Stockholders' Equity

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Stockholders' Equity

Note 9 — Stockholders’ Equity

IPO Units

At April 28, 2016, the Company estimated the fair value of its common stock using the guideline transaction method of the market approach. The Company calculated the revenue multiples implied by recent IPOs of comparable companies over the past three years. This resulted in a median projected revenue multiple of 3.55x. Since the Company was not revenue producing as of its IPO date, projected revenues were developed for the years 2017 through 2020 based on market assumptions for the Company’s products and these revenues were then discounted using a discount rate in line with the Company’s cost of capital. The Company then applied the revenue multiple to the average of its discounted revenues to determine its total equity value and divided the total equity value by the number of common shares outstanding immediately prior to the IPO to arrive at an estimated fair value of common stock of $3.50.

Warrants

At September 30, 2016 and December 31, 2015, the Company had warrants outstanding to purchase 10,620,295 and 9,560,295 shares, respectively. The outstanding 9,560,295 warrants as of December 31, 2015 automatically converted into warrants having the same terms and conditions as the 1,060,000 warrants issued in the Company’s IPO on April 28, 2016, including a $5.00 per share warrant exercise price and a warrant term of six (6) years.

Commencing April 28, 2017, the Company may redeem the outstanding warrants (other than those outstanding prior to the IPO held by the Company’s management, founders, and members thereof, but including the warrants held by the initial investors), at the Company’s option, in whole or in part, at a price of $0.01 per warrant:

* at any time while the warrants are exercisable;

* upon a minimum of 30 days’ prior written notice of redemption;

* if, and only if, the volume weighted average price of the Company’s common stock equals or exceeds $10.00 (subject-to adjustment) for any 20 consecutive trading days ending three business days before the Company issues its notice of redemption, and provided the average daily trading volume in the stock is at least 20,000 shares per day; and,

* if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.

The right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holder’s warrant upon surrender of such warrant.

On October 28, 2016, the Company filed a Registration Statement on Form S-1 to register the issuance of the 1,060,000 shares of the Company’s common stock upon the exercise of the 1,060,000 warrants issued in the Company’s IPO. As of the date of this filing on Form 10Q, the Registration Statement has not yet been declared effective by the Securities and Exchange Commission.

Unit Purchase Options

On April 28, 2016, the Company issued unit purchase options to the selling agents in the Company’s IPO. The unit purchase options provide for the purchase of 53,000 units at an exercise price of $5.50 per unit. Each unit covered by the unit purchase options is identical to the units sold in the Company’s IPO and consists of one share of common stock and one warrant to purchase a share of common stock at $5.00 per share. The Company estimated the fair value of the unit purchase options issued to the selling agents was approximately $105,100, which was accounted for as offering costs of the Company’s IPO. The fair value of the unit purchase options was determined using a Black-Scholes option pricing model with the following assumptions: fair value of the underlying unit of $5.00, dividend yield of 0.00%, expected volatility of 50%, risk free rate of 1.28% and remaining contractual term of 4.6 years. The valuation assumptions for the unit purchase options were determined as follows:

Expected dividend yield: The estimate for annual dividends is $0.00 as the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.

Expected stock price volatility: The expected volatility is based on historical stock price volatilities of similar entities within the Company’s industry over the period commensurate with the expected term of the unit purchase options.

Risk-free interest rate: The Company based the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period commensurate with the assumed expected unit purchase options term.

Expected term of the unit purchase options: The expected term of the unit purchase options represents the period of time the unit purchase options are expected to be outstanding, which is their contractual term.