Note 3. Stock-based Compensation

In June 2010, the Company’s shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the Incentive Compensation Plan (the “Plan”), and among other things, increasing the number of shares of the Company’s common stock reserved for issuance under the Plan to 1,630,000. The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non-employee directors, and advisors. The Plan is a successor to the Company’s previous plans, and any shares awarded and outstanding under those plans were transferred to the Plan. No further grants or share issuances will be made under the previous plans. On June 27, 2017, the Company’s shareholders approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years to February 22, 2020.

Stock-based compensation expense associated with the Company’s stock options to employees is calculated using the Black-Scholes valuation model. The Company’s stock awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimates. The estimated fair value of the Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest rate which are specific to each award. The estimated fair value of the Company’s options is amortized over the period during which an employee is required to provide service in exchange for the award (requisite service period), usually the vesting period. Accordingly, stock-based compensation cost before income tax effect for the Company’s options and restricted stock awards, in the amount of $58,000 and $158,000 is reflected in net income for the three and nine-month periods ended September 30, 2017 compared to $42,000 and $161,000 in the same periods prior year, respectively. At September 30, 2017, there was approximately $330,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, excluding the unrecognized compensation cost associated with the Award Agreements, discussed below. This cost is expected to be recognized over a period of approximately three years.

On January 4, 2017, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award Agreements”) for 161,766 restricted stock awards which vest upon the achievement of certain performance metrics. The Award Agreements expire on March 31, 2020. Based on the guidance in ASC 718 Stock Compensation (“ASC 718”), the Company concluded these were performance-based awards with vesting criteria tied to performance metrics and that as of September 30, 2017 it is not probable that any of the required metrics for vesting will be achieved. As a result, the Company has not recognized any stock-based compensation expense associated with these awards for the three and nine-month periods ended September 30, 2017. The unrecognized stock-based compensation expense for these awards was approximately $542,000 as of September 30, 2017. If and when the Company determines that the performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount and the remaining unrecognized amount will be recorded over the remaining requisite service period of the awards.

The following table summarizes restricted stock awards, consisting primarily of annual automatic grants and deferred compensation to non-employee directors, for the nine-month period ended September 30, 2017:

	Restricted Stock Awards		Grant Date Weighted- Average Fair Value		Intrinsic Value
Outstanding at January 1, 2017		4,000	$	2.25	$	-
Granted		22,000	$	3.47	$	-
Vested		(17,000)	$	3.16	$	-
Forfeited		-	$	-	$	-
Outstanding at September 30, 2017		9,000	$	3.58	$	-

The following table summarizes stock option activity for the nine-month period ended September 30, 2017:

	Stock Options		Grant Date Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)		Intrinsic Value
Outstanding at January 1, 2017		625,000	$	2.85		4.25	$	-
Granted		19,000	$	3.62		6.80	$	-
Exercised		(4,000)	$	2.81		-	$	-
Forfeited		(23,000)	$	2.82		-	$	-
Outstanding at September 30, 2017		617,000	$	2.87		3.63	$	-
Exercisable at September 30, 2017		300,000	$	2.82		3.43	$	9,000