Note 10 - Stock-based Compensation Expense

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

NOTE 10 – STOCK-BASED COMPENSATION EXPENSE

Incentive Compensation Plan

In  June 2021, the Company’s shareholders approved an amendment and restatement of the Company’s Incentive Compensation Plan (the “Plan”), that among other things, increases the number of shares of the Company’s common stock reserved for issuance under the Plan to 2,580,000 and extends the term of the Plan by five years to  February 22, 2027. 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. No further grants or share issuances will be made under the previous plans. As of December 31, 2021, approximately 1,453,000 shares remain available for grant under the Plan.

Under the Plan, a total of 621,000 restricted stock units have been granted, consisting of 53,000 of annual automatic grants to non-employee directors, 328,000 of deferred retainer fees to non-employee members of the Board, 20,000 grants issued in lieu of commission, to two employees of the Company and 220,000 restricted stock units issued to the CEO during 2021 and 2020, see further discussion below. Of the total restricted stock units granted under the Plan 123,000 of them are fully vested but not yet deemed issued and outstanding, 487,000 are fully vested and outstanding, and 10,000 are outstanding as of December 31, 2021.

Changes in restricted stock units, consisting primarily of annual automatic grants, deferred compensation to non-employee directors, and restricted stock units awards to the CEO, under the Incentive Compensation Plans during 2021 and 2020 are as follows:

	Restricted Stock Units			Grant Date Weighted- Average Fair Value		Intrinsic Value
Outstanding at January 1, 2020		3,000		$	3.03	$	—
Granted		144,000		$	1.96	$	—
Vested		(134,000	)	$	1.98	$	—
Outstanding at December 31, 2020		13,000		$	1.97	$	2,000
Granted		165,000		$	2.61	$	—
Vested		(168,000	)	$	2.57	$	—
Outstanding at December 31, 2021		10,000		$	2.57	$	—

For the year ended December 31, 2021, total compensation expense recorded in the consolidated statements of operations related to restricted stock units in lieu of retainer fees was $75,000. For the year ended December 31, 2021, total compensation expense recorded in the consolidated statements of income for annual restricted stock units awarded was $12,000, with an offsetting tax benefit of $3,000, as this expense is deductible for income tax purposes. As of December 31, 2021, there was $20,000 of total unrecognized compensation cost related to annual restricted stock units which is expected to be recognized over a period of four years. 

Certain Executive Equity Awards

Effective May 4, 2020, the Company appointed Raymond C. Stachowiak as Interim President and Chief Executive Officer (“Interim CEO”). As part of his Offer Letter, the Interim CEO was granted 50,000 restricted stock awards that vested in full on August 3, 2020. The Interim CEO was granted additional restricted stock awards totaling 10,000 common shares per month, which vest in full at the end of each 30-day period following issuance. On October 1, 2020, the Interim CEO was appointed the CEO. For the year ended December 31, 2020, 100,000 restricted stock awards were issued to the CEO and 90,000 became fully vested. Additionally, Ernest R. Bates, Senior Vice President, Sales and Business Development, International Operations, was awarded 10,000 restricted stock awards, which vested in full on December 31, 2020. For the year ended December 31, 2020, total compensation expense recorded in the consolidated financial statements of operations related to executive equity awards was $195,000.  For the year ended December 31, 2021, 120,000 restricted stock awards were issued to the CEO and became fully vested.  Total compensation expense recorded in the consolidated financial statements of operations related to the executive equity awards was $331,000.

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 expired 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. The unrecognized stock-based compensation expense for these awards was approximately $421,000 and unvested restricted stock awards of approximately 129,000 were returned to the plan as of March 31, 2020.

As of December 31, 2021, stock compensation expense recorded in the consolidated financial statements is summarized as follows:

			Stock-Based
	Awards Issued		Compensation
	and Vested		Expense
Options		—	$	2,000
Options Exercised		5,000		—
RSUs Issued in Lieu of Retainer Fees		—		75,000
RSUs Issued in Lieu of Retainer Fees - vested and issued		121,000		—
Annual RSU Awards		2,000		12,000
Executive Compensation		130,000		331,000
		258,000	$	420,000

Stock Options

Changes in stock options outstanding under the Incentive Compensation Plans during 2021 and 2020 are as follows:

Options	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance at December 31, 2019		450,000		$	2.78		2.44	$	27,000
Granted		10,000		$	1.88		7.00	$	—
Forfeited		(43,000	)	$	2.54		—	$	—
Balance at December 31, 2020		417,000		$	2.79		1.61	$	2,000
Granted		6,000		$	2.92		7.00	$	—
Exercised		(22,000	)	$	2.65
Forfeited		(334,000	)	$	2.81		—	$	—
Balance at December 31, 2021		67,000		$	2.72		3.33	$	-
Exercisable at December 31, 2020		405,000		$	2.80		1.48	$	—
Exercisable at December 31, 2021		58,000		$	2.72		2.96	$	—

The weighted average grant-date fair value of the options granted during the years 2021 and 2020 was $1.10 and $0.78, respectively. There were 5,000 options exercised during the year ended  December 31, 2021. There were no options exercised and accordingly, no intrinsic value of options exercised during the year ended  December 31, 2020. Total stock-based compensation expense recognized for stock options for the years ended December 2021 and 2020 was $2,000 and $17,000, respectively.

The Company received approximately $5,000 from the exercise of 2,000 options under the share-based arrangements for the year ended December 31, 2021. The remaining options exercised during the year were cashless exercises. There was no cash received from options exercised under any share-based payment arrangements for the year ended  December 31, 2020, and as a result, there was no actual tax benefit realized for tax deductions from option exercises in that year.

A summary of the status of the Company’s non-vested stock options as of December 31, 2021 and 2020, and changes during the years ended December 31, 2021 and 2020 is presented below:

Nonvested Options	Number of Options			Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2019		25,000		$	1.40
Granted		10,000		$	0.78
Vested		(23,000	)	$	1.22
Nonvested at December 31, 2020		12,000		$	1.07
Granted		6,000		$	1.10
Vested		(9,000	)	$	0.91
Nonvested at December 31, 2021		9,000		$	1.10

At December 31, 2021, there was approximately $10,000 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 four 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 2021 and 2020 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 2021 and 2020 was estimated using the following assumptions:

	2021			2020
Expected life (years)		7.0			7.0
Expected forfeiture rate		0.0	%		0.0	%
Expected volatility		40	%		40	%
Dividend yield		0	%		0	%
Risk-free interest rate		1.2	%		0.4	%

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 2021 or 2020. There are approximately 72,000 shares remaining under this repurchase authorization.