Annual report pursuant to Section 13 and 15(d)

Note 8 - Equity

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Note 8 - Equity
 12 Months Ended
Dec. 31, 2015
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note 8:     Equity
 
Public Offerings of Common Stock
 
The Company completed its initial public offering of 3,000,000 shares of common stock at a price to the public of $6.50 per share on November 14, 2014, whereupon it received aggregate net proceeds of approximately $17,065,000 after deducting underwriting discounts, commissions and other offering expenses. The Company’s underwriters exercised their option to purchase 450,000 additional shares of common stock to cover over-allotments on November 18, 2014, pursuant to which it received aggregate net proceeds of approximately $2,710,000, after deducting underwriting discounts, commissions and expenses.  Also, in conjunction with the IPO, the Company issued warrants to the underwriters for the purchase of 90,000 shares of common stock, which can be exercised between November 10, 2015 and November 10, 2018 at an exercise price of $8.125 per share.
 
On November 25, 2015 the Company closed its follow-on offering of 2,272,727 shares of our common stock, offered and sold by the Company, at a price to the public of $5.50 per share. On December 30, 2015 the underwriters of the Company’s s public offering of common stock exercised their over-allotment option to purchase an additional 340,909 shares of common stock at a public offering price of $5.50 per share After giving effect to the over-allotment exercise, the total number of shares offered and sold in the Company’s follow-on public offering increased to 2,613,636 shares. With the over-allotment option exercise, the Company received aggregate net proceeds of approximately $13.0 million.
 
Stock Options
 
In November 2012, the Company adopted the 2012 Stock Plan (“2012 Plan”). The 2012 Plan’s purpose is to attract and retain the best available personnel for positions of substantial responsibility, provide incentives and additional ownership opportunities for employees, directors, and consultants, and generally promote the success of the Company’s business. The 2012 Plan permits the Company to grant incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, performance units and performance shares to employees, directors, and consultants for a period of ten years.
 
On May 15, 2014, the Company adopted the 2014 Stock Plan (“2014 Plan”). The 2014 Plan is designed to supersede and replace the 2012 Plan, effective as of the adoption date and set aside 1,513,000 shares of the Company’s common stock that may be granted under the 2014 Plan.
 
During the year ended December 31, 2014, the Company granted 321,895 stock options to employees and certain non-employee members of its board of directors with exercise prices ranging from $1.20 - $6.50.
 
During the year ended December 31, 2015, the Company granted 240,160 stock options to employees and certain non-employee members of its board of directors with exercise prices ranging from $5.99 - $9.62.
 
The fair value of the Company’s common stock prior to its IPO was estimated by the Board of Directors at or about the time of grant for each share-based award. At each grant, the board considered a number of factors in establishing a value for the Company’s common stock including its EBITDA, assessments of an amount its shareholders would accept in the private sale of the company, discussions with its investment bankers regarding pricing of the Company’s common stock in an initial public offering and the probability of successfully completing an IPO. Although the methods for determining the fair value of the Company’s common stock are not complex, the board’s estimate of the fair value of the common stock did involve subjectivity, especially assessments of value in a private sale and estimates of value in the public stock market.
  
Upon the completion of the Company’s IPO, its stock trading price became the basis of fair value of its common stock used in determining the value of share based awards. To the extent the value of the Company’s share based awards involves a measure of volatility, it will rely upon the volatilities from publicly traded companies with similar business models until its common stock has accumulated enough trading history for it to utilize its own historical volatility. The expected life of the options granted is based on the average of the vesting term and the contractual term of the option. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury 10-year yield curve in effect at the date of the grant.
 
The Company has computed the fair value of all options granted during the years ended December 31, 2015 and 2014, using the following assumptions:
 
    Years Ended December 31,
    2015   2014
Expected volatility   44% - 50%   43% - 46%
Expected dividends     None       None  
Expected term (years)   5.5 - 7   5.5 - 7.5
Risk-free rate   1.54% to 2.01%   0.07% - 2.05%
Forfeiture rate     20%       None  
 
The information below summarizes the stock options:
 
    Number of
Shares		   Weighted
Average
Exercise
Price		   Weighted
Average
Fair
Value		   Weighted
Average
Remaining
Contractual Life
Outstanding at December 31, 2013     -       -       -          
Granted at market price     321,895       2.04                  
Exercised     -       -                  
Cancelled     (7,120 )     1.20                  
Outstanding at December 31, 2014     314,775     $ 2.23     $ 0.92       9.2  
Granted at market price     240,160       8.16                  
Exercised     (445 )     1.20                  
Cancelled     (77,031 )     7.88                  
Outstanding at December 31, 2015     477,459     $ 4.30     $ 2.01       8.7  
Exercisable at December 31, 2015     178,856     $ 3.08     $ 1.36       8.2  
 
The intrinsic value of the Company’s stock options outstanding was $1,171,360 at December 31, 2015.
 
For the years ended December 31, 2015 and 2014, stock based compensation expense for stock options was $328,772 and $32,105, respectively.  Unrecognized stock-based compensation expense for stock options for the year ended December 31, 2015 was $854,051, which is expected to be recognized ratably over the next 2.48 years.
 
Restricted Stock
 
On January 1, 2014, the Company granted restricted stock awards to executives to earn an aggregate of 567,375 shares of common stock. The restricted stock was granted in two tranches. The first tranche vests over a period of four years from the grant date.  The second tranche began vesting upon completion of the Company’s initial public offering on November 14, 2014 over a three year period.  The fair market value of the 567,375 shares of restricted stock was valued at $1.20 per share, determined by the Board of Directors, totaling approximately $679,000 to be recognized ratably as the stock is vested.
 
On December 16, 2014, the Company granted restricted stock to an executive to earn 95,000 shares of common stock.  These shares vest over a four year period from the grant date.  The estimated fair market value of these shares was valued at $6.20 per share, based on the Company’s stock trading price, totaling approximately $589,000 to be recognized ratably as the stock is vested.
 
During 2015, the Company granted restricted stock to two employees to earn 8,000 shares of common stock. These shares vest over a four year period from grant date. The estimated fair market value of these shares was valued at $9.62 per share, based on the Company’s stock trading price, totaling approximately $76,960 to be recognized ratably as the stock is vested.
 
The information below summaries the restricted stock activity:
 
Restricted Stock Awards   Shares
Outstanding at December 31, 2013     -  
Restricted stock awards granted     662,375  
Awards forfeited or exercised     -  
Outstanding at December 31, 2014     662,375  
Restricted stock awards granted     8,000  
Awards forfeited or exercised     -  
Outstanding  at December 31, 2015     670,375  
 
For the years ended December 31, 2015 and 2014, stock based compensation expense for restricted stock awards was $496,373 and $69,725, respectively.  Unrecognized stock based compensation expense for restricted stock awards as of December 31, 2015 was $790,706 to be recognized ratably over 2.51 years.
 
Warrants
 
In conjunction with the IPO, the Company issued warrants to the underwriters for the purchase of 90,000 shares of common stock, which can be exercised between November 10, 2015 and November 10, 2018 at an exercise price of $8.125 per share.  For the year ended December 31, 2014, a net cost of $113,929 was recorded against proceeds under additional paid in capital, associated with these awards. The fair value of the warrants was determined using the Black-Scholes option valuation model. The warrants expire on November 10, 2018 and have a remaining contractual life of 2.9 years as of December 31, 2015.
 
The Company has computed the fair value of all warrants granted during the year ended December 31, 2015 and 2014, using the following assumptions:
 
    December 31,
    2015   2014
Volatility     -       33 %
Risk-free interest rate     -       0.78 %
Contractual term (years)     -       4.0  
  
The information below summarizes the warrants:
 
    Number of
Units		   Weighted
Average
Exercise Price		   Weighted
Average
Remaining
Contractual Term
(in years)		   Intrinsic
Value
                 
Outstanding at December 31, 2014     90,000     $ 8.13       3.9       -  
                                 
Granted     -       -       -       -  
                                 
Outstanding at December 31, 2015     90,000     $ 8.13       2.9     $ -  
                                 
Exercisable at December 31, 2015     90,000     $ 8.13       2.9     $ -  
 
Preferred Stock
 
The Company has 50,000 shares authorized as preferred stock. The preferred stock is senior to common stock and each share has the same voting rights as the common stockholders. The liquidation preference is equal to the stated value of the stock plus any dividends declared but unpaid at the time of a liquidation event. The preferred shares are convertible to common stock at the option of the holder at a rate of one share of preferred stock for 53.4 shares of common stock. On November 14, 2014, the holders of the Company’s preferred stock converted all 25,000 outstanding shares of preferred stock to 1,335,000 shares of common stock.
 
Common Stock
 
On November 26, 2012, the Board declared a dividend of 29 shares of the Company’s common stock on each share of common stock outstanding as of December 1, 2012. The stock dividend was effective and payable automatically as of the effective date of the Certificate of Amendment to the Company’s Certificate of Incorporation which was January 9, 2013. The stock dividend has been accounted for as a stock split and retroactively reflected in these consolidated financial statements. On September 16, 2014, the Board declared a second stock dividend of .78 shares of common stock for each share of common stock outstanding as of September 15, 2014. The second stock dividend was effective and payable automatically as of the effective date of the Company’s Amended and Restated Certificate of Incorporation, which was September 17, 2014.  This stock dividend has been accounted for as a stock split and retroactively reflected in these consolidated financial statements.
 
On January 9, 2013, a Certificate of Amendment of Certificate of Incorporation was filed with the Delaware Secretary of State. This amendment authorized the Company to increase the number of common stock shares from 150,000 to 4,000,000. A subsequent Certificate of Amendment of Certificate of Incorporation was filed on December 24, 2013, authorizing the Company to increase the number of common stock shares to 4,250,000. An Amended and Restated Certificate of Incorporation was filed on September 17, 2014, authorizing the Company to increase the number of common stock shares to 20,000,000.