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Note 6 - Share-Based Compensation Plan
 12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation Plan

NOTE 6 — Share-Based Compensation Plan

 

Stock Option Plan

The Company has one Stock Option Plan in effect in the two years presented: the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, and performance awards to employees, directors, and consultants of the Company. Upon ratification of the 2004 Plan by the shareholders in June 2004, shares in the 1995 Plan that had been reserved but not issued, as well as any shares issued that would otherwise return to the 1995 Plan as a result of termination of options or repurchase of shares, were added to the shares reserved for issuance under the 2004 Plan. The Company grants incentive stock options and non-statutory stock options at an exercise price per share equal to the fair market value per share of common stock on the date of grant. The vesting and exercise provisions are determined by the Board of Directors, with a maximum term of ten years. The 2004 Plan expires on April 23, 2024.

 

The Company calculates the value of each stock option grant, estimated on the date of grant, using binomial lattice option pricing model. The weighted-average estimated fair value of stock options granted during 2016 and 2015 was $1.93 and $1.58, respectively, using the following weighted-average assumptions:

 

 

    Years Ended December 31,
    2016   2015
Risk-free interest rate (%)     1.75 %     2.10 %
Dividend yield     —         —    
Volatility factor     79.91 %     92.22 %
Expected option life (years)     5.6       4.8  

  

The table below presents the information related to stock option activity for the years ended December 31, 2016 and 2015:

 

    Years Ended December 31,
    2016   2015
Total intrinsic value of stock options exercised   $ 178,923     $ 60,056  
Cash received from stock option exercises   $ 178,512     $ 155,949  

 

 

Changes in stock options for the years ended December 31, 2016 and 2015 are as follows:

 

 

              Outstanding Options
     

 

Options

Available

For Grant

      

 

Number

of Shares

      

Weighted

Average

Price Per Share

       Remaining Contractual Term
(in years)		      

 

 

Intrinsic
Value

  
Balance at December 31, 2014     144,378       1,891,058     $ 2.09                  
   Increase in shares authorized     200,000       —                            
   Granted     (316,600 )     316,600     $ 2.25                  
   Exercised     —         (91,333 )   $ 1.71                  
   Canceled     93,972       (93,972 )   $ 2.01                  
Balance at December 31, 2015     121,750       2,022,353     $ 2.15                  
   Increase in shares authorized     224,818       —                            
   Granted     (344,450 )     344,450     $ 2.89                  
   Exercised     —         (111,855 )   $ 1.60                  
   Canceled     93,863       (93,863 )   $ 2.73                  
Balance at December 31, 2016     95,981       2,161,085     $ 2.27       5.58     $ 3,401,944  
Exercisable             1,638,288     $ 2.23       4.58       2,651,676  
Unvested             522,797     $ 2.40       8.67       750,268  

 

 

The 2004 Plan provides for an annual increase in the number of shares authorized under the plan to be added on the first day of each fiscal year equal to the least amount of 400,000 shares, 4% of the outstanding shares on that date, or an amount as determined by the Board of Directors. On January 1, 2017, 2016, and 2015, a total of 235,136, 224,818, and 191,843 additional shares, respectively, became available for grant from the 2004 Plan. 

 

The following table summarizes information about stock options outstanding and exercisable at December 31, 2016: 

 

          Options Outstanding         Options Exercisable
 

 

Range of

Exercise

Prices

      

 

Number of

Options Outstanding

       Weighted Average Remaining Life (Years)      

 

Weighted

Average Exercise Price

      

 

Number of Options Exercisable

      

 

Weighted Average Exercise Price

  
  $0.95 - $1.10       369,444       6.58     $ 1.01       306,603     $ 1.02  
  $1.20 - $1.25       56,000       6.50     $ 1.23       46,583     $ 1.22  
  $1.50 - $1.82       167,767       5.33     $ 1.71       167,767     $ 1.71  
  $1.89 - $2.27       477,090       6.50     $ 2.13       347,672     $ 2.08  
  $2.36 - $2.92       525,638       5.58     $ 2.63       232,617     $ 2.54  
  $3.04 - $3.54       528,446       3.67     $ 3.09       516,513     $ 3.08  
  $3.70 - $3.84       35,000       9.42     $ 3.72       18,833     $ 3.71  
  $6.90       900       1.58     $ 6.90       900     $ 6.90  
  $10.00       800       0.17     $ 10.00       800     $ 10.00  
  $0.95 - $10.00       2,161,085       5.58     $ 2.27       1,638,288     $ 2.23  

 

 

Stock-Based Compensation Expense

The stock-based compensation expense included in the Company’s statements of income for the years ended December 31, 2016 and 2015, consisted of the following:

 

    Years Ended December 31,
Income Statement Classification   2016   2015
  Cost of revenues   $ 40,929     $ 19,322  
  Research and development     74,810       40,951  
  Sales and marketing     87,158       62,898  
  General and administrative     139,713       86,693  
    $ 342,610     $ 209,864  

 

 

As of December 31, 2016, the total remaining unamortized stock-based compensation expense was $757,671, and is expected to be amortized over a weighted average period of 2.67 years.