6.	EQUITY AND STOCK COMPENSATION PLANS

Fixed Stock Option Plan – We have one active fixed stock option plan which is our 2001 Nonqualified Stock Plan (“2001 Plan”). We are authorized to grant nonqualified stock options, stock appreciation rights and stock awards to our employees and directors for up to 8,000,000 shares of common stock under this plan. As of December 31, 2016, there were 4,850,662 shares available for grant under the 2001 Plan.

Options are granted at exercise prices as determined by the Board of Directors and have terms ranging from four to a maximum of ten years. Options generally vest over three to five years.

The following table presents stock-based employee compensation expenses included in our consolidated statements of income and comprehensive income (in thousands):

	Years ended December 31,
	2016		2015		2014
Cost of services	$	10	$	28	$	44
Research and development		86		89		106
Selling and marketing		11		13		17
General and administrative		451		559		748
Stock-based compensation expense	$	558	$	689	$	915

Stock-based compensation expense in the preceding table includes expenses associated with grants of: i) stock options; and iii) unrestricted shares of our common stock. The methods used to determine stock-based compensation expense for each type of equity grant are described in the following paragraphs.

Stock Option Grants. We did not grant any stock options in the years ended December 31, 2016, 2015 and 2014. When we grant stock options we estimate the fair value of those stock options using the Black-Scholes valuation model. The Black-Scholes valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions. The assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield. We do not estimate our forfeiture rates as the actual forfeiture rate is known at the end of each reporting period due to the timing of our stock option vesting.

Unrestricted Stock Grants. Our 2001 Plan permits us to grant shares of unrestricted stock to our directors, officers, and employees. Stock-based compensation expense for stock grants is determined based on the fair market value of our stock on the date of grant; provided the number of shares in the grant is fixed on the grant date. We granted 152,000, 152,000, and 152,000 shares of unrestricted stock during the years ended December 31, 2016, 2015, and 2014, respectively.

The accounting treatment of unrestricted stock awards in 2016, 2015 and 2014 is described below:

Year ended December 31, 2016. In March 2016, we granted 152,000 shares of unrestricted stock to directors, officers and employees. The shares were issued in two equal installments shortly after June 30, 2016 and December 31, 2016. We expensed $558,000 of stock-based compensation expense related to this grant in the year ended December 31, 2016. There was no unamortized stock-based compensation charge associated with this stock grant as of December 31, 2016.

We issued shares of common stock related to the March 2016 grant as follows: i) 58,902 net shares of common stock were issued in early July 2016 after employees surrendered 17,098 shares for which we paid $74,000 of withholding taxes on their behalf; and ii) 56,443 net shares of common stock were issued in early January 2017 after employees surrendered 19,557 shares for which we paid $119,000 of withholding taxes on their behalf.

Year ended December 31, 2015. In March 2015, we granted 152,000 shares of unrestricted stock to directors, officers and employees. The shares were issued in two equal installments shortly after June 30, 2015 and December 31, 2015. We expensed $682,000 of stock-based compensation expense related to this grant in the year ended December 31, 2015. There was no unamortized stock-based compensation charge associated with this stock grant as of December 31, 2015.

We issued shares of common stock related to the March 2015 grant as follows: i) 58,862 net shares of common stock were issued in early July 2015 after employees surrendered 17,138 shares for which we paid $69,000 of withholding taxes on their behalf; and ii) 57,151 shares of common stock were issued in early January 2016 after employees surrendered 18,849 shares for which we paid $61,000 of withholding taxes on their behalf.

Year ended December 31, 2014. In March 2014, we granted 152,000 shares of unrestricted stock to directors, officers and employees. The shares were issued in two equal installments shortly after June 30, 2014 and December 31, 2014. We expensed $876,000 of stock-based compensation expense related to this grant in the year ended December 31, 2014. There was no unamortized stock-based compensation charge associated with this stock grant as of December 31, 2014.

We issued shares of common stock related to the March 2014 grant as follows: i) 58,769 net shares of common stock were issued in early July 2014 after employees surrendered 17,231 shares for which we paid $113,000 of withholding taxes on their behalf; and ii) 56,804 shares of common stock were issued in early January 2015 after employees surrendered 19,196 shares for which we paid $87,000 of withholding taxes on their behalf.

A summary of stock option transactions for our fixed stock option plan for the years ended December 31, 2016, 2015, and 2014 are presented below:

	2016				2015					2014
	Shares		Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		86,202	$	4.37		106,202		$	4.71		1,004,989		$	5.68
Granted		-		-		-			-		-			-
Exercised		-		-		-			-		(117,783	)		3.98
Forfeited or cancelled		-		-		(20,000	)		6.18		(781,004	)		6.07
Outstanding at end of year		86,202	$	4.37		86,202		$	4.37		106,202		$	4.71

Exercisable at year end		86,202	$	4.37		86,202		$	4.37		104,117		$	4.69

Total options outstanding at December 31, 2016 were 86,202. All of those options were vested and had a weighted average exercise price of $4.37.

No stock options were granted in the years ended December 31, 2016, 2015 and 2014. No options were exercised in the years ended December 31, 2016 and 2015.

At December 31, 2016, the weighted average remaining contractual term for total options outstanding and total options exercisable was approximately 1.1 years for each.

At December 31, 2016, the aggregate intrinsic value of options outstanding and options exercisable was $149,000 for each. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The following table summarizes the stock options outstanding at December 31, 2016:

	Options Outstanding						Options Exercisable
Exercise Price Range	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Number		Weighted Average Exercise Price
$2 to $3		18,000	$	2.52		2.38		18,000	$	2.52
$3 to $4		14,168		3.57		.82		14,168		3.57
$4 to $5		33,200		4.64		.93		33,200		4.64
$6 to $7		20,834		6.10		.36		20,834		6.10
		86,202	$	4.37		1.08		86,202	$	4.37

At December 31, 2016, there was no unrecognized compensation expense related to non-vested stock options as there were no non-vested stock options.

We issue common stock from previously authorized but unissued shares to satisfy option exercises and purchases under our Employee Stock Purchase Plan.

Employee Stock Purchase Plan - In June 1996, we adopted an Employee Stock Purchase Plan (the “ESPP Plan”) under which eligible employees could purchase common stock at a price equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six-month offering period. On November 29, 2005 we amended the ESPP Plan to provide that eligible employees may purchase common stock at a price equal to 95% of the fair market value of the common stock as of the end of each six-month offering period. There is no stock-based compensation expense related to our Employee Stock Purchase Plan because it is not considered a compensatory plan. The plan does not have a look-back feature, and has a minimal discount of 5% of the fair market value of the common stock as of the end of each six-month offering period. Participation in the ESPP Plan is limited to 6% of an employee’s compensation, may be terminated at any time by the employee and automatically ends on termination of employment. A total of 350,000 shares of common stock have been reserved for issuance. As of December 31, 2016 there were 79,903 shares available for future issuance under the ESPP Plan. We issued 9,473, 11,561, and 8,022 common shares under the ESPP Plan in 2016, 2015, and 2014, respectively.

Share Purchases - On April 26, 2016, we announced that our Board of Directors had approved a program authorizing the Company to purchase up to $10 million of our common stock. The shares may be purchased from time to time in the open market or through privately negotiated transactions at management’s discretion, depending upon market conditions and other factors. The authorization to repurchase our stock expires on December 31, 2017. We repurchased 690,801 shares for a total cost of $3.7 million during the year ended December 31, 2016.

Dividends – We did not pay dividends in the years ended December 31, 2016 and 2015. In the year ended December 31, 2014, our board of directors declared a special cash dividend of $1.75 per share. The dividend was paid on July 24, 2014 to shareholders of record as of July 10, 2014. The total dividend payment was $39.9 million.