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Note 9 - Incentive Plans
 12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]
NOTE
9.
INCENTIVE PLANS
 
Stock Options
In
May 2017,
the shareholders approved the
2017
Stock Incentive Plan which authorized the issuance of
400,000
shares. There were
42,300
and
186,200
options granted during the years ended
December 31, 2020
and
2019,
respectively.
 
We estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the consolidated statements of operations over the requisite service periods. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures. We estimate forfeitures at the time of grant and revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
 
We used the Black-Scholes option-pricing model to calculate the fair value of option-based awards. Our determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are
not
limited to, our expected stock price, volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of our stock options. The expected volatility and holding period are based on our historical experience. For all grants, the amount of compensation expense recognized has been adjusted for an estimated forfeiture rate, which is based on historical data.
 
A summary of option activity as of and for the years ended
December 31, 2020
and
2019
as follows:
 
   
Shares
    
Weighted-
Average
Exercise Price
Per Share
    
Weighted-
Average
Remaining
Contractual
Term (in years)
    
Aggregate
Intrinsic Value
  
Outstanding – January 1, 2019
    
224,750
     $
3.44
      
 
      
 
  
Granted
    
186,200
      
4.31
      
 
      
 
  
Exercised
    
(2,250
 )    
(3.20
 )    
 
      
 
  
Cancelled
    
(36,500
 )    
(3.66
 )    
 
      
 
  
Outstanding – December 31, 2019
    
372,200
     $
3.85
      
8.57
     $
379
  
Granted
    
42,300
      
4.34
      
 
      
 
  
Exercised
    
(14,133
 )    
(3.78
 )    
 
      
 
  
Cancelled
    
(37,727
 )    
(3.37
 )    
 
      
 
  
Outstanding – December 31, 2020
    
362,640
     $
3.96
      
7.78
     $
1,164
  
Exercisable on December 31, 2020
    
150,840
     $
3.61
      
7.09
     $
537
  
 
There were
14,133
options exercised during the year ended
December 31, 2020
and
2,250
options exercised during the year ended
December 31, 2019.
Total compensation expense related to stock options for the years ended
December 31, 2020
and
2019
was
$68
and
$268,
respectively. As of
December 31, 2020,
there was
$335
of unrecognized compensation which will vest over the next
2.4
years.
 
Equity Appreciation Rights Plan
In
November 2010,
the Board of Directors approved the adoption of the Nortech Systems Incorporated Equity Appreciation Rights Plan (the
2010
Plan). The total number of Equity Appreciation Right Units (Units) the Plan can issue shall
not
exceed an aggregate of
1,000,000
Units as amended and restated on
March 11, 2015
and approved by the shareholders on
May 6, 2015.
The
2010
Plan provides that Units issued shall fully vest
three
years from the base date as defined in the agreement unless terminated earlier. Units give the holder a right to receive a cash payment equal to the appreciation in book value per share of common stock from the base date, as defined, to the redemption date. Unit redemption payments under this plan shall be paid in cash within
90
days after we determine the book value of the Units as of the calendar year immediately preceding the redemption date. The Units are adjusted to each reporting period based on the expected appreciation of the Units as defined in the Plan.
 
During the year-ended
December 31, 2020,
no
Units were granted. During the year-ended
December 31, 2019,
we granted a total of
100,000
Units with a vesting date of
December 31, 2021.
 
Total compensation expense related to the vested outstanding Units based on the estimated appreciation over their remaining terms was approximately
$108
and
$0
for the years ended
December 31, 2020
and
2019,
respectively.