Note H: Stock-Based Compensation

We compensate officers, directors, key employees and consultants with stock-based compensation under stock option and incentive plans (the "Plans") approved by our shareholders and administered under the supervision of our Board of Directors. Stock option awards are granted at exercise prices equal to the closing price of our stock on the day before the date of grant. Generally, options vest proportionally over periods of three to five years from the dates of the grant, beginning one year from the date of grant, and have a contractual term of nine to ten years.

Performance stock options are time based; however, the final number of awards earned and the related compensation expense is adjusted up or down to the extent the performance target is met. The actual number of shares that will ultimately vest ranges from 90% to 100% of the targeted amount if the minimum performance target is achieved. We evaluate the likelihood of meeting the performance target at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each performance target.

Compensation expense, net of estimated forfeitures, is recognized ratably over the vesting period. Stock-based compensation expense included in general and administrative expense for the three-month periods ended June 30, 2017 and 2016 was $88,000 and $1,000, respectively. Stock-based compensation expense included in general and administrative expense for the six-month periods ended June 30, 2017 and 2016 was $153,000 and $60,000, respectively. At June 30, 2017, 232,980 shares were available for grant under the Company's stock option and incentive plan.

Stock Options

A summary of the option activity for the first six months of 2017 is as follows:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2016		132,500		$	6.15		4.50	$	—
Granted		—		$	—		—	$	—
Exercised		—		$	—		—	$	—
Expired		(8,000	)	$	10.15		—	$	—
Forfeited		(22,000	)	$	5.72		—	$	—

Options outstanding at June 30, 2017		102,500		$	5.93		4.04	$	—
Options exercisable at June 30, 2017		91,875		$	6.05		3.73	$	—

There were no options exercised during the three and six month periods ended June 30, 2017 and June 30, 2016. As of June 30, 2017, there was $14,000 of total unrecognized compensation cost related to non-vested stock options. The weighted average period over which the compensation cost is expected to be recognized is 0.79 of a year.

Restricted Stock Awards and Stock Awards

Restricted stock awards are granted under the Plan at the discretion of the Compensation Committee of our Board of Directors. We issue restricted stock awards to executive officers and key consultants. These awards may contain certain performance conditions or time-based vesting criteria. Executive officers vest in the restricted stock awards if the various performance or time-based metrics are met. Stock-based compensation is recognized for the number of awards expected to vest at the end of the period and is expensed beginning on the grant date through the end of the vesting period. At time of vesting, the recipients of common stock may request to receive a net of the number of shares required for employee withholding taxes, which can be withheld up to the relevant jurisdiction's maximum statutory rate. Stock awards to consultants are recognized over the performance period based on the stock price on the date when the consultant's performance is complete.

We also issue stock awards as a portion of the annual retainer for each director on a quarterly basis. The stock awards are fully vested at the time of issuance. Compensation expense related to stock awards is determined on the grant date based on the publicly quoted fair market value of our common stock and is charged to earnings on the grant date.

A summary of the restricted stock awards and stock award activity for the first six months of 2017 is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Awards outstanding December 31, 2016	—		$	—
Granted	73,908			3.09
Vested	(41,908	)		3.20
Expired	—			—
Forfeited	—			—
Awards outstanding at June 30, 2017	32,000		$	2.70

As of June 30, 2017, the total stock-based compensation expense related to non-vested awards not yet recognized was $68,000, which is expected to be recognized over a weighted average period of 2.70 years. The weighted average grant date fair value of restricted stock units granted during the six-month period ended June 30, 2017 was $3.09. We granted restricted stock awards of 73,908 shares during the six-month period ended June 30, 2017. During the six-month periods ended June 30, 2017 and June 30, 2016, we recognized $142,000 and $55,000, respectively, of stock-based compensation expense related to restricted stock awards.