STOCK BASED COMPENSATION

Summary of Stock Plan

The Company currently has one active stock-based compensation plan, the 2017 Plan, which was adopted by the Company’s Board of Directors on April 17, 2017 and was approved by its shareholders on June 8, 2017. The 2017 Plan supersedes the Mannatech, Incorporated 2008 Stock Incentive Plan, as amended, which was set to expire on February 20, 2018. The Board has reserved a maximum of 250,000 shares of our common stock that may be issued under the 2017 Plan, consisting of 181,674 newly reserved shares and 68,326 shares that remained available for issuance under the 2008 Plan (subject to adjustments for stock splits, stock dividends or other changes in corporate capitalization). As of December 31, 2018, the Company had a total of 39,002 shares available for grant under the 2017 Plan, which expires on April 16, 2027.

The 2008 Plan provided, and the 2017 Plan provides, for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and performance stock units to our employees, board members, and consultants. However, only employees of the Company and its corporate subsidiaries are eligible to receive incentive stock options. The exercise price per share for all stock options will be no less than the market value of a share of common stock on the date of grant. Any incentive stock option granted to an employee owning more than 10% of our common stock will have an exercise price of no less than 110% of our common stock’s market value on the grant date.

The majority of stock options vest over two or three years, and generally are granted with a term of ten years, or five years in the case of an incentive option granted to an employee who owns more than 10% of our common stock.

A summary of changes in stock options outstanding during the year ended December 31, 2018, is as follows:



	2018
	Number of Options (in thousands)		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value (in thousands)
Outstanding at beginning of year	247		$	17.23
Granted	185		16.18
Exercised	(6	)	18.95
Expired	(5	)	25.62
Outstanding at end of year	421		$	16.64	6.65	$	909
Options exercisable at year end	295		$	16.87	5.55	$	570

During 2018, the Company issued 6,000 new shares upon the exercise of options, and granted 184,667 new options to management and members of the Board. Options exercised during the year ending December 31, 2018 and December 31, 2017 had a total intrinsic value, calculated as the difference between the exercise date stock price and the exercise price of less than $0.1 million and less than $0.2 million, respectively. Non-vested shares at December 31, 2018 and 2017 were approximately 126,000 and 15,000, respectively.

Valuation and Expense Information Under FASB ASC Topic 718 Compensation – Stock Compensation

Under the provisions of FASB ASC Topic 718, the Company is required to measure and recognize compensation expense related to any outstanding and unvested stock options previously granted, and thereafter recognize, in its consolidated financial statements, compensation expense related to any new stock options granted after implementation using a calculated fair-value based option-pricing model.

The Company uses the Black-Scholes option-pricing model to calculate the fair value of all of its stock options and its assumptions are based on historical information. The following assumptions were used to calculate the compensation expense and the calculated fair value of stock options granted each year:



	2018		2017
Dividend yield:	2.4 - 2.9	%	3.5	%
Risk-free interest rate:	2.5 - 2.8	%	1.7	%
Expected market price volatility:	55.6 - 56.4	%	64.4	%
Average expected life of stock options:	4.5 years		4.5 years

The computation of the expected volatility assumption used in the Black-Scholes calculations for new grants is based on historical volatilities of the Company’s stock. The expected life assumptions are based on the Company’s historical employee exercise and forfeiture behavior.

The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2018 and 2017 was $7.29 and $5.87 per share, respectively. The total fair value of awards vested during the years ended December 31, 2018 and 2017 was $0.6 million and $0.3 million, respectively.

The Company recorded the following amounts related to the expense of the fair values of options and restricted share awards during the years ended December 31, 2018 and 2017 (in thousands):



	2018			2017
Selling, general and administrative expenses and income from operations before income taxes	$	888		$	246
Benefit for income taxes	(50		)	(45		)
Effect on net income	$	838		$	201

As of December 31, 2018, the Company had approximately $0.6 million of total unrecognized compensation expense related to stock options and restricted share awards currently outstanding, to be recognized in future years, ending December 31, as follows (in thousands):



	Total gross unrecognized compensation expense		Total tax benefit associated with unrecognized compensation expense		Total net unrecognized compensation expense
2019	$	481	$	19	$	462
2020	137		7		130
	$	618	$	26	$	592