3.	S tock - Based Compensation

The Company maintains a stock option plan under which the Company

may

grant incentive stock options and non-qualified stock options to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date.

The Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee stock options, over the determined requisite service period, which is generally ratably over the vesting term.

For the

nine

months ended

September 30, 2019

and

2018,

370,000

and

349,750

stock options were granted under the Company’s option plan, respectively. The Company recognized

$353,000

and

$312,000

in stock-based compensation expense for the

nine

months ended

September 30, 2019

and

2018,

respectively.

The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the US Treasury yield curve in effect at the time of grant. The estimated volatility is based on historical volatility and management’s expectations of future volatility. The Company uses an estimated dividend payout of

zero

, as the Company has

not

paid dividends in the past and, at this time, does

not

expect to do so in the future. The Company accounts for option forfeitures as they occur.

The following table summarizes stock option activity for the

nine

months ended

September 30, 2019:

				Weighted
				Average
				Exercise Price
	Options			Per Option

Options outstanding, December 31, 2018		1,022,913		$	2.69
Granted to employees and non-employee directors		370,000			3.59
Exercised		(49,833	)		1.90
Canceled/expired/forfeited		-			0.00
Options outstanding, September 30, 2019		1,343,080			2.96
Options exercisable, September 30, 2019		676,580			2.44

As of

September 30, 2019,

$354,000

of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of

2.13

years.