Note

- Stock-Based Compensation; Changes in Equity

The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic

718

which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.

The Company has applied the Black-Scholes model to value stock-based awards and issued warrants related to notes payable. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be

0%,

as the Company did

not

issue dividends during

2018

and

2017.

The expected volatility is based on historical volatility of the Company’s common stock.

The Company’s net loss for the

three

months ended

March 31, 2018

and

2017

includes approximately

$62,000

and

$5,000,

respectively, of compensation costs related to share based payments. As of

March 31, 2018,

there is

$302,000

of unrecognized compensation expense related to non-vested stock option grants and stock grants. We expect approximately

$110,000

of additional stock-based compensation expense to be recognized over the remainder of

2018,

$92,000

to be recognized during

2019,

and

$56,000

to be recognized during

2020.

April 10, 2009,

the Board of Directors approved for adoption, and on

June 5, 2009,

the shareholders of the Corporation approved, a

2009

Stock Incentive Plan (

“2009

Plan”). The

2009

Plan and subsequent awards categorized as inducement of employment authorized the issuance of up to

510,000

shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.) As of

March 31, 2018,

all underlying awards had been granted and options for

471,144

shares remain outstanding.

A summary of the Company’s stock option activity, which includes grants of restricted stock, non-qualified stock options, incentive stock options, warrants and related information, is as follows:

	Shares under Option			Weighted Average Exercise Price
Balance at December 31, 2017		476,144		$	3.97
Granted		-			-
Cancelled/Expired		-			-
Exercised/Issued		(5,000	)		-
Outstanding at March 31, 2018		471,144		$	4.01

Exercisable at March 31, 2018		103,463		$	5.38

The instruments above have an aggregate intrinsic value of

$37,000,

which represents the total pre-tax intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended

March 31, 2018

and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on

March 31, 2018.