NOTE 11 – STOCK BASED COMPENSATION

Both stock options and restricted stock awards vest at 20% per year beginning on the first anniversary of the date of grant. The Company records stock-based compensation expense related to outstanding stock options and restricted stock awards based upon the fair value at the date of grant over the vesting period of such awards on a straight-line basis. Stock options expire ten years after the date of the grant.

(a)

Stock Option Awards

Stock option awards have been granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock options and restricted stock awards are considered common stock equivalents for the purpose of computing earnings per share on a diluted basis.

A summary of the status of outstanding stock options at March 31, 2015 and changes therein was as follows:

	2015
	Number of Shares		Weighted Average Exercise Price
Options outstanding at the beginning of year		209,808	$	9.36
Granted		162,566		8.60
Forfeited		(698)		11.12
Exercised		-		-
Expired		-		-
Options outstanding at March 31, 2015		371,676	$	9.02

Options exercisable at March 31, 2015		99,110	$	11.17

Weighted-average fair value of options granted during the year			$	2.61

The exercise price and weighted average remaining contractual life in years for all options outstanding at March 31, 2015 are detailed below.

Outstanding as of March 31, 2015	Exercise Price		Weighted Average Remaining Contractual Life (in years)
95,718	$	11.12	0.3
3,392	$	12.51	2.0
110,000	$	7.74	9.2
162,566	$	8.60	9.8
371,676

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model which includes several assumptions such as volatility, expected dividends, expected term and risk-free rate for each stock option award.

In determining the expected volatility of the options, the Company utilized the historical volatility of other similar companies during a period of time equal to the expected life of the options because the Company’s common shares have been publicly traded for a period less than the expected life of the options.

The Company assumed no dividend payments would be made during the expected contractual term of the option period.

The Company determined the expected contractual term of the options to be 6.5 years using the simplified method under SEC’s Staff Accounting Bulletin No. 110 due to the Company not having sufficient historical data to provide a reasonable basis for estimation.

The risk-free rate utilized for this calculation was based upon the U.S. Treasury yield curve in effect at the date of the options grant.

Assumptions used to determine the weighted average fair value of the stock options granted were as follows:

	Grant Date
	May 27, 2014			January 31, 2015
Dividend yield		0.00	%		0.00	%
Expected volatility		28.42	%		26.76	%
Risk-free rate		1.95	%		1.49	%
Expected life in years		6.5			6.5

Weighted-average fair value of options at grant date	$	2.55		$	2.61

(b)

Restricted Stock Awards

The following table summarizes the restricted stock awards outstanding for the year ended December 31, 2014 and the three months ended March 31, 2015:

	Number of Shares		Weighted Average Fair Value on Grant Date
Nonvested at January 1, 2014		-	$	-
Granted		4,114		8.01
Vested		-		-
Forefeited		-		-
Nonvested at December 31, 2014		4,114		8.01
Granted		-		-
Vested		-		-
Forefeited		-		-
Nonvested at March 31, 2015		4,114	$	8.01

Weighted average remaining contractual life in years				9.7

The fair value of restricted stock awards is measured based on the number of shares granted and the closing market price of the Company’s common stock on the date of grant. The share-based compensation expense is reduced for an estimate of the restricted stock unit awards that are expected to be forfeited. The forfeiture estimate is zero based on historical data and other factors.

The Company recorded stock-based compensation expense of $26,500 and zero for the three months ended March 31, 2015 and 2014, respectively, in connection with the stock options and restricted stock awards. At March 31, 2015 the Company has unrecognized option expense of $640,800 to be recognized over the remaining vesting period of the options. The Company has unrecognized compensation expense related to non-vested restricted stock awards of $31,000 to be recognized over the remaining vesting period of the restricted stock awards.