Stock-Based Compensation and Stock Options

The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s consolidated statements of income.

In January 2012, the Company granted certain executives stock options to purchase 100,000 shares of common stock with an exercise price of $28.98, of which 25,000 options vest and become exercisable annually starting on January 23, 2013. The options expire in January 2022. During 2014, 25,000 options were canceled and 25,000 options were forfeited upon the departure of an executive. As of December 31, 2017, 50,000 of the options were vested and outstanding.

In September 2015, the Company granted an executive stock options to purchase 400,000 shares of common stock with an exercise price of $8.07, of which 50,000 options became exercisable quarterly starting March 31, 2016. The options expire in September 2025. As of December 31, 2017, 400,000 options were vested and outstanding.

In March 2016, the Company granted certain executives stock options to purchase 150,000 shares of common stock with an exercise price of $8.55, of which 37,500 options vest and become exercisable annually starting on March 7, 2017. The options expire in March 2026. In 2017, 37,500 options were forfeited and 12,500 options were canceled upon the departure of an executive and the compensation expense of $19,000 was reversed. As of December 31, 2017, 100,000 options were outstanding and 25,000 options of these options were vested.

In October, 2017, the Company granted an executive stock options to purchase 400,000 shares of common stock with an exercise price of $6.95, of which 50,000 shares are exercisable quarterly starting March 31, 2018 and ending on December 31, 2019. The options expire in October 2027. As of December 31, 2017, 400,000 options were outstanding and none options of these options were vested.

The Company recorded $1.0 million, $933,000 and $401,000 of stock-based compensation in general and administrative expenses for fiscal years 2017, 2016 and 2015, respectively.

The Company utilized the Black-Scholes option pricing model to value the stock options granted in 2016, 2015 and 2012. The Company used an expected life as defined under the simplified method, which is using an average of the contractual term and vesting period of the stock options. The risk-free interest rate used for the award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company accounted for forfeitures as they occur. The historical volatility was calculated based upon implied volatility of the Company's historical stock prices.

The fair value of 2017, 2016 and 2015 stock options was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:




	2017			2016			2015
Weighted-average fair value of options granted per share	$	3.11		$	4.73		$	4.42
Historical volatility	46		%	58		%	59		%
Risk-free interest rate	2.06		%	1.38		%	1.73		%
Dividend yield	—			—			—
Expected life in years	5.65			6.25			5.75

As of December 31, 2017, there was approximately $1.1 million of unrecognized stock-based compensation expense related to outstanding 2017 stock options, expected to be recognized over 2 year, and approximately $258,000 of unrecognized stock-based compensation expense relating to outstanding 2016 stock options. This amount is expected to be recognized over 2.2 years. There was no unrecognized stock-based compensation expense relating to 2015 and 2012 stock options grants.

Option activities during the years ended December 31, 2015, 2016, and 2017 were as follows:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
						(In thousands)
Outstanding at January 1, 2015	425,000		$	19.20	5.79 years	$	—
Option Granted	400,000		$	8.07
Options forfeited and canceled	(50,000	)	$	29.58
Outstanding at December 31, 2015	775,000		$	12.78	5.53 years	$	120
Option Granted	150,000		$	8.55
Options forfeited and canceled	(325,000	)	$	16.09
Outstanding at December 31, 2016	600,000		$	9.93	8.55 years	$	—
Option Granted	400,000		$	6.95
Options forfeited and canceled	(50,000	)	$	8.55
Outstanding at December 31, 2017	950,000		$	8.75	8.48 years	$	—
Exercisable and fully vested at December 31, 2017	475,000		$	10.30	7.38 years	$	—
Outstanding at December 31, 2017 and expected to vest thereafter	475,000		$	7.20	9.58 years	$	—

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of years ended December 31, 2017, 2016 and 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2017, 2016, and 2015. This amount changes based on the fair value of the Company’s stock. The Company’s policy is to issue shares from the authorized shares to fulfill stock option exercises.

Outstanding options at December 31, 2017 were as follows:



Exercise Price		Shares Outstanding	Options Outstanding Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Shares Outstanding and Exercisable	Options Exercisable Weighted-Average Remaining Contractual Life
$	28.98	50,000	4.07 years	$	28.98	50,000	4.07 years
$	8.07	400,000	7.75 years	$	8.07	400,000	7.75 years
$	8.55	100,000	8.19 years	$	8.55	25,000	8.19 years
$	6.95	400,000	9.84 years	$	6.95	—	9.84 years