Note 2.

Stock-Based Compensation

During the nine months ended September 30, 2017, we granted: (i) options to acquire 16,560 shares of our common stock to employees at prices ranging between $1.80 and $2.25 per share; and (ii) options to acquire 30,000 shares of our common stock to a non-employee board member at a price of $2.25 per share. During the nine months ended September 30, 2016, we granted options to acquire 3,000 shares of our common stock to an employee at a price of $1.20 per share.

The weighted average fair market value of the options granted in the nine months ended September 30, 2017 and 2016 was estimated on the date of grant, using a Black-Scholes option pricing model with the following assumptions:

	September 30, 2017		September 30, 2016
Expected life of options (using the “simplified” method)	4 years		6 years
Average risk-free interest rate		1.44%	1.50%
Average expected volatility of stock		78%	134%
Expected dividend rate	None		None
Fair value of options granted	$55,100		$3,488

Compensation cost related to stock options recognized in operating results (included in general and administrative expenses) totaled $183,500 and $189,500 in the nine months ended September 30, 2017 and 2016, respectively, and totaled $71,500 and $61,600 in the three months ended September 30, 2017 and 2016, respectively. Approximately $495,000 of total unrecognized compensation costs related to non-vested stock options is expected to be recognized over the next 12-60 months, depending on the vesting provisions of the options. There was no tax benefit from recording the non-cash expense as it relates to the options granted to employees, as these were qualified stock options which are not normally tax deductible.

In 2005, we adopted a stock option plan for our employees, officers and directors (the “2005 Plan”). In 2015, we adopted a stock option plan for our employees, officers and directors (the “2015 Plan”) to replace the 2005 Plan, which expired on March 31, 2015.

Activity under our two stock option plans is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
2005 Plan
Outstanding, December 31, 2016		628,313		$	0.63	3.8 years	$	510,000
Granted		-
Exercised		(136,250	)
Cancelled/Expired		-
Outstanding, September 30, 2017		492,063		$	0.73	4.0 years	$	865,300
Exercisable, September 30, 2017		378,158		$	0.69	3.3 years	$	679,000

2015 Plan
Outstanding, December 31, 2016		787,615		$	1.27	7.2 years	$	136,000
Granted		46,560
Exercised		-
Cancelled/Expired		(49,491	)
Outstanding, September 30, 2017		784,684		$	1.32	6.6 years	$	916,500
Exercisable, September 30, 2017		380,205		$	1.31	6.2 years	$	449,200