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Note 8 - Equity | 12 Months Ended
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Dec. 31, 2016
Notes to Financial Statements |
Stockholders' Equity Note Disclosure [Text Block] |
Note 8: |  | Equity
Stock Options On May 15, 2014, the Company adopted the 2014 Stock Plan (“2014 Plan”). The 2014 Plan is designed to supersede and replace the 2012 Plan, effective as of the adoption date and set aside 1,513,000 shares of the Company’s common stock that may be granted under the 2014 Plan. During the year ended December 31, 2015, the Company granted 240,160 stock options to employees and certain non-employee members of its board of directors with exercise prices ranging from $5.99 - $9.62. During the year ended December 31, 2016, the Company granted 660,000 stock options to employees with exercise prices ranging from $2.23 - $4.11. The Company’s stock trading price is 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 years ended December 31, 2016 and 2015, using the following assumptions:
|  | Years Ended December 31,
|  | 2016 |  | 2015
Expected volatility |  | 42% | - | 45% |  | 44% | - | 50%
Expected dividends |  |  | None |  |  |  | None |
Expected term (years) |  |  | 7 |  |  | 5.5 | - | 7
Risk-free rate |  | 1.19% | - | 1.68% |  | 1.54% | - | 2.01%
Forfeiture rate |  |  | 20% |  |  |  | 20% |
The information below summarizes the stock options:
|  | Number of Shares |  | Weighted Average Exercise Price |  | Weighted Average Fair Value |  | Weighted Average Remaining Contractual Life
Outstanding at December 31, 2014 |  |  | 314,775 |  |  | $ | 2.23 |  |  | $ | 0.92 |  |  |  | 9.2 |
Granted at market price |  |  | 240,160 |  |  |  | 8.16 |  |  |  |  |  |  |  |  |
Exercised |  |  | (445 | ) |  |  | 1.20 |  |  |  |  |  |  |  |  |
Cancelled |  |  | (77,031 | ) |  |  | 7.88 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2015 |  |  | 477,459 |  |  | $ | 4.30 |  |  | $ | 2.01 |  |  |  | 8.7 |
Granted at market price |  |  | 660,000 |  |  |  | 3.22 |  |  |  |  |  |  |  |  |
Exercised |  |  | (37,824 | ) |  |  | 1.88 |  |  |  |  |  |  |  |  |
Cancelled |  |  | (146,560 | ) |  |  | 4.34 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2016 |  |  | 953,075 |  |  | $ | 3.66 |  |  | $ | 1.86 |  |  |  | 6.9 |
Exercisable at December 31, 2016 |  |  | 347,272 |  |  | $ | 4.07 |  |  | $ | 2.38 |  |  |  | 3.9 |
The intrinsic value of the Company’s stock options outstanding was $347,724 at December 31, 2016. For the years ended December 31, 2016 and 2015, stock based compensation expense for stock options was $561,559 and $328,772, respectively. Unrecognized stock-based compensation expense for stock options for the year ended December 31, 2016 was $733,944, which is expected to be recognized ratably over the next 3.26 years. Restricted Stock During 2015, the Company granted restricted stock to two employees to earn 8,000 shares of common stock. These shares vest over a four year period from grant date. The estimated fair market value of these shares was valued at $9.62 per share, based on the Company’s stock trading price, totaling approximately $76,960 to be recognized ratably as the stock is vested. During 2016, the Company granted restricted stock awards to seven members of the Board of Directors. The awards have been granted under The Joint Corp. 2014 Incentive Stock Plan pursuant to the Director Compensation Policy of the Company. The awards shall vest on the earlier of (i) one year from the Grant Date and (ii) the date of the next annual meeting of the shareholders of the Company occurring after the Grant Date, for each to earn 12,345 shares of common stock. The estimated fair market value of these shares was valued at $3.10 per share, based on the Company’s stock trading price, totaling approximately $268,000 to be recognized ratably as the stock is vested. The information below summaries the restricted stock activity:
Restricted Stock Awards |  | Shares
Outstanding at December 31, 2014 |  |  | 662,375 |
Restricted stock awards granted |  |  | 8,000 |
Awards forfeited or exercised |  |  | - |
Granted at December 31, 2015 |  |  | 670,375 |
Awards vested |  |  | (331,087 | )
Outstanding at December 31, 2015 |  |  | 339,288 |
Awards granted |  |  | 86,415 |
Awards vested |  |  | (162,440 | )
Awards forfeited |  |  | (170,848 | )
Outstanding at December 31, 2016 |  |  | 92,415 |
For the years ended December 31, 2016 and 2015, stock based compensation expense for restricted stock awards was $561,922 and $496,373, respectively. Unrecognized stock based compensation expense for restricted stock awards as of December 31, 2016 was $155,969 to be recognized ratably over 1.06 years. Modifications During the year ended December 31, 2016, the Company accelerated the vesting of all unvested stock options and restricted stock awards granted to the Company’s former chief development officer in connection with his separation from the Company. In addition, the Company modified the post-employment exercise period of the stock options previously granted, extending the exercise period to December 31, 2017. During the year ended December 31, 2016, the Company modified the post-employment exercise period of stock options previously granted to the Company’s former chief executive officer in connection with his separation from the Company. The modification extended the exercise period to May 13, 2020. In addition, the Company accelerated the vesting of 9,733 shares of the previously granted restricted stock awards that were scheduled to vest in July 2016. The remaining unvested restricted stock awards were forfeited upon separation. These modifications resulted in an approximately $412,000 increase in stock-based compensation for the year ended December 31, 2016. Treasury Stock During the year ended December 31, 2016, the Company acquired approximately 13,376 shares of treasury stock to satisfy minimum tax withholding related to vesting of restricted stock awards. These shares were acquired at a total cost of $83,391. 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, and were available for general corporate purposes. 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. Warrants In conjunction with the IPO, the Company issued warrants to the underwriters for the purchase of 90,000 shares of common stock, which can be exercised between November 10, 2015 and November 10, 2018 at an exercise price of $8.125 per share. The fair value of the warrants was determined using the Black-Scholes option valuation model. The warrants expire on November 10, 2018 and have a remaining contractual life of 1.9 years as of December 31, 2016. The information below summarizes the warrants:
|  | Number of Units |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (in years) |  | Intrinsic Value
Outstanding at December 31, 2014 |  |  | 90,000 |  |  | $ | 8.13 |  |  |  | 3.9 |  |  |  | - |
Granted |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at December 31, 2015 |  |  | 90,000 |  |  | $ | 8.13 |  |  |  | 2.9 |  |  | $ | - |
Granted |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at December 31, 2016 |  |  | 90,000 |  |  | $ | 8.13 |  |  |  | 1.9 |  |  | $ | - |
Exercisable at December 31, 2016 |  |  | 90,000 |  |  | $ | 8.13 |  |  |  | 1.9 |  |  | $ | - |
Issuance of Common Stock for Legal Settlement During December, 2016, the Company entered into a settlement agreement, whereby it resolved the pending litigation matter discussed in Note 11. Under the terms of the settlement agreement, the Company agreed to a one -time settlement amount comprised of cash and newly issued shares of our common stock. The amounts paid by the Company in this settlement was determined by the Company not to be material. The fair value of the total consideration related to common stock was valued using the closing price of our common stock on the settlement date.

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