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Note 5 - Share-Based Compensation Plan

12 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Note 5 - Share-Based Compensation Plan

NOTE 5 — 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 2017 and 2016 was $2.60 and $1.93, respectively, using the following weighted-average assumptions:

		Years Ended December 31,
		2017				2016
Risk-free interest rate (%)			2.34	%			1.75	%
Dividend yield			—				—
Volatility factor			69.62	%			79.91	%
Expected option life (years)			5.9				5.6

The table below presents the information related to stock option activity for the years ended December 31, 2017 and 2016:

		Years Ended December 31,
		2017				2016
Total intrinsic value of stock options exercised		$	333,849			$	178,923
Cash received from stock option exercises		$	331,719			$	178,512

Changes in stock options for the years ended December 31, 2017 and 2016 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, 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
Increase in shares authorized			235,136				—
Granted			(275,300	)			275,300			$	4.13
Exercised			—				(159,839	)		$	2.08
Canceled			29,520				(29,520	)		$	2.98
Balance at December 31, 2017			85,337				2,247,026			$	2.50				5.08			$	2,579,046
Exercisable							1,746,173			$	2.28				4.08				2,301,010
Unvested							500,853			$	3.28				8.58				278,036

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, 2018, 2017, and 2016, a total of 280,445, 235,136, and 224,818 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, 2017:

					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 - $1.25				385,323				5.58			$	1.04				373,337			$	1.04
	$1.50 - $1.82				150,255				4.17			$	1.72				150,255			$	1.72
	$1.89 - $2.27				429,362				5.58			$	2.13				357,912			$	2.11
	$2.36 - $2.92				485,823				4.42			$	2.64				309,530			$	2.59
	$3.04 - $3.54				503,063				2.83			$	3.10				482,605			$	3.08
	$3.70 - $4.49				292,300				9.33			$	4.11				71,634			$	3.94
	$6.90				900				0.58			$	6.90				900			$	6.90
	$0.95 - $6.90				2,247,026				5.08			$	2.50				1,746,173			$	2.28

Stock-Based Compensation Expense

The stock-based compensation expense included in the Company’s statements of income for the years ended December 31, 2017 and 2016, consisted of the following:

		Years Ended December 31,
Income Statement Classification		2017				2016
Cost of revenues		$	64,834			$	40,929
Research and development			104,205				74,810
Sales and marketing			111,087				87,158
General and administrative			146,824				139,713
		$	426,950			$	342,610

As of December 31, 2017, the total remaining unamortized stock-based compensation expense was $993,039 and is expected to be amortized over a weighted average period of 2.66 years.