Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Capital Stock, Stock Plans and Stock-based Compensation

Note 4 - Capital Stock, Stock Plans and Stock-based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4.	Capital Stock, Stock Plans and Stock-Based Compensation

The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors.

January 13, 2017,

the Company granted

6,000

non-qualified stock options (“NQSOs”) from the Company’s

2003

Outside Directors Stock Plan to a new director elected by the Company’s Board of Directors (“Board”) to fill the vacancy left by Mr. Jack Lahav who retired from the Board in

October 2016.

The options granted were for a contractual term of

ten

years with a vesting period of

six

months. The exercise price of the NQSO was

$3.79

per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the

2003

Outside Directors Stock Plan.

May 15, 2016,

the Company granted

50,000

incentive stock options (“ISOs”) from the Company’s

2010

Stock Option Plan to our Executive Vice President (“EVP”)/Chief Operating Officer (“COO”). The ISOs granted were for a contractual term of

six

years with

one

third

yearly vesting over a

three

year period. The exercise price of the ISO was

$3.97

per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

The summary of the Company’s total Stock Option Plans as of

June 30, 2017,

as compared to

June 30, 2016,

and changes during the periods then ended, are presented below. The Company’s Plans consist of the

2010

Stock Option Plan and the

2003

Outside Directors Stock Plan:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (2)
Options outstanding January 1, 2017		247,200		$	6.69
Granted		6,000			3.79
Exercised		─			─
Forfeited/expired		(30,000	)		5.00
Options outstanding end of period (1)		223,200		$	6.84		4.5	$	13,080
Options exercisable at June 30, 2017 (1)		180,534		$	7.51		4.3	$	13,080
Options exercisable and expected to be vested at June 30, 2017		223,200		$	6.84		4.5	$	13,080

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (2)
Options outstanding January 1, 2016		218,000	$	7.65
Granted		50,000		3.79
Exercised		─		─
Forfeited/expired		─		─
Options outstanding end of period (1)		268,000	$	6.96		4.6	$	134,102
Options exercisable at June 30, 2016 (1)		181,533	$	8.18		4.4	$	74,802
Options exercisable and expected to be vested at June 30, 2016		254,883	$	7.10		4.6	$	125,230

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield.

	Outside Director Stock Options Granted
	January 13, 2017
Weighted-average fair value per option	$	2.63
Risk -free interest rate (1)		2.40%
Expected volatility of stock (2)		56.32%
Dividend yield		None
Expected option life (years) (3)		10.0

	Employee Stock Option Granted
	May 15, 2016
Weighted-average fair value per share	$	2.00
Risk -free interest rate (1)		1.27%
Expected volatility of stock (2)		53.12%
Dividend yield		None
Expected option life (years) (3)		6.0

(

)

The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.

(

)

The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.

(

)

The expected option life is based on historical exercises and post-vesting data.

The following table summarizes stock-based compensation recognized for the

three

and

six

months ended

June 30, 2017

and

2016

for our employee and director stock options.

	Three Months Ended				Six Months Ended
Stock Options	June 30,				June 30,
	2017		2016		2017		2016
Employee Stock Options	$	11,000	$	17,000	$	21,000	$	31,000
Director Stock Options		8,000		—		20,000		14,000
Total	$	19,000	$	17,000	$	41,000	$	45,000

As of

June 30, 2017,

the Company has approximately

$64,000

of total unrecognized compensation cost related to unvested options, of which

$18,000

is expected to be recognized in remaining

2017,

$33,000

2018,

with the remaining

$13,000

2019.

During the

six

months ended

June 30, 2017,

the Company issued a total of

28,964

shares of its common stock under the

2003

Outside Directors Stock Plan to its outside directors as compensation for serving on our Board. The Company has recorded approximately

$110,000

in compensation expenses for the

six

months ended

June 30, 2017 (

included in selling, general and administration expenses) in connection with the issuance of shares of its common stock to outside directors.