17.

Stockholders’ Equity

Stock Options

The Compensation Committee administers the stock-based plans. The exercise price for Incentive Stock Options (“ISO”) cannot be less than the fair value of the stock subject to the option on the grant date (

110%

of such fair value in the case of ISOs granted to a stockholder who owns more than

10%

of the Company’s Common Stock). The exercise price of a Non-Qualified Stock Options (“NQSO”) shall be fixed by the Compensation Committee at whatever price the Committee

may

determine in good faith. Unless the Committee determines otherwise, options beginning with the

2009

Plan generally had a

-year term with a

-year vesting schedule. Unless the Committee provides otherwise, options terminate upon the termination of a participant’s employment, except that the participant

may

exercise an option to the extent it was exercisable on the date of termination and for a period of time after termination. Officers, directors and employees of, and consultants to the Company, or any parent or subsidiary corporation selected by the Committee, are eligible to receive options under the Plan. Subject to certain restrictions, the Committee is authorized to designate the number of shares to be covered by each award, the terms of the award, the date on which and the rates at which options or other awards

may

be exercised, the method of payment, vesting and other terms.

June 8, 2018,

our shareholders approved the

2018

Stock Incentive Plan (

“2018

Plan”). The

2018

Plan authorizes the issuance of up to

300,000

shares of our common stock in the form of equity-based awards.

such shares were issued as of

December 31, 2018.

The Company has applied the Black-Scholes model to value stock-based awards. 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 the Company’s Common Stock. The risk-free rate of interest is the U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The expected volatility is based on historical volatility of the Company’s Common Stock.

The valuation assumptions we have applied to determine the value of stock-based awards were as follows:

Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility.

Risk-free interest rate: The Company bases the risk-free interest rate on the rate payable on US treasury securities in effect at the time of the grant, which varied between

2.2%

and

2.9%.

Expected life: The expected life of the option represents the period of time options are expected to be outstanding. The Company uses an expected life of

3.75

years.

Dividend yield: The estimate for dividend yield is

0%,

as the Company did

not

issue dividends during

2018

2017

and does

not

expect to do so in the foreseeable future.

Estimated forfeitures: When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.

The Company, at the discretion of the board,

may

issue options in excess of the total available, if options related to that stock plan are cancelled. In some cases,

not

all shares that are available to a stock plan are issued, as the Company is unable to issue options to a previous plan when a new plan is in place.

The Company’s pre-tax income for the fiscal year ended

December 31, 2018

and

2017

includes approximately

$172,000

and

$21,000,

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

December 31, 2018,

there is

$193,000

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

$92,000,

$56,000,

and

$32,000

to be recognized during

2019,

2020,

and

2021

respectively.

April

150,

2009,

the Board of Directors approved for adoption, and on

June 5, 2009,

the shareholders of the Company approved the

2009

Stock Incentive Plan (

“2009

Plan”). The

2009

Plan 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

December 31, 2017,

399,469

were outstanding, of which

26,788

were vested and

372,681

were

not

vested. Vesting is determined at time of grant. As of

December 31, 2018,

394,469

were outstanding, of which

88,589

were vested and

305,880

were

not

vested.

June 8, 2018,

our shareholders approved the

2018

Stock Incentive Plan (

“2018

Plan”). The

2018

Plan authorizes the issuance of up to

300,000

shares of our common stock in the form of equity-based awards.

options were exercised during the years ended

December 31, 2018

and

2017.

The following is a summary of the activity in the Company’s stock option plans and other options for the years ended

December 31, 2018

and

2017,

respectively:

	December 31, 2018					December 31, 201 7
				Weighted Avg.					Weighted Avg.
	Shares			Exercise Price		Shares			Exercise Price
Exercisable, beginning of period		103,463		$	5.38		83,275		$	5.20
Vested		66,801			3.67		37,138			5.70
Exercised		-			-		-			-
Cancelled/Expired		(5,000	)		5.76		(16,950	)		5.17
Exercisable at the end of period		165,264		$	4.05		103,463		$	5.38

	December 31, 2018					December 31, 2017
				Weighted Avg.					Weighted Avg.
	Shares			Exercise Price		Shares			Exercise Price
Outstanding, beginning of period		476,144		$	3.97		143,094		$	5.22
Granted		-			-		350,000			3.52
Exercised		-			-		-			-
Cancelled/Expired		(5,000	)		5.76		(16,950	)		5.17
Outstanding at the end of period		471,144		$	3.95		476,144		$	3.97

December 1, 2017,

pursuant to his offer of employment with the Company as President, Mr. Jeffrey Hyland was granted

25,000

shares of restricted stock (vesting over

four

years),

65,000

incentive stock options (vesting over

five

years) and

260,000

non-qualified options (vesting over

five

years).

December 31, 2018,

there were

300,000

options available to grant. The above represents instruments broadly referred to as options which include non-qualified stock options, incentive stock options, grants of restricted common stock, and similar instruments.

Subsequent to the reporting period, during

January 2019,

and as further described in Note

21,

the settlement of an arbitration proceeding resulted in the issuance of

20,000

shares of the Company’s common stock. An expense for the fair value of these shares was recorded as of

December 31, 2018

in the amount of approximately

$67,000.