Quarterly report pursuant to Section 13 or 15(d)

Note 8 - Equity

v3.8.0.1
Note 8 - Equity
 9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note
8:
Equity
 
Stock Options
 
In the
nine
months ended
September 30, 2017,
the Company granted
195,286
stock options to employees with exercise prices ranging from
$2.65
-
$3.88.
 
 
Upon the completion of the Company’s IPO in
November 2014,
its stock trading price became the basis of fair value of its common stock used in determining the value of share-based awards. To the extent the value of the Company’s share-based awards involves a measure of volatility, it will rely upon the volatilities from publicly traded companies with similar business models until its common stock has accumulated enough trading history for it to utilize its own historical volatility. The expected life of the options granted is based on the average of the vesting term and the contractual term of the option. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury
10
-year yield curve in effect at the date of the grant. 
 
The Company has computed the fair value of all options granted during the
nine
months ended
September 30, 2017
and
2016,
using the following assumptions:
 
    Nine Months Ended September 30,
    2017   2016
Expected volatility  
 
42%
  
43%
-
45%
Expected dividends  
 
None
 
  
 
None
 
Expected term (years)  
5.5
to
7
  
 
7
 
Risk-free rate  
1.98%
to
2.14%
  
1.19%
to
1.68%
Forfeiture rate  
 
20%
  
 
20%
 
 
The information below summarizes the stock options activity:
 
        Weighted   Weighted   Weighted
        Average   Average   Average
    Number of   Exercise   Fair   Remaining
    Shares   Price   Value   Contractual Life
Outstanding at December 31, 2016    
953,075
     $
3.66
     $
1.86
      
6.9
  
Granted at market price    
195,286
      
3.70
      
 
      
 
  
Exercised    
(106,221
 )    
1.20
      
 
      
 
  
Cancelled    
(30,454
 )    
5.21
      
 
      
 
  
Outstanding at September 30, 2017    
1,011,686
     $
3.87
     $
1.76
      
7.4
  
Exercisable at September 30, 2017    
370,634
     $
4.67
     $
2.17
      
5.6
  
 
The intrinsic value of the Company’s stock options outstanding was
$1,405,592
at
September 30, 2017.
 
For the
three
and
nine
months ended
September 30, 2017,
stock-based compensation expense for stock options was
$125,588
and
$261,471,
respectively. For the
three
and
nine
months ended
September 30, 2016,
stock based compensation expense for stock options was
$183,608,
and
$522,519,
respectively. Unrecognized stock-based compensation expense for stock options as of
September 30, 2017
was
$716,667,
which is expected to be recognized ratably over the next
2.2
years.
 
Restricted Stock
 
The information below summaries the restricted stock activity:
 
Restricted Stock Awards   Shares
Outstanding at December 31, 2016    
92,415
  
Awards granted    
59,700
  
Awards vested    
(76,070
 )
Awards forfeited    
(12,345
 )
Outstanding at September 30, 2017    
63,700
  
 
For the
three
and
nine
months ended
September 30, 2017,
stock-based compensation expense for restricted stock was
$59,804
and
$151,041,
respectively. For the
three
and
nine
months ended
September 30, 2016,
stock based compensation expense for restricted stock was
$71,698,
and
$490,181,
respectively. Unrecognized stock based compensation expense for restricted stock awards as of
September 30, 2017
was
$206,502
to be recognized ratably over the next year. 
 
Treasury Stock
 
In
December 2013,
the Company exercised its right of
first
refusal under the terms of a Stockholders Agreement dated
March 10, 2010
to repurchase
534,000
shares of the Company’s common stock. The shares were purchased for
$0.45
per share or
$240,000
in cash along with the issuance of an option to repurchase the
534,000
shares. The repurchased shares were recorded as treasury stock, at cost in the amount of
$791,638.
The option is classified in equity as it is considered indexed to the Company’s stock and meets the criteria for classification in equity.  The option was granted to the seller for a term of
8
years.  The option contained the following exercise prices:
 
Year 1   $
0.56
  
Year 2   $
0.68
  
Year 3   $
0.84
  
Year 4   $
1.03
  
Year 5   $
1.28
  
Year 6   $
1.59
  
Year 7   $
1.97
  
Year 8   $
2.45
  
  
Consideration given in the form of the option was valued using a Binomial Lattice-Based model resulting in a fair value of
$1.03
per share option for a total fair value of
$551,638.
The option was valued using the Binomial Lattice-Based valuation methodology because that model embodies all of the relevant assumptions that address the features underlying the instrument.
 
During
December 2016,
the option holder partially exercised the call option and purchased
250,872
shares at a total repurchase price of
$210,000.
The Company reduced the cost of treasury shares by approximately
$113,000
related to the transaction, reduced the value of the option by approximately
$259,000,
and reduced additional paid-in-capital by approximately
$162,000.
 
During
September 2017,
the option holder exercised the remainder of the call option and purchased
283,128
shares at a total repurchase price of
$292,671.
The Company reduced the cost of treasury shares by approximately
$127,000
related to the transaction, reduced the value of the option by approximately
$292,000,
and reduced additional paid-in-capital by approximately
$127,000.