SHAREHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHAREHOLDERS' EQUITY

12.          SHAREHOLDERS' EQUITY

Stock‑Based Compensation

We compensate officers, directors and key employees with stock-based compensation under stock plans approved by our shareholders and administered under the supervision of our Board of Directors. Stock option awards are granted at exercise prices equal to the closing price of our stock on the day before the date of grant. Generally, options vest proportionally over periods of three to five years from the dates of the grant, beginning one year from the date of grant, and have a contractual term of nine to ten years.

Performance stock options are time based; however, the final number of awards earned and the related compensation expense is adjusted up or down to the extent the performance target is met. The actual number of shares that will ultimately vest ranges from 90% to 100% of the targeted amount if the minimum performance target is achieved.  We evaluate the likelihood of meeting the performance target at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each performance target.

Compensation expense, net of estimated forfeitures, is recognized ratably over the vesting period. Stock-based compensation expense included in general and administrative expense for the years ended December 31, 2016 and 2015 was $247,000 and $279,000, respectively. At December 31, 2016, a total of 306,888 shares were available for grant under these plans.

The following table summarizes stock option activity for 2016 and 2015:

	2016			2015
	Shares	WAEP*		Shares	WAEP*
Options outstanding at beginning of year	307,750	$	5.96	354,000	$	6.30
Granted	-	$	-	50,000	$	2.73
Exercised	-	$	-	-	$	-
Expired	(23,000)	$	11.65	(3,000)	$	9.22
Forfeited	(152,250)	$	4.93	(93,250)	$	5.43
Options outstanding at end of year	132,500	$	6.15	307,750	$	5.96
Options eligible for exercise at year-end	112,500	$	6.41	165,625	$	7.20

 

     *Weighted Average Exercise Price

Options outstanding at December 31, 2016 had a weighted average remaining contractual term of 4.5 years and had no aggregate intrinsic value. Options eligible for exercise at December 31, 2016 had a weighted average remaining contractual term of 4.0 years and had no aggregate intrinsic value.

There were no stock options exercised during the fiscal years ended December 31, 2016 and 2015.

At December 31, 2016, there was $28,666 of total unrecognized stock option expense related to non-vested awards, which is expected to be recognized over a weighted average period of approximately 1.17 years.

The fair value of stock options granted under stock‑based compensation programs has been estimated as of the date of each grant using the multiple option form of the Black‑Scholes valuation model, based on the grant price and assumptions regarding the expected grant life, stock price volatility, dividends, and risk‑free interest rates. Each vesting period of an option award is valued separately, with this value being recognized evenly over the vesting period. The weighted average per share grant date fair value of options to purchase 50,000 shares granted for the year ended December 31, 2015 was $1.53.  No options were granted for the year ended December 31, 2016. The weighted average assumptions used to determine the fair value of stock options granted during 2015 is as follows:

	2015
Expected life (in years)	5.0
Risk-free interest rate	1.60	%
Expected volatility	67	%
Dividend yield	0	%

The expected life represents the period that the stock option awards are expected to be outstanding and was determined based on historical and anticipated future exercise and expiration patterns. The risk‑free interest rate used is based on the yield of constant maturity U.S. Treasury bonds on the grant date with a remaining term equal to the expected life of the grant. We estimate stock price volatility based on a historical weekly price observation. The dividend yield assumption is based on the annualized current dividend divided by the share price on the grant date.  We have not historically paid any cash dividends and do not expect to do so in the foreseeable future.

Restricted Stock and Stock Awards

We issue restricted stock awards to executive officers and key consultants.  These awards may contain certain performance conditions or time based vesting criteria.  Executive officers vest in the restricted stock awards if the various performance or time-based metrics are met.  Performance restricted stock awards are value based on the market value of the shares at the date of grant, with the compensation expense recognized over the vesting periods.

We issue stock awards as a portion of the annual retainer for each director on a quarterly basis.  The stock awards are fully vested at the time of issuance. Compensation expense related to employee stock awards is determined on the grant date based on the publicly-

 

quoted fair market value of our common stock and is charged to earnings on the grant date.  Stock awards to consultants are recognized over the performance period based on the stock price on the date when the consultant's performance is complete. 

The following table summarizes restricted stock award activity for 2016 and 2015:

	2016			2015
	Number of Shares	Weighted Average grant date fair value	Aggregate Intrinsic Value (in 000's)	Number of Shares	Weighted Average grant date fair value	Aggregate Intrinsic Value (in 000's)
Awards outstanding at beginning of year	-	$                      -	$                      -	-	$                      -	$                      -
Granted	170,553	$                  2.93	$                   500	32,037	$                  3.32	$                   107
Exercised	(70,915)	$                  3.17	$                   239	(32,037)	$                  3.32	$                   106
Forfeited	(99,638)	$                  2.76	$                   235	-	$                      -	$                      -
Awards outstanding at end of year	-	$                      -	$                      -	-	$                      -	$                      -
Awards exercisable at end of year	-	$                      -	$                      -	-	$                      -	$                      -

Other information pertaining to options and awards for the years ended December 31, 2016 and 2015 is as follows:

		2016		2015
Stock-based compensation expense recognized
within general and administrative expense on
the consolidated statements of operations	$	247,000	$	279,000
Cash received from the exercise of options		-		-
Excess income tax benefits from exercise of stock options		-		-