Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

NOTE 11 - STOCK-BASED COMPENSATION

In June 2018, the Company’s stockholders approved the 2018 Incentive Plan (the “2018 Plan”) pursuant to which the Company may grant stock options, restricted stock and other equity-based awards with respect to up to an aggregate of 1,500,000 shares of common stock with a vesting period of approximately four to five years. There were 1,207,000 shares available for future issuance under the 2018 Plan at December 31, 2018. Upon the adoption of the 2018 Plan, the Company’s 2009 Non-Employee Director Equity Compensation Plan and the 2015 Equity Compensation Plan were frozen, and no new awards can be issued pursuant to such plans.

The 2018 Plan is administered by the Compensation Committee of the Company’s Board of Directors, which has the authority to determine, among other things, the term during which an option may be exercised (not more than 10 years), the exercise price of an option and the vesting provisions.

The Company recognizes all employee share-based payments in the statement of operations as an operating expense, based on their fair values on the applicable grant date.

Effective August 15, 2018, Ron Konezny resigned from the Company’s Board of Directors. In connection with Mr. Konezny’s resignation, the Board of Directors accelerated the vesting of certain restricted shares and stock options granted to Mr. Konezny. The stock-based compensation expense resulting from the modification of the terms of the stock options and restricted stock was not material.

On December 20, 2016, the Company and Kenneth Ehrman, its former Chief Executive Officer, entered into Amendment No. 2 to Severance Agreement, which amends the Severance Agreement dated September 22, 2009 (as amended, the “Ehrman Severance Agreement”). Under the terms of the Ehrman Severance Agreement, a pro-rata portion of Mr. Ehrman’s unvested stock options and restricted stock were partially vested based on the number of months elapsed since the date of grant as compared to the scheduled vesting date. Due to the modification of the terms of the stock option and restricted stock agreements, the Company recognized a $(26,000) reduction of stock-based compensation expense in the fourth quarter of 2016 which is included in the stock option and restricted stock stock-based compensation expense.

[A] Stock options:

A summary of the status of the Company’s stock options as of December 31, 2016, 2017 and 2018 and changes during the years then ended, is presented below:

	2016					2017					2018
				Weighted -					Weighted -					Weighted -
				Average					Average					Average
	Number of			Exercise		Number of			Exercise		Number of			Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of year		1,212,000		$	6.94		1,243,000		$	5.08		1,290,000		$	5.33
Granted		395,000			4.75		350,000			6.00		120,000			6.41
Exercised		(20,000	)		3.44		(271,000	)		4.72		(169,000	)		5.73
Forfeited or expired		(344,000	)		11.36		(32,000	)		8.26		(21,000	)		5.96
Outstanding at end of year		1,243,000		$	5.08		1,290,000		$	5.33		1,220,000		$	5.37
Exercisable at end of year		822,000		$	5.07		667,000		$	5.11		695,000		$	5.07

The following table summarizes information about stock options at December 31, 2018:

	Options Outstanding						Options Exercisable
			Weighted -
			Average
			Remaining		Weighted-				Weighted-
Exercise	Number		Contractual		Average		Number		Average
Prices ($)	Outstanding		Life in Years		Exercise Price		Outstanding		Exercise Price
2.06 - 4.87		320,000		4	$	4.03		240,000	$	3.85
4.88 - 5.70		235,000		7		5.37		162,000		5.46
5.71 - 5.97		210,000		4		5.81		210,000		5.81
5.98 – 6.90		455,000		8		6.11		83,000		6.00
		1,220,000		6	$	5.37		695,000	$	5.07

	As of December 31, 2018
			Weighted Average Remaining
	Aggregate Intrinsic Value		Contractual Life in Years
Options outstanding	$	558,000		6
Options exercisable	$	448,000		5

The fair value of each option grant on the date of grant is estimated using the Black-Scholes option-pricing model reflecting the following weighted-average assumptions:

	December 31,
	2016			2017			2018
Expected volatility		43.6	%		42.4	%		42.8	%
Expected life of options		4.0 years			4.0 years			4.4 years
Risk free interest rate		1.27	%		1.69	%		2.72	%
Dividend yield		0	%		0	%		0	%
Weighted-average fair value of options granted during the year	$	1.68		$	2.11		$	2.46

Expected volatility is based on historical volatility of the Company’s common stock and the expected life of options is based on historical data with respect to employee exercise periods.

For the years ended December 31, 2016, 2017 and 2018, the Company recorded $270,000, $411,000 and $397,000, respectively, of stock-based compensation expense in connection with the stock option grants.

The fair value of options vested during the years ended December 31, 2016, 2017 and 2018 was $280,000, $291,000 and $413,000, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2017 and 2018 was $33,000, $375,000 and $162,000, respectively.

As of December 31, 2018, there was $843,000 of total unrecognized compensation costs related to non-vested options granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of 2.43 years.

The Company estimates forfeitures at the time of valuation and reduces expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

[B] Restricted Stock Awards:

The Company grants restricted stock to employees, whereby the employees are contractually restricted from transferring the shares until they are vested. The stock is unvested at the time of grant and, upon vesting, there are no legal restrictions on the stock. The fair value of each share is based on the Company’s closing stock price on the date of the grant. A summary of the non-vested shares for the years ended December 31, 2016, 2017 and 2018 is as follows:

				Weighted -
				Average
	Number of			Grant
	Non-vested			Date
	Shares			Fair Value
Non-vested at January 1, 2016		575,000		$	5.79
Granted		271,000			4.80
Vested		(272,000	)		5.34
Forfeited		(182,000	)		5.72
Non-vested at December 31, 2016		392,000		$	5.45
Granted		240,000			6.26
Vested		(194,000	)		5.42
Forfeited		(8,000	)		5.69
Non-vested at December 31, 2017		430,000		$	5.91
Granted		434,000			7.02
Vested		(266,000	)		6.07
Forfeited		(30,000	)		6.54
Non-vested at December 31, 2018		568,000		$	6.65

For the years ended December 31, 2016, 2017 and 2018, the Company recorded $908,000, $1,682,000 and $1,803,000 respectively, of stock-based compensation expense in connection with the restricted stock grants. As of December 31, 2018, there was $2,615,000 of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of 2.6 years.

[C] Performance Shares:

In January 2016, the Company granted 295,000 performance shares to employees pursuant to the 2015 Equity Compensation Plan. The shares are unvested at the time of grant and, upon vesting, there are no contractual restrictions on the shares. The vesting of the shares is subject to the achievement of performance goals during a two-year period from the date of issuance, with the ability to achieve prorated vesting of the shares during interim annual measurement periods. If the performance goals are not met, the performance shares will not vest and will automatically be returned to the plan. If the performance goals are met, then the shares will be issued to the employees.

The following table summarizes the activity relating to the Company’s performance shares for the years ended December 31, 2016, 2017 and 2018:

				Weighted-
	Number of			Average
	Non-vested			Grant Date
	Shares			Fair Value
Performance shares, non-vested, at January 1, 2016		-			-
Granted		295,000		$	4.07
Vested		-			-
Forfeited		(34,000	)		4.07
Performance shares, non-vested, at December 31, 2016		261,000			4.07
Granted		-		$	-
Vested		(100,000	)		4.07
Forfeited		(50,000	)		4.07
Performance shares, non-vested, at December 31, 2017		111,000			4.07
Granted		-		$	-
Vested		(93,000	)		4.07
Forfeited		(18,000	)		4.07
Performance shares, non-vested, December 31, 2018		-		$	-

For the years ended December 31, 2016, 2017 and 2018, the Company recorded $480,000 $344,000 and $(37,000) respectively, of stock-based compensation expense in connection with the performance shares.