$ -
Exercisable at March 31, 2020	1,105,776	$ 8.31	2.47	$ -

The Company did not grant any restricted stock units (RSUs) in the first three months of 2020. In the first three months of 2019, the Company granted 930,831 RSUs, of which 863,331 had a vesting period of 3 years and 67,500 had a vesting period of one year. The 930,831 RSUs granted in the first three months of 2019 had a fair value of $8.57 per unit.

A summary of the status of the Company’s RSUs is presented below.



		Weighted average	Average remaining
		grant date	contractual
	Shares	fair value	term (years)
Outstanding at January 1, 2020	1,253,927	$ 8.87	1.64
Granted	-	-	-
Vested	(411,038)	7.96	-
Forfeited	(10,351)	9.66	-
Outstanding at March 31, 2020	832,538	$ 9.31	1.49

As of March 31, 2020, there was a total of $6.0 million of unrecognized compensation cost related to unvested awards under share-based plans. This cost is expected to be recognized over a weighted average period of approximately 1.43 years. Related compensation expense for the three months ended March 31, 2020 and 2019 was $1.2 million and $1.4 million, respectively. The total issuance date fair value of RSUs vested and options exercised during the three months ended March 31, 2020 and 2019 was $3.5 million and $589,000, respectively. The total intrinsic value of the options exercised and stock units vested in those respective periods was $5.3 million and $1.0 million, respectively.

For the periods ended March 31, 2020 and 2019, the Company estimated fair value of each stock option grant on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:



	March 31,
	2020	2019
Risk-free interest rate	-	2.63%
Expected dividend yield	-	-
Expected volatility	-	0% - 41.8%
Expected lives (years)	-	1.0 - 6.3

Expected volatility is based on the historical volatility of the Company’s stock and peer group comparisons over the expected life of the grant. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury strip rate in effect at the time of the grant. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee terminations. In accordance with the ASC 718, Stock Based Compensation, stock based compensation expense for the period ended March 31, 2020 is based on awards that are ultimately expected to vest and has been reduced for estimated forfeitures. The Company estimated forfeitures using historical data based upon the groups identified by management.