Quarterly report pursuant to Section 13 or 15(d)

Note 7 - Equity

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Note 7 - Equity
 6 Months Ended
Jun. 30, 2016
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note 7:     Equity
 
Public Offerings of Common Stock
 
The Company completed its IPO 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 common stock, at a price to the public of $5.50 per share. On December 30, 2015 the Company’s underwriters 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 exercise of the over-allotment option, the total number of shares offered and sold in the Company’s follow-on public offering increased to 2,613,636 shares. With the exercise of the over-allotment option, the Company received aggregate net proceeds of approximately $13.0 million.
 
Stock Options
 
In the six months ended June 30, 2016, the Company granted 390,000 stock options to employees with exercise prices ranging from $3.07 - $4.11.
 
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 six months ended June 30, 2016 and 2015, using the following assumptions:
 
    Six Months Ended June 30,
    2016   2015
Expected volatility   44% - 45%   46% - 47%
Expected dividends     None       None  
Expected term (years)     7     5 - 6.25
Risk-free rate   1.47% to 1.68%   1.32% - 1.74%
Forfeiture rate     20%       20%  
 
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, 2015     477,459     $ 4.30     $ 2.01       8.7  
Granted at market price     390,000       3.86                  
Exercised     (33,374 )     1.97                  
Cancelled     (46,130 )     2.59                  
Outstanding at June 30, 2016     787,955     $ 4.28     $ 2.07       8.1  
Exercisable at June 30, 2016     315,775     $ 3.63     $ 2.22       8.2  
 
The intrinsic value of the Company’s stock options outstanding was $159,955 at June 30, 2016.
 
For the three and six months ended June 30, 2016, stock based compensation expense for stock options was $171,152, and $338,911, respectively. For the three and six months ended June 30, 2015, stock based compensation expense for stock options was $67,468, and $110,996, respectively. Unrecognized stock-based compensation expense for stock options as of June 30, 2016 was $799,768, which is expected to be recognized ratably over the next 3.42 years.
 
Restricted Stock
 
The information below summaries the restricted stock activity:
 
Restricted Stock Awards   Shares
Outstanding  at December 31, 2015     670,375  
Restricted stock awards granted     86,415  
Awards forfeited or exercised     (115,436 )
Outstanding  at June 30, 2016     641,354  
 
For the three and six months ended June 30, 2016, stock based compensation expense for restricted stock was $391,373, and $418,483, respectively. For the three and six months ended June 30, 2015, stock based compensation expense for restricted stock was $89,744, and $178,503, respectively. Unrecognized stock based compensation expense for restricted stock awards as of June 30, 2016 was $642,962 to be recognized ratably over the next 1.87 years.
 
Modifications
 
During the three months ended June 30, 2016, the Company accelerated the vesting of all unvested stock options and restricted stock awards granted to the Company’s former chief development officer in relation to his separation from the Company. In addition, the Company modified the post-employment exercise period of the stock options previously granted, extending the exercise period to December 31, 2017.
 
During the three months ended June 30, 2016, the Company modified the post-employment exercise period of stock options previously granted to the Company’s former chief executive officer in relation to his separation from the Company. The modification extended the exercise period to May 13, 2020. In addition, the Company accelerated the vesting of 9,733 shares of the previously granted restricted stock awards that were scheduled to vest in July 2016. The remaining unvested restricted stock awards were forfeited upon separation.
 
These modifications resulted in an approximately $412,000 increase in stock-based compensation for the three months ended June 30, 2016.