NOTE 12. STOCK-BASED COMPENSATION PLAN

Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”) and the previous 2005 Stock Incentive Plan (the “2005 Plan”), the Company’s Board of Directors (the “Board of Directors”) has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2005 Plan continued in effect until June 2015 when it expired in accordance with its terms. The 2015 Plan will continue in effect until December 2025 unless terminated sooner. As of December 31, 2016, the number of shares authorized and reserved for issuance under the 2015 Plan is 5,615, subject to automatic annual increase equal to 5% of the total number of shares of the Company’s outstanding common stock.

Options Granted:

During the year ended December 31, 2016, the Company issued stock options for an aggregate of 163 shares under the 2015 Plan to directors and employees of the Company. Of the 163 options issued, 38 options vest in four equal consecutive quarterly tranches from the date of grant. The remaining 125 options will vest in three installments as follows: 42 options shall vest on June 30, 2017, and the remaining options shall vest equally on June 30, 2018 and June 30, 2019.

For computing the fair value of the stock-based awards, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	2016	2015		2014

Number of options	163	103	90	529
Option vesting period	1-3 Years	1 - 4 Years	Immediate	1 - 5 Years
Grant price	$4.38 - $4.39	$4.41 - $6.67	$8.35	$7.36 - $14.02
Dividend yield	0.00%	0.0%	0.0%	0.0%
Expected volatility	43.0% - 44.6% (a)	45.0% - 53.0% (b)	44.4% (b)	45.7% - 55.1% (b)
Risk-free interest rate	1.14% - 1.23%	1.56% - 2.11%	1.56%	1.63% - 2.31%
Expected life (years) (c)	5.31 - 6.00	5.31 - 6.58	5.00	5.31 - 6.95
Weighted average fair value	$1.81 - $1.85	$1.85 - $3.53	$0.97	$3.89 - $7.82

(a)

Expected volatility is based upon the Company’s historical volatility.

(b)

Since the Company’s historical volatility was not representative of the ongoing future business, the Company’s historical volatility was based on a combination of the Company’s volatility and the historical volatility of a peer group of companies within similar industries and similar size as the Company.

(c)

Because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for these grants, the Company utilized the simplified method in developing an estimate of the expected term of these options.

Using these assumptions, the fair value of the stock options granted during the years ended December 31, 2016, 2015, and 2014 was $299, $320, and $2,747, respectively, which will be amortized over the vesting period of the options.

On July 1, 2016, the Company issued and granted to an employee a restricted stock award of 100 restricted shares under the 2015 Plan, which will vest if, on or before July 1, 2020, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $15.00 per share for twenty consecutive trading days. For computing the fair value of the 100 restricted shares subject to a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below.

On August 11, 2014, the Company issued and granted to an employee a restricted stock award of 300 restricted shares under the 2005 Plan, of which (i) 50 restricted shares vested and become nonforteitable on August 25, 2014; (ii) 205 restricted shares were to vest and become nonforteitable as follows: (A) 45 restricted shares were to vest if, on or before June 30, 2017, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $15.00 per share for five consecutive trading days; (B) 80 restricted shares were to vest if, on or before December 31, 2019, the Fair Market Value of the Company’s common stock shall have equaled or exceeded $20.00 per share for five consecutive trading days; (C) 80 restricted shares were to vest if, on or before December 31, 2019, the Fair Market Value of the Company’s common stock shall have equaled or exceeded $22.00 per share for five consecutive trading days; and (iii) 15 restricted shares were to vest and become nonforfeitable on each of December 31, 2015, December 31, 2016 and December 31, 2017. All vested restricted shares will be subject to a lock-up provision restricting sales, dispositions, pledges and transfers of such shares through December 31, 2016. For computing the fair value of the 205 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. The restricted stock awards of 95 that were to vest over time were valued at $7.74 per share, which included a discount for the lock-up provision. During the year ended December 31, 2015, all unvested awards were forfeited and the related stock compensation expense was reversed.

Market Condition Restricted Shares Granted


	July 1, 2016	August 11, 2014

Number issued	100	45	80	80
Vesting period	$15.00 stock price target	$15.00 stock price target	$20.00 stock price target	$22.00 stock price target
Grant price	$4.38	$8.87	$8.87	$8.87
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected volatility	44.1%	38.2%	38.2%	38.2%
Risk-free interest rate	0.86%	0.93%	1.62%	1.62%
Expected term (years)	2.43	1.32	2.64	2.89
Weighted average fair value	$1.05	$4.63	$4.72	$4.22

Using these assumptions, the fair value of the market condition restricted stock awards granted on July 1, 2016 was approximately $105 and August 11, 2014 was approximately $923.

The total non-cash stock compensation expense for continuing operations related to stock options and restricted stock awards recorded by the Company was as follows:


	Year Ended December 31,
	2016		2015		2014

Restricted stock awards	$	15	$	264	$	589
Stock options		212		830		846
Total	$	227	$	1,094	$	1,435

For the years ended December 31, 2016, 2015, and 2014, the majority of stock-based compensation costs were classified as selling, general and administrative expense. A summary of changes in outstanding options and restricted stock awards during the year ended December 31, 2016 is as follows:


	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Restricted Stock Awards
Outstanding at December 31, 2015		2,408	$	8.77	$	-		310

Granted		163		4.38				100
Exercised or vested		-		-				(4)
Expired		(396)		9.01				-
Forfeited		(78)		10.93				(36)
Outstanding at December 31, 2016		2,097	$	8.15	$	-		370

Options exercisable at December 31, 2016		1,826		8.44	$	-

The following table summarizes the exercise price range, weighted average exercise price, and remaining contractual lives by significant ranges for options outstanding and exercisable as of December 31, 2016:


Exercise Price Range	Outstanding		Exercisable		Remaining Life In Years		Weighted Average Exercise Price
$4.00 - $4.72		275		86		8.2	$	4.31
$4.72 - $13.38		1,822		1,740		5.5	$	8.65
		2,097		1,826		5.7	$	8.44

The fair value of unvested restricted stock awards is determined based on the market price of our shares of common stock on the grant date or using the Monte-Carlo pricing model. As of December 31, 2016, there were 271 unvested stock options and unrecognized compensation cost of $615 related to unvested stock options, as well as 370 unvested restricted stock awards and unrecognized compensation cost of $97 related to unvested restricted stock awards.