NOTE 6 — STOCK OPTIONS

In 2012, the Company’s Board of Directors approved the 2012 Omnibus Incentive Plan (the “Plan”) which allows for the granting of stock options, stock appreciation rights, awards of restricted stock and restricted stock Units, stock bonuses and other cash and stock-based performance awards. A total of 970,350 shares of common stock have been approved and reserved for issuance under the Plan, which includes a 600,000 share increase approved by the Company’s stockholders in May 2016. During the three months ended March 31, 2017 and 2016, no options were granted under the Plan. There were 234,949 and 778,949 shares of common stock available to grant as options or restricted stock at March 31, 2017 and December 31, 2016, respectively.

Concurrent to the Offering, 10,000 shares of restricted stock were granted to each of the Company’s four outside directors. In January 2017, an additional 5,000 shares were granted to three of the directors. Also in January 2017, 175,000 shares of restricted stock were issued to the Company’s CEO fully vested and the Company recognized $266,000 of stock-based compensation during the three months ended March 31, 2017. Also in January 2017, an additional 435,000 shares of restricted stock were granted to officers and other employees of the Company. Of these grants, 50,000 shares vest over three years from date of grant, 375,000 shares fully vest after one year from date of grant and 10,000 shares were immediately vested.

Also granted on the effective date of the Offering were previously approved options to acquire 16,834 and 33,668 common shares at an exercise price per share of $4.50 to David Olert and Neal Bobrick, respectively. Options to purchase 18,000 common shares at an exercise price per share of $4.50 were granted each to Vivek Tandon and Marc Matejka. Mr. Bobrick forfeiting said options upon is resignation. Mr. Tandon departed from the Company in January 2017 and Mr. Matejka parted from the Company in March 2017 and their options were forfeited.

In August 2016, pursuant to a services agreement, the Company granted options to acquire 38,143 shares of common stock to an investor relations firm and recognized $7,000 of non-cash stock-based compensation related to the issuance during the three months ended March 31, 2017.

The Company follows the provision of ASC Topic 718, Compensations – Stock Compensation which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employee directors, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is generally recognized as an expense over the requisite service period.

In 2016, the following stock option grants were made:

					Estimated
					Fair
					Value of
	Options		Exercise		Underlying		Intrinsic
Option Date	Granted		Price		Stock		Value
August 2016		6,004	$	5.00	$	3.00	None
August 2016		7,230	$	7.00	$	3.00	None
August 2016		9,986	$	9.00	$	3.00	None
August 2016		14,923	$	11.00	$	3.00	None

No stock options were granted during the three months ended March 31, 2017.

The Company utilizes the Black-Scholes valuation method to value stock options and recognizes compensation expense over the vesting period. The expected life represents the period that the Company’s stock-based compensation awards are expected to be outstanding. The Company uses a simplified method provided in Securities and Exchange Commission release Staff Accounting Bulletin No. 110 which averages an awards weighted average vesting period and contractual term for “plain vanilla” share options. The expected volatility was estimated by analyzing the historic volatility of similar public companies. No dividend payouts were assumed as the Company has not historically paid, and is not anticipating to pay, dividends in the foreseeable future. The risk-free rate of return reflects the weighted average interest rate offered for U.S. Treasury rates over the expected life of the options.

A summary of significant assumptions used to estimate the fair value of the stock options granted in 2016 are as follows:

Weighted average fair value of options granted			$1.70
Expected term (years)			6.0 to 10.0
Risk-free interest rate			1.21% to 1.51%
Volatility			45.4%
Dividend yield			None

The Company recorded non-cash stock-based compensation related to stock options of $11,000 and $3,000 during the three months ended March 31, 2017 and 2016, respectively. An additional $82,000 of stock-based compensation related to stock options remains to be amortized over 39 months.

A summary of option activity for the Plan as of March 31, 2017 and changes for the three months then ended are represented as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contract		Intrinsic
	Options		Price		Term (Years)		Value
Options outstanding January 1, 2017		101,077	$	8.63		9.50	$	—
Granted		—		—		—		—
Forfeited		(36,000)		—		—		—
Outstanding at March 31, 2017		65,077	$	10.92		9.25	$	—

The following table summarizes restricted share activity for the three months ended March 31, 2017:

			Weighted
	Number of		Average
	Shares		Grant Date Fair Value
Outstanding January 1, 2017		128,467	$	3.87
Granted		630,000		1.52
Vested		(243,467)		2.09
Forfeited		(50,000)		3.68
Outstanding at March 31, 2017		465,000	$	1.64

As of March 31, 2017, the total compensation expense related to unvested options and restricted stock not yet recognized totaled approximately $564,000. The weighted average vesting period over which the total compensation expense will be recorded related to unvested options and restricted stock not yet recognized at March 31, 2017 was approximately 14 months.