12.

Stock Options and Award Programs

The Company’s stock incentive plan is administered by the Compensation Committee and authorizes the grant or award of incentive stock options, non-qualified stock options (NQSO), restricted stock awards (RSA), stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company has issued restricted stock awards and non-qualified stock option awards as described below.

Restricted Stock Awards

On November 18, 2010, the Company’s Compensation Committee granted Steve L. Komar and James T. McCubbin each an award of 250,000 shares of restricted stock of the Company, the vesting of which is based upon the earlier to occur of (a) the seventh anniversary date of the grant, or (b) an acceleration event as determined on the date of grant by the Compensation Committee and set forth in the award agreement with respect to such grant.

A summary of RSA activity as of and for the years then ended are set forth below:

	2016			2015
NON-VESTED AWARDS

Non-vested awards outstanding, January 1,		500,000			500,000
Vested (-)		250,000	(1)		—	(2)
Non-vested awards outstanding, December 31,		250,000			500,000

(1) The Company issued 209,438 shares of the Company’s common stock in connection with this accelerated vesting event, of which Mr. Komar received 125,000 shares and Mr. McCubbin received 84,438 shares. Mr. McCubbin received less than 125,000 shares because he elected to have 40,562 of such shares withheld in satisfaction of the corresponding tax liability of approximately $32,300. Shares withheld for tax withholding are considered treasury shares which were retired simultaneously with this transaction. The Company's payment of this tax liability was recorded as a cash flow from financing activity on the Condensed Consolidated Statements of Cash Flows.

(2) During fiscal 2015, there were no shares purchased by the Company for tax withholding or any other purpose.

The total intrinsic value of RSAs vested during the year ended December 31, 2016 was approximately $185,000. The intrinsic value of outstanding unvested RSAs as of December 31, 2016 was approximately $202,500.

Non-Qualified Stock Option Awards

During the year ended December 31, 2016 the Company granted 650,000 NQSOs to employees. The fair value of each these employee NQSOs were estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”). The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”), which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises.

Option pricing model assumptions for NQSO awards granted were valued using the following assumptions for the years then ended as set forth below:

	DECEMBER 31,
	2016	2015

Expected dividend yield	0%	0%
Expected volatility	68.0%-69.6%	66%-72%
Risk-free interest rate	1.4%-1.7%	0.9%-1.5%
Forfeiture rate	2.0%-3.0%	2.0%-3.0%
Expected life - Employees options	3-5 years	3-5 years
Expected life - Board of directors options	2-years	n/a

A summary of NQSO activity as of December 31, 2016 and 2015, and changes during the years then ended are set forth below:

	2016				2015
			Weighted				Weighted
			Average				Average
			Grant Date				Grant Date
NON-VESTED AWARDS	Shares		Fair Value		Shares		Fair Value

Non-vested balances, January 1,		841,672	$	0.80		1,340,838	$	0.57
Granted (+)		650,000	$	0.40		180,000	$	0.70
Cancelled (-)		25,000	$	0.72		250,000	$	0.39
Vested (-)		546,672	$	0.69		429,166	$	0.29
Non-vested balances, December 31,		920,000	$	0.59		841,672	$	0.80

	2016				2015
			Weighted				Weighted
			Average				Average
OUTSTANDING AND EXERCISABLE AWARDS	Shares		Exercise Price		Shares		Exercise Price

Awards outstanding, January 1,		1,857,668	$	0.91		2,791,601	$	0.83
Granted (+)		650,000	$	0.70		180,000	$	1.45
Cancelled (-)		417,000	$	0.83		250,000	$	0.74
Exercised (-)		-		-		863,933	$	0.81
Awards outstanding, December 31,		2,090,668	$	0.86		1,857,668	$	0.91

Awards vested and expected to vest, December 31,		1,964,739	$	0.87		1,857,668	$	0.91

Awards outstanding and exercisable, December 31,		1,170,668	$	0.82		1,015,668	$	0.68

There were no NQSOs exercised during the year ended December 31, 2016. The aggregate intrinsic value of NQSOs exercised (the amount by which the fair value of the Company’s stock exceeds the exercise price of the option) was $713,400 during the year ended December 31, 2015.

During the year ended December 31, 2016 there were 187,000 vested NQSOs that expired unexercised at the end of the option term and 230,000 vested NQSOs that were cancelled due to termination of employment.

No tax benefit has been associated with the exercise of stock options for the years ended December 31, 2016 and 2015, respectively, because of the existence of net operating loss carryforwards. There will be no credit to additional paid in capital for such until the associated benefit is realized through a reduction of income taxes payable.

The weighted-average remaining contractual life of the NQSOs outstanding, exercisable, and vested and expected to vest was 3.2 years, 2.4 years and 2.4 years, respectively, as of December 31, 2016.

Stock Compensation Expense

Share-based compensation recognized under ASC 718-10 (including restricted stock awards) represents both stock options based expense and stock grant expense. The Company recognized share-based compensation expense for the years then ended December 31 as set forth below:

	2016			2015

Restricted stock compensation expense	$	125,623	(1)	$	87,144
Non-qualified stock compensation expense		185,366			212,193

Total share-based compensation before taxes	$	310,989		$	299,337

(1) Fiscal 2016 includes $71,167 in additional compensation expense due to acceleration of unamortized RSA compensation expense associated with early vesting of 250,000 RSAs.

At December 31, 2016, the Company had approximately $34,500 of total unamortized RSA compensation expense, related to the remaining 250,000 unvested RSAs that will be recognized over the weighted average remaining period of 0.9 years. At December 31, 2016, the Company had approximately $274,400 of total unamortized compensation expense, net of estimated forfeitures, related to NQSOs that will be recognized over the weighted average period of 2.0 years.