Note 14 - Stock-Based Compensation

We maintain a stock-based compensation plan for directors, officers, and other key employees of the Company. The aggregate number of shares of common stock that may be issued with respect to the awards granted under the plan is 500,000 plus any shares forfeited under the Company’s old stock-based compensation plan. Under the terms of the stock-based compensation plan, the Company has the ability to grant various stock compensation incentives, including stock options, stock appreciation rights, and restricted stock. The stock-based compensation is granted under terms and conditions determined by the Compensation Committee of the Board of Directors. Under the stock-based compensation plan, stock options generally have a maximum term of ten years, and are granted with an exercise price at least equal to the fair market value of the common stock on the date the options are granted. Generally, options granted to directors, officers, and employees of the Company vest over a five-year period, although the Compensation Committee has the authority to provide for different vesting schedules.

We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718, Compensation – Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the Statement of Operations at fair value. Additionally, we are required to recognize the expense of employee services received in share-based payment transactions and measure the expense based on the grant date fair value of the award. The expense is recognized over the period during which an employee is required to provide service in exchange for the award. Stock-based compensation expense included in the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 totaled $205,000 and $184,000, respectively.

Information regarding our stock-based compensation plan is as follows as of and for the years ended December 31:

	2017									2016
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)		Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of period		339,500		$	5.31						339,800		$	4.83
Granted		115,800			7.22						74,000			6.98
Exercised		(2,161	)		3.37						(18,800	)		3.96
Forfeited		(18,864	)		4.59						(55,500	)		5.08
Outstanding at end of period		434,275		$	5.87		6.7	$	619		339,500		$	5.31		4.9	$	878
Exercisable at end of period		191,395		$	4.85		6.3	$	477		138,066		$	4.48		1.9	$	473

The stock-based compensation expense amounts and fair values of options at the time of the grants were derived using the Black-Scholes option-pricing model. The following weighted average assumptions were used to value options granted for the years ended December 31:

	2017			2016
Expected life	5.5 years			5.5 years
Risk-free interest rate		2.15	%		1.77	%
Expected volatility		33.79	%		58.32	%
Expected dividend yield		-			-
Weighted average per share fair value of options granted	$	2.44		$	3.55

The expected life is based on the vesting period and the expiration date of the option granted. The Risk-free interest rate is based on the US Treasury’s five year Treasury note rate at the time of the option grant. The expected volatility is based on the closing common stock price of the Company over a five year period. The expected dividend yield is based on the Company’s current policy of not paying a common stock dividend. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

As of December 31, 2017, there was $699,000 of total unrecognized stock-based compensation expense related to nonvested stock options, which is expected to be recognized over a period of sixty months.