Shareholders' Equity

12 Months Ended

Dec. 31, 2021

Shareholders' Equity

Shareholders' Equity

6.

Shareholders’ Equity.

Stock-Based Compensation. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which, subject to approval by the Board of Directors, 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 for the years ended December 31, 2021 and 2020:

Year ended December 31	2021		2020
Cost of sales	$	24,000	$	5,000
Selling		25,000		38,000
Marketing		12,000		(1,000	)
General and administrative		171,000		130,000
	$	232,000	$	172,000

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

	2021			2020
Stock Purchase Plan Options:
Expected life (years)		1.0			1.0
Expected volatility		142	%		59	%
Dividend yield		0	%		0	%
Risk-free interest rate		0.1	%		1.6	%

The Company uses the graded attribution method to recognize expense for unvested stock-based awards. Forfeitures are recognized as incurred.

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”), the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) and the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan replaced the 2013 Plan upon its ratification by shareholders in July 2018. No further awards may be granted under the 2013 Plan or the 2003 Plan. Awards granted under the 2003 Plan and 2013 Plan will remain in effect until they are exercised or expire according to their terms.

Under the terms of the 2018 Plan, the number of shares of our common stock that may be the subject of awards and issued under the 2018 Plan was initially 128,571 plus any shares remaining available for future grants under the 2013 Plan on the effective date of the 2018 Plan. All equity awards made during 2021 and 2020 were under the 2018 Plan.

Under the terms of the 2018 Plan, the Company may grant 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 upon grant of restricted stock, when stock options are exercised, and when restricted stock units are vested and/or settled.

The following table summarizes activity under the 2003, 2013 and 2018 Plans:

	Plan Shares Available for Grant			Plan Options Outstanding			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance at January 1, 2020		117,661			42,416		$	16.66
Restricted stock units and awards granted - 2018 Plan		(31,782	)		—
Cancelled or forfeited - 2018 Plan options		1,070			(1,070	)		13.65
Cancelled or forfeited - 2018 Plan restricted stock and restricted stock units		3,091			—			9.58
Cancelled or forfeited - 2013 Plan options		2,241			(2,241	)		15.54
Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units		1,450			—			13.34
Cancelled or forfeited - 2003 Plan options		—			(8,607	)		24.23
Balance at December 31, 2020		93,731			30,498			14.69
Restricted stock units and awards granted - 2018 Plan		(5,514	)		—
Cancelled or forfeited - 2018 Plan options		2,584			(2,584	)		13.36
Cancelled or forfeited - 2018 Plan restricted stock and restricted stock units		5,508			—			8.69
Stock options exercised		—			(1,973	)		13.59	$	17,100
Cancelled or forfeited - 2013 Plan options		292			(292	)		15.54
Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units		1,047			—			12.39
Cancelled or forfeited - 2003 Plan options		—			(6,527	)		19.66
Balance at December 31, 2021		97,648			19,122		$	13.23

The following table summarizes information about the stock options outstanding at December 31, 2021:

	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
$8.26 - $13.65		13,759		5.07	years	$	12.33		10,363	$	11.90
$15.54 - $21.63		5,363		2.39	years		15.54		5,363		15.54
		19,122		4.32	years	$	13.23		15,726	$	13.14

Options outstanding under the Plans expire at various dates during the period from May 2022 through August 2028. Options outstanding at December 31, 2021 had an aggregate intrinsic value of $188,322. Options outstanding at December 31, 2020 had no intrinsic value. Options exercisable at December 31, 2021 had a weighted average remaining life of 3.82 years and an aggregate intrinsic value of $156,298. No options were granted in either 2021 or 2020. The number of options exercisable at December 31, 2020 was 21,123.

During the year ended December 31, 2021, no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors.

In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $45,000. The shares are scheduled to vest the earlier of June 10, 2022 or the day immediately preceding the date of the next annual shareholder meeting.

During the year ended December 31, 2020, the Company issued 24,282 restricted stock units. The shares underlying the awards were assigned a weighted average value of $6.00 per share, which was the closing price of the Company’s common stock on the date of grants. These awards vested on December 31, 2021.

During December 2020, non-employee members of the Board of Directors received restricted stock grants totaling 7,500 shares. The shares underlying the awards were assigned a value of $6.00 per share, which was the closing price of the Company’s common stock on the date of grants, for a total value of $45,000, and were vested in full the day immediately preceding the date of the 2021 annual shareholder meeting, June 9, 2021.

Restricted stock and restricted stock unit transactions during the years ended December 31, 2021 and 2020 are summarized as follows:

	Number of Shares			Weighted average grant date fair value
Unvested shares at January 1, 2020		44,659		$	12.16
Granted		31,782			6.00
Vested		(22,315	)		11.36
Forfeited or surrendered		(4,162	)		10.30
Unvested shares at December 31, 2020		49,964		$	8.76
Granted		5,514			8.16
Vested		(40,392	)		8.33
Forfeited or surrendered		(6,555	)		9.28
Unvested shares at December 31, 2021		8,531		$	10.01

As of December 31, 2021, there was approximately $5,000 of total unrecognized compensation costs related to outstanding stock options, which is expected to be recognized over a weighted average period of 0.6 years.

As of December 31, 2021, there was approximately $30,000 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 0.5 years.

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “ESPP”) 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. During the years ended December 31, 2021 and 2020, respectively, participants purchased 4,541 and 6,152 shares under the ESPP. At December 31, 2021, 24,436 shares were reserved for future employee purchases of common stock under the ESPP. For the years ended December 31, 2021 and 2020, the Company recognized $23,000 and $18,000, respectively, of stock-based compensation expense related to the ESPP.

Dividends. The Company has not historically paid dividends, other than one-time dividends declared in 2011 and 2016. The Company intends to retain earnings from operations for use in advancing our business strategy; however, the Company may consider special dividends in the future depending on outcomes of actions such as legal proceedings.