Shareholders' Equity

12 Months Ended

Dec. 31, 2018

Stockholders' Equity Note [Abstract]

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 and comprehensive loss for the years ended December 31, 2018 and 2017:

Year ended December 31	2018		2017
Cost of sales	$	11,000	$	52,000
Selling		102,000		75,000
Marketing		71,000		51,000
General and administrative		226,000		209,000
	$	410,000	$	387,000

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

	2018			2017
Stock Options:
Expected life (years)		6.5			2.0
Expected volatility		51	%		46	%
Dividend yield		0	%		0	%
Risk-free interest rate		2.8	%		1.0	%

	2018			2017
Stock Purchase Plan Options:
Expected life (years)		1.0			1.0
Expected volatility		66	%		51	%
Dividend yield		0	%		0	%
Risk-free interest rate		1.8	%		0.9	%

The Company uses the graded attribution method to recognize expense for unvested stock-based awards. The amount of stock-based compensation recognized during a period is based on the value of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company re-evaluates the forfeiture rate annually and adjusts it as necessary.

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. The 2013 Plan had replaced the 2003 Plan upon its ratification by shareholders in 2013. 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 900,000 plus any shares remaining available for future grants under the 2013 Plan on the effective date of the 2018 Plan. Since August 2018, all equity awards have been made 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.

On November 28, 2016, our Board of Directors amended the 2003 Plan and the 2013 Plan to permit equitable adjustments to outstanding awards in the event of an extraordinary cash dividend. On March 28, 2017, the Board of Directors approved the modification of all outstanding stock option awards to provide option holders with substantially equivalent economic value after the effect of the dividend. The modification resulted in the issuance of options to purchase 150,476 additional shares. Total stock-based compensation expense for the modifications was approximately $79,000, which was recorded during the 12 months ended December 31, 2017.

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, 2017		501,622			419,162		$	3.18
Shares reserved		—			—
Options granted for modification		(61,814	)		150,474
Stock awards granted		(72,115	)		—
Restricted stock units and awards granted		(203,424	)		—
Stock options granted		—			—
Stock options exercised		—			—
Cancelled or forfeited - 2013 Plan options		103,349			(103,349	)		2.20
Cancelled or forfeited - 2013 Plan   restricted stock and restricted stock units		29,382			—			2.01
Cancelled or forfeited - 2003 Plan options		—			(99,941	)		2.20
Balance at December 31, 2017		297,000			366,346			2.41
Shares reserved		900,000			—
Restricted stock units and awards granted - 2013 Plan		(178,000	)		—
Restricted stock units and awards granted - 2018 Plan		(165,667	)		—
Stock options granted - 2018 Plan		(119,515	)		119,515			1.95
Stock options exercised		—			(2,276	)		1.18	$	705
Cancelled or forfeited - 2013 Plan options		51,230			(51,230	)		2.17
Cancelled or forfeited - 2013 Plan   restricted stock and restricted stock units		39,884			—			1.22
Cancelled or forfeited - 2003 Plan options		—			(59,428	)		2.09
Balance at December 31, 2018		824,932			372,927			2.36

The number of options exercisable under the Plans was:

December 31, 2018	253,412
December 31, 2017	366,346

The following table summarizes information about the stock options outstanding at December 31, 2018:

	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
$	1.18 - $2.04		179,620		7.73 years	$	1.77		60,105	$	1.4
$	2.05 - $3.09		144,125		3.43 years		2.52		144,125		2.52
$	4.02		49,182		1.4 years		4.02		49,182		4.02
			372,927		5.23 years	$	2.36		253,412	$	2.55

Options outstanding under the Plans expire at various dates during the period from May 2019 through August 2028. Options outstanding at December 31, 2018 had an aggregate intrinsic value of $12,779. Options exercisable at December 31, 2018 had a weighted average remaining life of 3.15 years and an aggregate intrinsic value of $12,779. The weighted average grant-date fair value of options granted during the year ended December 31, 2018 was $1.04. No options were granted in 2017.

During the year ended December 31, 2018, the Company issued 297,515 restricted stock units under the 2013 Plan and the 2018 Plan. The shares underlying the awards were assigned a weighted average value of $1.84 per share, which was the closing price of our common stock on the date of grants. These awards are scheduled to vest over three years or four years with the first vesting at the end of year two. During the year ended December 31, 2017, the Company issued 143,424 restricted stock units under the 2013 Plan. The shares underlying the awards made in 2017 were assigned weighted average values of $1.13 per share based on the closing price of our common stock on the applicable dates of grant and are scheduled to vest over two years.

During the year ended December 31, 2018, no restricted stock was issued. During the year ended December 31, 2017, the Company issued 60,000 shares of restricted stock under the 2013 Plan. The shares underlying the awards were assigned a value of $1.09 per share, which was the closing price of our common stock on the date of grant and are scheduled to vest over the two years.

During July 2018, non-employee members of the Board of Directors received restricted stock grants totaling 46,152 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $1.95 per share, which was the closing price of our common stock on the date of grants, for a total value of $90,000, and are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting. During June 2017, non-employee members of the Board of Directors received grants totaling 72,115 fully vested shares of common stock pursuant to the 2013 Plan. The shares were assigned a value of $1.04 per share, based on the closing price on the grant date, for a total value of $75,000, which is included in stock-based compensation expense for the year ended December 31, 2018.

Restricted stock and restricted stock unit transactions during the years ended December 31, 2018 and 2017 are summarized as follows:

	Number of Shares			Weighted average grant date fair value
Unvested shares at January 1, 2017		204,875		$	2.16
Granted		203,424			1.12
Vested		(56,438	)		1.05
Forfeited or surrendered		(29,382	)		2.01
Unvested shares at December 31, 2017		322,479		$	1.69
Granted		343,667			1.86
Vested		(132,940	)		1.47
Forfeited or surrendered		(39,884	)		1.22
Unvested shares at December 31, 2018		493,322		$	1.90

As of December 31, 2018, there was approximately $107,000 of total unrecognized compensation costs related to outstanding stock options, which is expected to be recognized over a weighted average period of 3.61 years.

As of December 31, 2018, there was approximately $549,000 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 1.89 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. As of the most recent amendment and restatement of the ESPP approved by shareholders on July 20, 2018, 300,000 shares were added to the total pool of shares available under the ESPP. During the year ended December 31, 2018, employees purchased 107,341 shares under the ESPP. During the year ended December 31, 2017, employees purchased 48,320 shares under the ESPP. At December 31, 2018, 278,380 shares were reserved for future employee purchases of common stock under the ESPP. For the years ended December 31, 2018 and 2017, the Company recognized $58,000 and $29,000, respectively, of stock-based compensation expense related to the ESPP.

Share Repurchase Programs. On April 5, 2018, the Board authorized the repurchase of up to $3,000,000 of the Company’s common stock on or before March 31, 2020. The plan allowed the repurchases to be made in open market or privately negotiated transactions. The plan did not obligate the Company to repurchase any particular number of shares and may be suspended at any time at the Company’s discretion.

For the year ended December 31, 2018, the Company repurchased approximately 164,000 shares at a total cost of approximately $298,000.

Dividends. We have not historically paid dividends, other than one-time dividends declared in 2011 and 2016. On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016, paid on January 6, 2017. Outside of these special dividends, the Board of Directors intends to retain earnings for use in the Company’s business and does not anticipate paying cash dividends in the foreseeable future.