Shareholders' Equity

12 Months Ended

Dec. 31, 2016

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 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 and comprehensive income (loss) for the years ended December 31, 2016 and 2015:

Year ended December 31	2016		2015
Cost of sales	$	28,000	$	34,000
Selling		52,000		69,000
Marketing		1,000		15,000
General and administrative		123,000		235,000
	$	204,000	$	353,000

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

	2016			2015
Stock Options:
Expected life (years)		2.5			3.4
Expected volatility		41	%		45	%
Dividend yield		0	%		0	%
Risk-free interest rate		1.0	%		1.2	%
		2016			2015
Stock Purchase Plan Options:
Expected life (years)		1.0			1.0
Expected volatility		31	%		37	%
Dividend yield		0	%		0	%
Risk-free interest rate		0.6	%		0.3	%

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.

As of December 31, 2016, there was approximately $12,000 of total unrecognized compensation costs related to the outstanding stock options, which is expected to be recognized over a weighted average period of 0.5 years.

As of December 31, 2016, there was approximately $287,000 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 3.1 years.

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”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”). The 2013 Plan replaced the 2003 Plan upon its ratification by shareholders in 2013. Awards granted under the 2003 Plan will remain in effect until they are exercised or expire according to their terms. Since May 2013, all equity awards have been made under the 2013 Plan.

In May 2015, the 2013 Plan was amended to increase the total number of shares available to a total of 1,100,000 shares. Under the terms of the 2013 Plan, as amended, the Company may grant up to 1,100,000 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 when stock options are exercised.

On November 28, 2016, our Board of Directors amended the Plans to permit equitable adjustments to outstanding awards in the event of an extraordinary cash dividend. As of the date of this filing no options have been modified.

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

	Plan Shares Available for Grant			Plan Options Outstanding			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance at January 1, 2015		307,767			1,255,077		$	2.86
Shares reserved		200,000			—
Stock awards granted		( 37,233	)		—
Restricted stock units granted		( 99,000	)		—
Stock options granted		( 200,000	)		200,000			2.82
Stock options exercised		—			( 113,837	)		1.90	$	105,012
Cancelled or forfeited - 2013 Plan options		279,000			( 279,000	)		2.87
Cancelled or forfeited - 2013 Plan   restricted stock units		27,000			—			2.89
Cancelled or forfeited - 2003 Plan options		—			( 167,079	)		4.13
Balance at December 31, 2015		477,534			895,161			2.73
Shares reserved		—			—
Stock awards granted		( 54,036	)		—
Restricted stock units and awards granted		( 189,875	)		—
Stock options granted		( 20,000	)		20,000			2.90
Stock options exercised		—			( 227,833	)		1.72	$	143,531
Cancelled or forfeited - 2013 Plan options		237,500			( 237,500	)		2.86
Cancelled or forfeited - 2013 Plan   restricted stock and restricted stock units		50,499			—			2.72
Cancelled or forfeited - 2003 Plan options		—			( 30,666	)		3.22
Balance at December 31, 2016		501,622			419,162		$	3.18

The number of options exercisable under the Plans was:

December 31, 2016	381,836
December 31, 2015	653,840

The following table summarizes information about the stock options outstanding at December 31, 2016:

		Options Outstanding											Options Exercisable
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
$	1.61 - $2.79		107,830			5.42		years	$	1.79		107,830		$	1.79
$	2.80 - $4.22		262,832			6.26		years		3.32		225,506			3.37
$	5.49		48,500	years			5.49			48,500		5.49
			419,162			5.72		years	$	3.18		381,836		$	3.19

Options outstanding under the Plans expire at various dates during the period from January 2017 through January 2026. Options outstanding at December 31, 2016 had an aggregate intrinsic value of $74,000. Options exercisable at December 31, 2016 had a weighted average remaining life of 5.55 years and an aggregate intrinsic value of $74,000. The weighted average grant-date fair value of options granted during the years ended December 31, 2016 and 2015 were $0.56 and $0.94, respectively. 

During May and June 2016 and June 2015, equity grants were made by the Company to the Board of Directors, pursuant to the 2013 Plan in the form of shares of common stock. The total number of shares granted to the Board of Directors was 54,036 and 37,233 during the years ended December 31, 2016 and 2015, respectively. The shares were issued at a weighted average value of $2.19 per share in 2016 and $2.82 per share in 2015, based on the stock price on the date of grant, for a total value of $119,000 in 2016, of which $109,000 included in stock-based compensation expense for the year ended December 31, 2016 and $10,000 was accrued for and expensed in the year ended December 31, 2015, in addition to $105,000 in 2015, which is included in stock-based compensation.

During the year ended December 31, 2016, the Company issued 100,000 shares of restricted stock under the 2013 Plan. The shares underlying the award were assigned a value of $2.33 per share, which was the closing price of our common stock on the date of grant, and is scheduled to vest over the five years following the date of grant. No restricted stock was issued during the year ended December 31, 2015.

During the year ended December 31, 2016, the Company issued 21,875 performance-based restricted stock units under the 2013 Plan. Each unit represents the right to acquire one share of the Company’s common stock. The units were assigned a weighted average value of $0.85 per unit, based on market condition assumptions, and are scheduled to vest with respect to 80% of the units if the price of the Company’s common stock during the applicable measurement period exceeds a minimum performance threshold or 100% if a maximum performance threshold is exceeded. No performance-based restricted stock units were issued during the year ended December 31, 2015.

During the year ended December 31, 2016, the Company issued 68,000 restricted stock units under the 2013 Plan. The units were assigned a weighted average value of $2.20 per share, based on the stock price on the date of the grant, and vest over two years. The Company issued 99,000 restricted stock units during the year ended December 31, 2015. The units were assigned a value of $2.71 per share, based on the stock price on the date of the grant, and vest over two years.

Restricted stock and restricted stock unit transactions during the years ended December 31, 2016 and 2015 are summarized as follows:

	Number of Shares			Weighted average grant date fair value
Unvested shares at January 1, 2015		25,000		$	3.03
Granted		99,000			2.71
Vested		(8,334	)		3.03
Forfeited or surrendered		(27,000	)		2.89
Unvested shares at December 31, 2015		88,666			2.72
Granted		189,875			2.11
Vested		(23,167	)		2.68
Forfeited or surrendered		(50,499	)		2.72
Unvested shares at December 31, 2016		204,875		$	2.16

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “Plan”) 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. There were no purchases for the year ended December 31, 2016. During the year ended December 31, 2015, employees purchased 18,000 shares under the Plan. At December 31, 2016, 134,000 shares were reserved for future employee purchases of common stock under the Plan. For the years ended December 31, 2016 and 2015, the Company recognized $0 and $16,000, respectively, of stock-based compensation expense related to the Plan.

Stock Repurchase Plans. On December 3, 2013, the Board of Directors authorized the repurchase of up to $5,000,000 of the Company’s common stock on or before December 3, 2015. The Plan allowed the repurchases to be made in open market or privately negotiated transactions. This plan was terminated on November 3, 2015.

On October 30, 2015, the Board authorized the repurchase of up to $5,000,000 of the Company’s common stock on or before October 30, 2017. 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 years ended December 31, 2016 and December 31, 2015, the Company repurchased approximately 128,000 and 664,000 shares at a total cost of $312,000 and $1,762,000, respectively.

Dividends. We have not historically paid dividends, other than one-time dividends declared in 2011 and 2016. On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016, paid on January 6, 2017. Since this special dividend exceeded 25% of the Company’s stock price, in accordance with applicable NASDAQ rules, the ex-dividend date was January 9, 2017, one business day following the payment date. 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.