NOTE 7 - STOCK COMPENSATION PLAN

The Company has two share-based compensation plans which are described below.

Stock Option Plan

The Company established the 1999 Stock Option Plan (the “1999 Plan”), as amended, under which certain employees and directors may receive stock options. Stock options are generally granted with an exercise price equal to 100% of the fair value of the common stock at the date of grant. As of September 30, 2018 and December 31, 2017, there were no unissued shares of the Company’s common stock authorized for option grants under the Plan.

Equity Incentive Plan

In May 2009 the Company approved the 2009 Equity Incentive Plan (the “2009 Plan”) as a successor to the 1999 Plan. The 2009 Plan permits the granting of restricted shares, incentive stock options (“ISO”), nonqualified stock options, stock appreciation rights, restricted share units and other stock-based awards to employees, directors, officers, consultants, advisors, suppliers and any other persons or entity whose services are considered valuable for up to 1,183,000 shares. Under the terms of the 2009 Plan, each option agreement cannot have an exercise price that is less than 100% of the fair value of the shares covered by the option on the date of grant. In the case of an ISO granted to any 10% stockholder, the exercise price shall not be less than 110% of the fair value of the shares covered by the option on the date of grant.

In no event shall the exercise price of an option be less than the par value of the shares for which the option is exercisable. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% stockholder, the exercise period shall not exceed five years from the date of grant. In the event of a change in control, the Company may determine that any award then outstanding shall be assumed or an equivalent award shall be substituted by the successor company.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities based on historical volatilities of the Company’s common stock are not significant. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. No options were granted during three and nine months ended September 30, 2018 and 2017.

A summary of the status of the Company’s stock options and the change during the nine months ended September 30, 2018 is presented below:


	Nine Months Ended September 30, 2018
	Number of	Weighted Average
	Options	Exercise Price

Outstanding, beginning of period	271,500	$	19.79
Granted	—		—
Exercised	(5,000)		30.00
Cancelled/forfeited	—		—
Outstanding, end of period	266,500	$	19.60
Options vested and exercisable at end of period	266,500	$	19.60

Weighted average remaining contractual life (years)			4.91

Of the options exercised during the nine months ended September 30, 2018, 3000 options were a cashless exercise. There was no unrecognized compensation cost related to non-vested stock options granted under the 2009 Plan at September 30, 2018 and December 31, 2017.

There was no compensation cost related to stock option plan for the three and nine months ended September 30, 2018 and 2017.

The following table summarizes information about stock options outstanding at September 30, 2018:


	Options Outstanding
Range of Average	Number Outstanding at	Weighted Average	Weighted Average
Exercise Prices	September 30, 2018	Remaining Contractual Life	Exercise Price
$10 – 20	231,000	5.64	$	18.00
$21 – 30	35,500	0.20	$	30.00
$10 – 30	266,500	4.91	$	19.60

Restricted Stock Awards

The Company issued restricted stock awards to certain key personnel under the 2009 Plan. Each restricted stock award vests based on vesting schedule outlined in the reward agreement. Restricted stock awards are subject to forfeiture if the holder is not employed by the Company on the vesting date. In 2013, stockholders approved an additional 300,000 shares available under the plan, and in 2016, an additional 760,000 shares were authorized. Total remaining shares issuable under the plan are 724,642 at September 30, 2018, which includes performance based stock awards discussed below. There were 8,987 restricted shares granted to the Board of Directors as directors’ fees during 2018. These shares vested on the same day as they were awarded and the expense related to these were booked as directors’ fees expense.

As of September 30, 2018, there was $670,000 of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.58 years.

Total compensation cost that has been charged against income for this plan was $150,000 and $311,000 for the three and nine months ended September 30, 2018; and $109,000 and $306,000 for the three and nine months ended September 30, 2017, respectively.

The following table summarizes the changes in the Company’s non-vested restricted stock awards for the nine months ended September 30, 2018:


	Nine Months Ended September 30, 2018
		Weighted Average
	Number of Shares	Grant Date Fair Value

Outstanding, beginning of period	76,104	$	20.61
Granted	8,987		48.99
Forfeited	—		—
Vested	(20,301)		32.31
Outstanding at end of period	64,790	$	20.88

The total fair value of shares vested was $955,000 during the nine months ended September 30, 2018, respectively.

Performance Based Stock Awards

During the nine months ended September 30, 2018, the Company established a long term incentive award program under the 2009 Equity Incentive Plan. For each award, threshold target Performance Restricted Share Units (“PRSUs”) are eligible to be earned over a three-year performance period based on the Company’s relative performance on certain measurement goals that were established at the onset of the performance period. These awards were accounted for in accordance with on guidance prescribed in ASC Topic 718, Compensation – Stock Compensation. During the nine months ended September 30, 2018, 90,000 PRSUs were awarded under the program. These units will be granted at the end of the three year performance period. The following table summarizes the changes in the Company’s non-vested PRSU awards for the nine months ended September 30, 2018 (dollars in thousands, except share information):


	For the nine months ended
	September 30, 2018

Weighted average service inception date fair value of award shares	$	4,064,295
Minimum aggregate share payout		12,000
Maximum aggregate share payout		90,000
Likely aggregate share payout		90,000
Compensation expense recognized	$	907,775

Total compensation cost that has been charged against income for this plan was $346,000 and $908,000 for the three and nine months ended September 30, 2018, respectively.