Shareholders’

Equity

Repurchase Program

During the year ended

December 31, 2018,

the Company repurchased and retired

999,900

shares of its common stock for

$3,580,000.

During the year ended

December 31, 2017,

the Company repurchased and retired

1,232,476

shares of its common stock for

$4,226,000.

As of

December 31, 2018,

the Company had

$2,699,000

available to repurchase common shares under the repurchase program.

Option

ctivity

The

2004

Stock Option Plan (the

“2004

Plan”) is an equity compensation plan that provides for grants of both incentive stock options and non-qualified stock options to eligible individuals. The

2004

Plan is intended to recognize the contributions made to the Company by key employees of the Company, provide key employees with additional incentive to devote themselves to the future success of the Company and improve the ability of the Company to attract, retain and motivate individuals. The

2004

Plan also is intended as an incentive to certain members of the Board of Directors of the Company to continue to serve on the Board of Directors and to devote themselves to the future success of the Company.

The

2004

Plan provides for a total of

5,000,000

common shares eligible for issuance.

Under the

2004

Plan, approximately

4,639,750

options had been granted as of

December 31, 2018.

Under the

2004

Plan, option grants have a

three

-year vesting period and, since

2005,

expire

later than the

fifth

anniversary from the date of grant. The exercise price of the options is determined based on the fair market value of the stock on the date of grant.

The following table summarizes option activity for the years ended

December 31, 2018

and

2017:

				Weighted
				Average
				Exercise Price
	Shares			Per Option
Options outstanding, December 31, 2016		1,065,000			2.06
Granted to non-employee directors		85,000			3.83
Exercised		(111,669	)		1.88
Canceled/expired/forfeited		(153,333	)		1.58
Options outstanding, December 31, 2017		884,998			2.26
Granted to employees and directors		349,750			3.27
Exercised		(211,835	)		1.86
Canceled/expired/forfeited		-			-
Options outstanding, December 31, 2018		1,022,913			2.69
Options exercisable, December 31, 2018		406,835			2.30

Stock options to purchase

1,022,913

and

884,998

shares of common stock were outstanding as of

December 31, 2018

and

2017,

respectively. All except

145,000

and

130,000

of the stock options, which were anti-dilutive, were included in the computation of the weighted-average number of dilutive common shares outstanding for the years ended

December 31, 2018

and

2017.

The fair values of the share-based compensation awards granted were estimated using the Black-Scholes option-pricing model with the following assumptions and weighted average fair values:

	Stock Options
	For the Years Ended December 31,
	2018			2017
Exercise price	$	3.27		$	3.83
Risk-free interest rate		2.73	%		2.13	%
Expected volatility		57.75	%		58.38	%
Expected life in years		4.25			4.25
Dividend rate		-			-
Black-Scholes fair value	$	1.57		$	1.81

The Company used the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected term of the options. The risk-free interest rate for periods consistent with the expected term of the award is based on the U.S. Treasury rates in effect at the time of grant. The expected volatility is based on historical volatility. The Company uses an estimated dividend payout ratio of zero, as the Company has

not

paid dividends in the past and, at this time, does

not

expect to do so in the foreseeable future. The Company accounts for option forfeitures as they occur.

The following table summarizes information about stock options as of

December

31,

2018:

			Options Outstanding								Options Exercisable
Range of Exercise Prices			Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Life (in years)		Aggregate Intrinsic Value		Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Life (in years)		Aggregate Intrinsic Value
$1.58	-	$3.90		1,022,913	$	2.69		3.21	$	1,047,000		406,835	$	2.30		2.57	$	573,000

The intrinsic value is the amount by which the market value of the underlying common stock exceeds the exercise price of the respective stock options. The aggregate intrinsic value of stock options exercised during the years ended

December 31, 2018

and

2017

was

$356,000

and

$177,000,

respectively.

As of

December 31, 2018,

$648,000

of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted-average remaining period of

1.81

years. Cash received from

211,835

options exercised for the year ended

December 31, 2018

was

$394,000.

Dividends

The holders of the Company’s common stock are entitled to receive such dividends as

may

be declared by the Board of Directors of the Company from time to time to the extent that funds are legally available for payment thereof. The Company has never declared or paid any dividends on any of its outstanding shares of common stock. The Board of Directors’ current policy is

not

to pay dividends but rather to use available funds to repurchase common shares in accordance with the Company’s repurchase program and to fund the continued development and growth of the Company. Consequently, the Company currently has

plans to pay cash dividends in the foreseeable future.