NOTE 5 – EQUITY – COMMON STOCK REPURCHASE PLAN

On August 9, 2017, the Company’s Board of Directors authorized the Company to repurchase up to 100,000 shares of its common stock over a period of up to twelve months (the “Repurchase Program”).

On August 24, 2017, the Company announced that, pursuant to the Repurchase Program, it had adopted a written trading plan in accordance with the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. A plan under Rule 10b5-1 allows the Company to repurchase shares at times when it might otherwise be prevented from doing so by securities laws or because of self-imposed trading blackout periods. Repurchases made under the plan are subject to the Securities and Exchange Commission's regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Since repurchases under the plan are subject to certain constraints, there is no guarantee as to the exact number of shares that will be repurchased under the plan.

As of September 30, 2017, the Company repurchased 12,365 shares of its Common Stock pursuant to the Repurchase Program.

Stock option compensation

The Company accounts for stock-based compensation, including options and non-vested shares, according to the provisions of FASB ASC 718, Share Based Payment.

On September 5, 2017 (“Grant Date”), the compensation committee of Company’s Board of Directors authorized the issuance of 89,000 options to purchase shares of the Company’s Class A Common Stock under the Company’s 2012 Stock Incentive Plan. The options expire ten years from the Grant Date. The Company granted an aggregate of 55,000 of these options to its Chief Executive Officer and its Chief Financial Officer, with the balance to non-executive employees of the Company. All options granted on the Grant Date vest one-third on each of the first three anniversaries of the Grant Date. Further, all options granted on the Grant Date have an exercise price of $7.09, which was the closing price of the Company’s common stock on the Grant Date.

Stock option compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options. Compensation expense attributable to stock-options was approximately $20,000 and $0 during the three-month periods ended September 30, 2017 and 2016, respectively. Compensation expense attributable to stock-options was approximately $20,000 and $13,000 during the nine-month periods ended September 30, 2017 and 2016, respectively. The compensation expense is recognized in selling, general and administrative expenses on the Company’s Statements of Operations and Comprehensive Income (Loss) on a straight-line basis over the vesting periods. The exercisability of the respective non-vested options, which are at pre-determined dates on a calendar year, does not necessarily correspond to the period(s) in which straight-line amortization of compensation cost is recorded. As of September 30, 2017, the Company had approximately $373,000 of total unrecognized compensation cost related to non-vested awards granted under its stock-based plans, which it expects to recognize over a weighted average period of 1.9 years. The expected term of stock options is based on historical exercises and terminations. The volatility is determined using historical volatilities based on historical stock prices.

The Company estimated the fair value of these options using the following assumption:

Risk-free interest rate		2.07	%
Expected term (in years)		10 years
Volatility		87.16	%
Dividend yield		2.82	%
Weighted average fair value of options granted	$	4.41

The following is a summary of the changes in outstanding options during the nine-month period ended September 30, 2017:

			Weighted		Weighted Average
			Average		Remaining		Aggregate
			Exercise		Contractual Life		Intrinsic
	Option Shares		Price		(Years)		Value
Outstanding and vested, January 1, 2017		423,817	$	5.68		2.9	$	1,271,704
Granted		89,000		7.09
Exercised		(16,722)		3.65
Forfeited		(6,793)		7.86
Expired		(71,069)		10.72
Outstanding, September 30, 2017		418,233	$	5.17		4.1	$	907,347

Vested, September 30, 2017		329,233	$	4.65		2.5	$	891,327

			Weighted Average Grant-
	Option Shares		Date Fair Value
Non-vested options, January 1, 2017		—	$	—
Granted		89,000		4.41
Vested		—		—
Forfeited		—		—
Non-vested options, September 30, 2017		89,000	$	4.41

The number of shares of Common Stock available for issuance under the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) as of September 30, 2017 was 88,812. At September 30, 2017, there were 192,233 options outstanding issued under the 2012 Plan and 226,000 options outstanding issued under the 2002 Stock Incentive Plan.

Restricted Stock

The Company, in May 2017, granted 1,000 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 5,000 restricted shares. The Company determined that the fair value of these shares was $6.17 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares cannot be traded earlier than the first anniversary of the grant date. As such, the Company is ratably amortizing the total non-cash compensation expense of approximately $30,000 in its selling, general and administrative expenses through May 2018.

The Company, in May 2016, granted 1,000 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 5,000 restricted shares. The Company determined that the fair value of these shares was $8.72 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares could not have been traded earlier than the first anniversary of the grant date. As such, the Company ratably amortized the total non-cash compensation expense of approximately $44,000 in its selling, general and administrative expenses through May 2017.