Annual report pursuant to Section 13 and 15(d)

Stock Option Plan

v3.7.0.1
Stock Option Plan
 12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Option Plan
Stock Option Plan
 
On May 17, 2013, the Company adopted the 2013 Equity Incentive Plan (the “Plan”) and reserved shares of common stock for issuance under the Plan not to exceed a maximum of 839,983 shares. In 2015, the stockholders approved an amendment to the Plan which increased shares available for issuance under the Plan by 1,250,000 shares and the Plan was restated in order to clarify the types of awards allowable under the plan to include restricted stock and PSUs. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. The persons eligible to participate in the Plan are employees (including officers), members of the Board of Directors, consultants and other independent advisors and contractors who provide services to the Company. Options issued under the Plan may have a term of up to ten years and may have variable vesting. The typical vesting schedule for stock options awarded under the Plan is a four year annual vesting schedule for employees and a one-year quarterly vesting schedule for Board members.
 
At December 31, 2016, there were 655,127 shares of common stock available for issuance under the Plan.

During the year ended December 31, 2016, the Company granted 58,200 and 37,938 stock options to purchase shares of common stock to employees and non-employee directors, respectively. The exercise price of the stock options issued to both employees and directors was the closing price of the Company’s stock on the date of grant. The options granted to employees vest in equal annual installments over four years while the options granted to directors vested in equal quarterly installments in 2016. The options granted in 2016 were valued at $294,132 using the Black-Scholes option pricing model. The compensation expense associated with these grants recognized during the year ended December 31, 2016 amounted to $160,519.
 
During the year ended December 31, 2016, the Company also granted 119,000 PSUs, which are subject to the satisfaction of certain market-based and continued service conditions. The market-based vesting criteria are separated into four tranches and require that the Company achieve certain stock price targets ranging from $10 per share to $16 per share during the four-year period following the grant date. With certain limited exceptions, continued employment with the Company on the fourth anniversary of the grant date is required in order for the PSUs to vest. The grant-date fair value of the PSUs was $429,293, or $3.61 per unit, using a Monte Carlo Simulation with a four-year life, 55% volatility and a risk free interest rate of 1.53%. The fair value of the PSUs is being recognized over the vesting period and $107,323 of compensation expense was recognized for these PSUs during the year ended December 31, 2016.

During the year ended December 31, 2015, the Company granted an employee 10,000 shares of restricted stock. The fair value of the restricted stock was $77,700 based on the closing market price of the Company’s stock on the date of grant, and is being recognized ratably over the four-year vesting period. Stock compensation expense of $19,425 and $7,284 related to this grant was recognized during the year ended December 31, 2016 and 2015, respectively. Shares outstanding at December 31, 2016 include 7,500 shares of unvested restricted stock. The Company is required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. The Company offers the ability to have vested shares surrendered to the Company in an amount equal to the amount of taxes to be withheld. During the year ended December 31, 2016, the Company purchased 683 shares with a cost of $3,258 from an employee to cover federal and state taxes due.
 
As permitted by SAB 107, management utilizes the simplified approach to estimate the expected term of stock options, which represents the period of time that options granted are expected to be outstanding. The risk free interest rate for periods within the contractual life of the option is based on the U.S. treasury yield in effect at the time of grant. The volatility is estimated based on the historical volatilities of comparable companies. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.
 
The assumptions used in the Black-Scholes model are as follows:
 
 
 
For the year ended December 31,
 
 
2016
 
2015
Average risk-free interest rate
 
1.55
%
 
1.74
%
Expected dividend yield
 
—
%
 
—
%
Expected life
 
5.31 to 6.25 years

 
5.31 to 6.25 years

Expected volatility
 
55
%
 
60
%

 
A summary of the Company’s stock option activity and related information is as follows:

 
 
2016
 
2015
 
 
Stock Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life
(in years)
 
Stock Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life
(in years)
Outstanding at January 1
 
1,332,323

 
$
6.94

 
8.4
 
1,368,047

 
$
6.41

 
8.7
Granted
 
96,138

 
$
5.95

 
 
 
221,102

 
$
7.80

 
 
Exercised
 
(4,607
)
 
$
5.00

 
 
 
(201,389
)
 
$
4.47

 
 
Forfeited/Expired/Exchanged
 
(38,650
)
 
$
6.68

 
 
 
(55,437
)
 
$
6.13

 
 
Outstanding at December 31
 
1,385,204

 
$
6.89

 
7.5
 
1,332,323

 
$
6.94

 
8.4
Exercisable at December 31
 
862,354

 
$
6.56

 
7.2
 
572,623

 
$
6.02

 
7.8

 
During the year ended December 31, 2016, option holders exercised 4,607 options and paid the exercise price in cash. The Company received $23,035 in net cash proceeds for the exercise of options during 2016.

The following table sets forth additional information about stock options outstanding at December 31, 2016:
 
Range of Exercise Prices
 
Options
Outstanding
 
Weighted Average
Remaining Life
(in years)
 
Weighted Average
Exercise Price
 
Options
Exercisable
$0.41 – $5.00
 
100,738

 
5.6
 
$
2.64

 
72,638

$5.01 – $7.50
 
634,428

 
7.3
 
$
6.50

 
464,803

$7.51 – $11.00
 
650,038

 
7.9
 
$
7.93

 
324,913

 
 
1,385,204

 
 
 
 

 
862,354


 
The estimated aggregate pretax intrinsic value (the difference between the Company’s stock price on the last day of the year ended December 31, 2016 and the exercises price, multiplied by the number of vested in-the-money options) is approximately $92,186. This amount changes based on the fair value of the Company’s stock.
 
As of December 31, 2016, there was $2,609,715 of unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.2 years.