Note 7 - Shareholders' Equity

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Shareholders' Equity and Share-based Payments [Text Block]

Note 7 - Shareholders' Equity

We recorded non-cash stock compensation expense in each period as follows:

	Year ended December 31,
	2020		2019
Stock options	$	838	$	623
Restricted stock		105		130
Total	$	943	$	753

These are more fully discussed as follows:

We have various stock-based employee compensation plans, for which compensation cost is recognized in the financial statements. The cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).

Our shareholders have approved various equity-based plans that permit the grant of stock options, restricted stock and other equity-based awards. In addition, our shareholders have approved the grant of stock options outside of these plans.

In June 2004, our shareholders adopted the 2004 Long-Term Incentive Plan (“2004 LTIP”) pursuant to which we were authorized to issue up to 750,000 shares of common stock and grant stock options, restricted stock awards, stock appreciation rights and other stock-based awards. Through shareholder approved amendments to the LTIP in 2006, 2008, 2011, and 2013, the total number of shares authorized under the 2004 LTIP was increased to 2,900,000.

In June 2014, our shareholders approved the 2014 Long-Term Incentive Plan (“2014 LTIP”) as the successor plan to the 2004 LTIP that expired on June 10, 2014. Under the 2014 LTIP, a total of 1,750,000 shares of common stock will be available for grant of awards. Of the total number of shares of common stock available for awards under the 2014 LTIP, no more than 800,000 shares of common stock may be used for awards other than stock options and stock appreciation rights.  Grants under the 2014 LTIP may be awarded through June 2, 2024.

Stock options granted under the LTIPs are either Incentive Stock Options (“ISOs”) or Non-Qualified Stock Options (“NQSOs”). Key employees are eligible to receive ISOs and NQSOs; however, directors and consultants are eligible to receive only NQSOs. Most ISOs vest over a three-year period and expire on the seventh anniversary of the grant date. As of December 31, 2020, there were 1,143,168 stock options outstanding under the 2014 LTIP and 73,995 stock options outstanding under the 2004 LTIP.

On December 30, 2010, pursuant to the terms of his employment agreement, we granted our President and Chief Executive Officer, Michael D. Popielec, options to purchase shares of common stock under the 2004 LTIP as follows: (i) 50,000 shares at $6.42, vesting in annual increments of 12,500 shares over a four-year period commencing December 30, 2011; (ii) 250,000 shares at $6.42, vesting in annual increments of 62,500 shares over a four-year period commencing December 30, 2011; (iii) 200,000 shares at $10.00, with vesting to begin on the date the stock reaches a closing price of $10.00 per share for 15 trading days within a 30-day trading period, with such vesting in annual increments of 50,000 shares over the four anniversary dates of that date; and (iv) 200,000 shares at $15.00, with vesting to begin on the date the stock reaches a closing price of $15.00 per share for 15 trading days within a 30-day trading period, with such vesting in annual increments of 50,000 shares over the four anniversary dates of that date. The options set forth in items (ii), (iii) and (iv) were subject to shareholder approval of an amendment to the 2004 LTIP, which approval was obtained on June 7, 2011.

All such options in items (i) and (ii) were due to expire on December 30, 2017. On April 19, 2017, the Company’s Board of Directors extended the expiration date to December 30, 2020. All such options in items (i) and (ii) were exercised on November 23, 2020, such that 37,171 shares of common stock were issued by the Company representing the intrinsic value of the options exercised at an average market value of $7.33 of which 26,929 shares were acquired by Mr. Popielec, net of common stock retained by the Company for minimum statutory tax withholding requirements.

All such options in items (iii) and (iv) were due to expire as of the later of December 30, 2017 and five years after the initial vesting commences, but in no event later than December 30, 2020. On July 25, 2018, the Company’s Board of Directors modified the option in item (iii) such that the option will vest immediately upon the Company’s common stock first reaching a closing price $10.00 for 15 trading days in a 30 trading-day period. The option became fully vested during the third quarter of 2018. All such options in items (iii) and (iv) expired December 30, 2020.

As of December 31, 2020, there was $566 of total unrecognized compensation costs related to outstanding stock options, which we expect to recognize over a weighted average period of 1.1 years.

We use the Black-Scholes option-pricing model to estimate fair value of stock-based awards. The following weighted average assumptions were used to value options granted during the years ended December 31, 2020 and 2019:

	Year ended December 31,
	2020			2019
Risk-free interest rate		0.4	%		1.8	%
Volatility factor		49	%		48	%
Weighted average expected life (years)		5.3			5.3
Forfeiture rate		10.0	%		10.0	%
Dividends		0.0	%		0.0	%

We used a Monte Carlo simulation option-pricing model to estimate the fair value of market performance stock-based awards, of which there were no new awards for the years ended December 31, 2020 and 2019.

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. Forfeiture rates are calculated by dividing unvested shares forfeited by beginning shares outstanding. The pre-vesting forfeiture rate is calculated yearly and is determined using a historical twelve-quarter rolling average of the forfeiture rates.

The following tables summarize data for the stock options issued by us:

Year ended December 31, 2020
	Number of shares			Weighted average exercise price per share		Weighted average remaining contractual term		Aggregate intrinsic value
Shares under option – January 1		1,541,792		$	6.88
Options granted		256,000			6.51
Options exercised		(355,797	)		6.08
Options forfeited or expired		(224,332	)		9.76
Shares under option – December 31		1,217,163		$	6.50		3.97	$	1,034
Vested and expected to vest - December 31		1,115,705		$	6.39		3.81	$	1,034
Options exercisable – December 31		738,452		$	5.82		2.79	$	1,034

Year ended December 31, 2019
	Number of shares			Weighted average exercise price per share
Shares under option – January 1		1,576,087		$	6.58
Options granted		282,500			8.27
Options exercised		(208,881	)		4.45
Options forfeited or expired		(107,914	)		10.93
Shares under option – December 31		1,541,792		$	6.88
Options exercisable – December 31		1,083,581		$	6.28

The following table represents additional information about stock options outstanding at December 31, 2020:

			Option outstanding						Options exercisable
Range of exercise prices			Number of outstanding options		Weighted- average remaining contractual life		Weighted- average exercise price		Number of options exercisable		Weighted- average exercise price
$3.71	-	$3.94		204,244		0.81	$	3.80		204,244	$	3.80
$4.29	-	$5.71		317,667		2.78		4.93		317,667		4.93
$6.24	-	$7.16		267,333		6.13		6.54		13,667		6.87
$8.25	-	$9.96		427,919		5.01		8.92		202,874		9.19
$3.71	-	$9.96		1,217,163		3.97	$	6.50		738,452	$	5.82

The weighted average fair value of options granted during the years ended December 31, 2020 and 2019 was $2.78 and $3.77, respectively. The total intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the years ended December 31, 2020 and 2019 was $427 and $931, respectively.

Cash received from stock option exercises under our stock-based compensation plans for the years ended December 31, 2020 and 2019 was $238 and $930, respectively.

In October 2020, 5,000 shares of restricted stock were awarded to an employee at a weighted-average grant date fair value of $6.08 per share. In April 2019, 20,000 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $11.12 per share. In January 2018, 17,500 shares of restricted stock were awarded to certain of our employees at a weighted-average grant date fair value of $7.16 per share. All outstanding restricted shares vest in equal annual installments over three years. As of December 31, 2020, there was $70 of total unrecognized compensation costs related to outstanding restricted shares, which we expect to recognize over a weighted average period of 1.9 years

There were 249,604 shares of common stock available for future issuance under equity compensation plans as of December 31, 2020.