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SHAREHOLDERS' EQUITY
 12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
SHAREHOLDERS' EQUITY SHAREHOLDERS’ EQUITY
Incentive Compensation Plan
In June 2010 shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the Incentive Compensation Plan (the “Plan”), and among other things, increasing the number of shares of the Company’s common stock reserved for issuance under the Plan to 1,630,000. The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non- employee directors, and advisors. The Plan is a successor to the Company’s previous plans, and any shares awarded and outstanding under those plans were transferred to the Plan. No further grants or share issuances will be made under the previous plans. On June 21, 2019, the Company’s shareholders approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years to February 22, 2022. As of December 31, 2019, approximately 411,000 shares remain available for grant under the Plan.
The Plan provides for nonqualified stock options, qualified (or incentive) stock options and stock grants (the “awards”). The Plan has a provision to reduce the number of shares reserved for award and issuance under the Plan by a ratio of 1.59 shares of common stock for each share of common stock that is issued pursuant to a Full Value Award (stock grant). The Plan also provides for an Incentive Bonus Program with incentive bonus opportunities through performance unit awards and special cash incentive programs tied to the attainment of pre-established performance milestones.
Provisions of the Plan include an automatic annual grant to each non-employee director of options to purchase up to 2,000 shares on the date of the Company’s Annual Shareholder Meeting, at an exercise price equal to the market price of the Company’s common shares on that date, an automatic annual grant of 500 restricted stock units of the Company’s common shares and an annual cash retainer fee for Board or Board Committee service, which may be converted to restricted stock unit awards (“restricted stock units” or “RSUs”). Options and restricted stock units awarded under the automatic annual grant program for non-employee directors vest after one year. Restricted stock units awarded in lieu of retainer fees vest quarterly, over a one year period. These awards become outstanding upon the conclusion of the individual Board members service on the Company’s Board of Directors. During the year ended December 31, 2019, 83,000 awards issued in lieu of retainer fees became outstanding. Other options may vest fully and immediately, or over periods of time as determined by the Plan Administrator, but no longer than seven years from the grant date. Discretionary options currently awarded under the Plan vest over a period of 5 years.
Under the Plan, a total of 312,000 restricted stock units have been granted, consisting of 41,000 of annual automatic grants to non-employee directors and the corporate secretary, 261,000 of deferred retainer fees to non-employee members of the Board, and 10,000 grants issued in lieu of commission, to one employee of the Company. Of the total restricted stock units granted under the Plan 309,000 of them are fully vested but not yet deemed issued and outstanding as of December 31, 2019.
Changes in restricted stock units, consisting primarily of annual automatic grants and deferred compensation to non-employee directors, under the Incentive Compensation Plans during 2019 and 2018 are as follows:
Restricted Stock
Units
Grant Date
Weighted-
Average Fair
Value
Intrinsic
Value
Outstanding at January 1, 20184,000  $3.77  $—  
Granted35,000  $2.56  $—  
Vested(35,000) $2.69  $—  
Outstanding at December 31, 20184,000  $2.68  $—  
Outstanding at January 1, 20194,000  $2.68  $—  
Granted36,000  $2.50  $—  
Vested(37,000) $2.47  $—  
Outstanding at December 31, 20193,000  $3.03  $—  
For the year ended December 31, 2019, total compensation expense recorded in the consolidated statements of operations related to restricted stock units in lieu of retainer fees was $80,000. For the year ended December 31, 2019, total compensation expense recorded in the consolidated statements of income for annual restricted stock units awarded was $10,000, with an offsetting tax benefit of $2,000, as this expense is deductible for income tax purposes. As of December 31, 2019, there was $5,000 of total unrecognized compensation cost related to annual restricted stock units which is expected to be recognized over a period of 0.5 years. During 2019, 2018, and 2017 shares of restricted stock units totaling 4,000 each, respectively, with a fair value of approximately $11,000, $11,000 and $15,000, respectively, vested and became unrestricted.
On January 4, 2017, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award Agreements”) for 161,766 restricted stock awards which vest upon the achievement of certain performance metrics. The Award Agreements expire on March 31, 2020. Based on the guidance in ASC 718 Stock Compensation (“ASC 718”), the Company concluded these were performance-based awards with vesting criteria tied to performance metrics. As of December 31, 2017, the Company achieved one of the certain performance metrics under the Award Agreements and recognized stock compensation expense of approximately $108,000 related to these awards. As of December 31, 2019 it is not probable that any of the remaining required metrics for vesting will be achieved. The unrecognized stock-based compensation expense for these awards was approximately $434,000 and unvested restricted stock awards were approximately 129,000 as of December 31, 2019. If and when the Company determines that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount and the remaining unrecognized amount will be recorded over the remaining requisite service period of the awards.
Changes in stock options outstanding under the Incentive Compensation Plans during 2019 and 2018 are as follows:
Options
Number
of Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Balance at December 31, 2017615,000  $2.87  3.48$22,000  
Granted16,000  $2.68  6.46$—  
Forfeited(18,000) $3.15  —$—  
Balance at December 31, 2018613,000  $2.85  3.14$—  
Granted18,000  $2.87  7.00$—  
Exercised (16,000) $2.59  —$—  
Forfeited(165,000) $3.07  —$—  
Balance at December 31, 2019450,000  $2.78  2.44$27,000  
Exercisable at December 31, 2018488,000  $2.87  2.55$—  
Exercisable at December 31, 2019425,000  $2.79  2.25$—  
The weighted average grant-date fair value of the options granted during the years 2019, 2018 and 2017 was $1.54, $1.45, and $1.50, respectively. There were 16,000 options exercised during the year ended December 31, 2019. There were no options exercised and accordingly, no total intrinsic value of options exercised during the year ended December 31, 2018. There were 4,000 options exercised during the year ended December 31, 2017. Total stock-based compensation expense recognized for stock options for the years ended December 2019, 2018, and 2017 was $141,000, $109,000, and $144,000, respectively.
The Company received approximately $42,000 from the exercise of 16,000 options under the share-based arrangements for the year ended December 31, 2019. There was no cash received from options exercised under any share-based payment arrangements for the years ended December 31, 2018, and as a result, there was no actual tax benefit realized for tax deductions from option exercises in that year. The Company received approximately $6,000 from the exercise of 2,000 options under share-based payment arrangements for the year ended December 31, 2017.
A summary of the status of the Company’s non-vested stock options as of December 31, 2019 and 2018, and changes during the years ended December 31, 2019 and 2018 is presented below:
Nonvested Options
Number
of Options
Weighted
Average
Grant-Date
Fair Value
Nonvested at December 31, 2017220,000  $1.20  
Granted16,000  $1.45  
Vested(111,000) $1.22  
Nonvested at December 31, 2018125,000  $1.20  
Granted18,000  $1.54  
Vested(118,000) $1.22  
Nonvested at December 31, 201925,000  $1.40  
At December 31, 2019, there was approximately $24,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a period of approximately two years.
The Company’s stock-based awards to employees are calculated using the Black-Scholes options valuation model. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. The Company’s stock-based awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the present value estimates. For these reasons, management believes that the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees.
The fair value of the Company’s option grants issued during 2019, 2018 and 2017 were estimated using assumptions for expected life, volatility, dividend yield, forfeiture rate, and risk-free interest rate which are specific to each award as summarized in the following table. The estimated fair value of the Company’s options is amortized over the period during which the optionee is required to provide service in exchange for the award, usually the vesting period.
The fair value of the Company’s option grants under the Plan in 2019, 2018 and 2017 was estimated using the following assumptions:
201920182017
Expected life (years)7.07.07.0
Expected forfeiture rate0.0 %0.0 %0.0 %
Expected volatility50 %50 %53 %
Dividend yield0 %0 %0 %
Risk-free interest rate1.9 %2.9 %2.0 %
Repurchase of Common Stock, Common Stock Warrants and Stock Options
In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares of the Company repurchased during 2019, 2018 or 2017. There are approximately 72,000 shares remaining under this repurchase authorization.