Note 8. Stock Options and Restricted Stock Units

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Stock Options and Restricted Stock Units

On May 23, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). Under the terms of the 2014 Plan, the Company is authorized to issue incentive awards for common stock up to 200,000 shares to employees and other personnel. On June 10, 2016, the shareholders of the Company approved an additional 200,000 awards to be issued under the 2014 Plan, bringing the total number of shares to be awarded to 400,000. The awards may be in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units and performance awards. The 2014 Plan is effective through March 31, 2024. As of December 31, 2017, 298,000 awards had been granted under the 2014 Plan.

On August 9, 2010, the shareholders of the Company approved the 2010 Equity Incentive Plan (the “2010 Plan”). Under the terms of the 2010 Plan, 150,000 shares of the Company’s common stock were authorized for the issuance of stock options and restricted stock. The 2010 Plan also provides for an automatic annual increase in the number of authorized shares of common stock issuable beginning in 2011 equal to the lesser of (a) 2% of shares outstanding on the last day of the immediate preceding year, (b) 50,000 shares, or (c) such lesser number of shares as the Company’s board of directors shall determine, provided, however, in no event shall the maximum number of shares that may be issued under the Plan pursuant to stock awards be greater than 15% of the aggregate shares outstanding on the last day of the immediately preceding year. With the automatic increases, there were 220,416 authorized shares of common stock on January 1, 2012. On January 20, 2012, the Company’s Board of Directors approved an increase in the number of shares authorized under the 2010 Plan from 220,416 to 420,416. This increase was ratified by the shareholders of the Company on June 29, 2012. On December 31, 2017, there were no shares remaining for awards to be issued under the 2010 Plan.

The following is a summary of stock options issued during the year ended December 31, 2017 and 2016:

	Number of Options Outstanding			Range of Exercise Price		Weighted Average Exercise Price		Aggregate Intrinsic Value
Balance at December 31, 2015		246,000		$	0.01 - 13.49	$	7.69	$	187,798
Options granted		—			—		—		—
Options exercised		(20,900	)		0.01 - 3.33		1.67		89,180
Options forfeited/cancelled		(61,250	)		7.76 - 9.26		8.11		—
Balance at December 31, 2016		163,850		$	0.01 - 13.49	$	8.30	$	297,542
Options granted		32,000			13.00		13.00		—
Options exercised		(56,645	)		0.01 - 9.26		6.32		393,729
Options forfeited/cancelled		(1,917	)		9.26		9.26		3,984
Balance at December 31, 2017		137,288		$	0.01 - 13.49	$	10.20	$	1,119,562

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e. the aggregate difference between the closing price of our common stock on December 31, 2017 and 2016 of $18.35 and $9.00, respectively, and the exercise price for in-the-money options) that would have been received by the holders if all instruments had been exercised on December 31, 2017 and 2016. As of December 31, 2017, there was $184,000 of unrecognized compensation cost related to our unvested stock options, which will be recognized through 2019.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2017:

		Options Outstanding						Options Exercisable
Exercise Price		Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Number
$	0.01 - $1.00		7,850	$	0.01		4.05		7,850
$	1.01 - $7.00		10,000		6.80		7.89		5,833
$	7.01 - $8.00		42,188		7.76		3.38		42,188
$	8.01 - $10.00		5,250		9.26		6.99		4,747
$	10.01 - $13.49		72,000		13.27		4.99		37,500
	Total		137,288	$	10.19		4.73		98,118

Of the 137,288 stock options outstanding, 99,850 are non-qualified stock options. All options have been registered with the SEC.

The fair value of common stock options issued during the year ended December 31, 2017 were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used:

	Year ended  December 31, 2017
Expected dividend yield		1.54	%
Expected stock price volatility		54	%
Weighted-average risk-free interest rate		1.91	%
Weighted-average expected life of options (in years)		5.27

No stock options were granted during the year ended December 31, 2016.

The following is a summary of restricted stock units issued during the year ended December 31, 2017 and 2016:

	Number of Options Outstanding			Weighted Average Fair Value		Aggregate Intrinsic Value
Balance at December 31, 2015		108,000		$	7.76	$	626,400
Units granted		88,500			5.28		467,300
Units vested/issued		(55,000	)		7.32		379,588
Units forfeited		(15,000	)		6.61		111,941
Balance at December 31, 2016		126,500		$	6.35	$	1,138,500
Units granted		17,500			10.75		104,000
Units vested/issued		(69,170	)		6.95		799,563
Units forfeited		(9,665	)		7.88		106,330
Balance at December 31, 2017		65,165		$	6.66	$	1,111,703

As of December 31, 2017, there was $262,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized through 2018. All restricted stock units have been registered with the SEC.

During the year ended December 31, 2017 and 2016, we recorded compensation expense of $517,000 and $592,000, respectively, related to stock options and restricted stock units. Additionally, during the years ended December 31, 2017 and 2016, $57,000 and $429,000, respectively of additional cost was capitalized as Capitalized software on the Consolidated Balance Sheet as of December 31, 2017 and 2016.