Quarterly report pursuant to Section 13 or 15(d)

Capital Stock, Stock Plans and Stock-Based Compensation

Capital Stock, Stock Plans and Stock-Based Compensation

3 Months Ended

Mar. 31, 2018

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

Capital Stock, Stock Plans and Stock-Based Compensation

5.	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.

On January 18, 2018, the Company granted 6,000 options from the Company’s 2003 Outside Directors Stock Plan to a new director elected by the Company’s Board of Directors (“Board”) to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the options was $4.05 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Outside Directors Stock Plan.

On January 13, 2017, the Company granted 6,000 options from the Company’s 2003 Outside Directors Stock Plan to a new director elected by the Company’s Board to fill a vacancy left by 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 options 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.

The Company estimates 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. The fair value of the options granted on January 18, 2018 and January 13, 2017 as discussed above and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows:

	Outside Director Stock Options Granted
	January 18, 2018			January 13, 2017
Weighted-average fair value per option	$	2.55		$	2.63
Risk -free interest rate ⁽¹⁾		2.62	%		2.40	%
Expected volatility of stock ⁽²⁾		57.29	%		56.32	%
Dividend yield		None			None
Expected option life ⁽³⁾		10.0 years			10.0 years

⁽¹⁾	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.

⁽²⁾	The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.

⁽³⁾	The expected option life is based on historical exercises and post-vesting data.

The following table summarizes stock-based compensation recognized for the three months ended March 31, 2018 and 2017 for our employee and director stock options.

	Three Months Ended March 31,
Stock Options	2018		2017
Employee Stock Options	$	10,000	$	11,000
Director Stock Options		36,000		12,000
Total	$	46,000	$	23,000

At March 31, 2018, the Company has approximately $547,000 of total unrecognized compensation cost related to unvested options, of which $148,000 is expected to be recognized in remaining 2018, $126,000 in 2019, $114,000 in 2020, $114,000 in 2021, with the remaining $45,000 in 2022.

The summary of the Company’s total Stock Option Plans as of March 31, 2018 and March 31, 2017, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2010 and 2017 Stock Option Plans and the 2003 Outside Directors Stock Plan:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ⁽³⁾
Options outstanding January 1, 2018		624,800	$	4.42
Granted		6,000		4.05
Exercised		─		─
Forfeited/expired		─		─
Options outstanding end of period ⁽¹⁾		630,800	$	4.41		5.3	$	259,070
Options exercisable at March 31, 2018⁽¹⁾		191,467	$	6.13		4.7	$	46,970
Options exercisable and expected to be vested at March 31, 2018		630,800	$	4.41		5.3	$	259,070

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ⁽³⁾
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 ⁽²⁾		223,200		$	6.84		4.7	$	4,380
Options exercisable at March 31, 2017⁽²⁾		163,867		$	7.87		4.5	$	4,380
Options exercisable and expected to be vested at March 31, 2017		223,200		$	6.84		4.7	$	4,380

⁽¹⁾	Options with exercise prices ranging from $2.79 to $13.35

⁽²⁾	Options with exercise prices ranging from $2.79 to $14.75

⁽³⁾	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.

During the three months ended March 31, 2018, the Company issued a total of 16,074 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 $64,000 in compensation expenses (included in selling, general and administration expenses) in connection with the issuance of shares of its common stock to outside directors.