Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  

2015 Equity Incentive Plan. During the second quarter of 2017, our stockholders approved an amendment to the 2015 Equity Incentive Plan (“2015 Plan”) that increased the number of shares of common stock available for issuance under the 2015 Plan from 1,400,000 to 2,500,000. In addition to the increase in the number of authorized shares issuable under the 2015 Plan, the amendment included several “best practices” changes. The 2015 Plan includes new shares reserved for issuance to directors, employees and consultants and allows for a variety of forms of awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and performance-based compensation. Stock option awards have maximum 10-year terms and all awards issued thus far do not vest on an accelerated basis if there is a change in control of the Company, unless the awards are not assumed by the successor, as defined.

In May 2017, the Company extended the employment agreement of Daniel R. Lee, the Company’s President and Chief Executive Officer, through November 2020 and simultaneously issued him an option to purchase 240,000 shares of common stock under the 2015 Plan with an exercise price of $2.32. Mr. Lee’s option will vest ratably on a monthly basis between December 1, 2018 and November 30, 2020 in conjunction with his amended employment agreement. In September 2018, the Company issued options to purchase a total of 110,000 additional shares of common stock under the 2015 Plan to various other employees of the Company, all of which have an exercise price of $2.83. These stock options all vest in equal amounts over the next three years. In all cases, the exercise price of the options reflects the Company’s closing price on the date of grant.

In May 2018, the Company also issued to non-executive members of its Board of Directors, as compensation for their annual service, options to purchase a total of 42,000 shares of common stock under the 2015 Plan with an exercise price of $3.35 and a one-year vesting period; and 17,910 shares of common stock under the 2015 Plan that vested immediately with certain transfer restrictions.

As of December 31, 2018, we had 902,059 share-based awards authorized by shareholders and available for grant from the 2015 Plan.

Prior to the adoption of the 2015 Plan and outside of the 2006 Plan, in order to recruit our executive officers, we issued a non-qualified stock option to purchase 943,834 shares to Daniel R. Lee, our President and Chief Executive Officer, and a non-qualified stock option to purchase 300,000 shares to Lewis Fanger, our Senior Vice President, Chief Financial Officer and Treasurer. Messrs. Lee and Fanger’s stock options vested with respect to 25% of the shares on the first anniversary of their respective grant dates, and continue to vest with respect to an additional 1/48th of the shares on each monthly anniversary thereafter.

Stock Options. The following table summarizes information related to our common stock options:
of Stock
Exercise Price
Weighted Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value
Options outstanding at January 1, 2018








Options outstanding at December 31, 2018



Options exercisable at December 31, 2018



Compensation Cost.  Compensation expense for the years ended December 31, 2018 and 2017 was $0.6 million and $0.5 million, respectively. These costs are recognized on a straight-line basis over the vesting period of the awards net of forfeitures and are included in selling, general and administrative expense on the consolidated statements of operations.

As of December 31, 2018, there was approximately $0.4 million of unrecognized compensation cost related to unvested stock options granted by the Company. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.9 years.

We estimated the fair value of each stock option award on the grant date using the Black-Scholes valuation model. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate. Option valuation weighted-average assumptions were as follows:
For the year ended December 31,
Expected volatility
Expected dividend yield
Expected term (in years)
Weighted average risk free rate

The weighted-average grant date fair value of options granted during the years ended December 31, 2018 and 2017 was $1.34 and $1.02 per share, respectively.

Expected volatility is based on the historical volatility of our stock price.  Dividend yield is based on the estimate of annual dividends expected to be paid at the time of the grant. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior.  The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award.