12. Stockholders' Equity

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements

12. Stockholders' Equity

Dividend Declared

Dividends declared and paid on Common Stock were $1,312,625 and $612,401 for the years ended December 31, 2014 and 2013, respectively. The Company’s Board of Directors approved a quarterly dividend on February 6, 2015 of $.05 per share payable in cash on March 13, 2015 to stockholders of record as of February 27, 2015 (see Note 20).

Preferred Stock

On August 13, 2013, the Company’s stockholders approved an amendment to the Certificate of Incorporation of the Company to increase the number of authorized shares of Preferred Stock from 1,000,000 to 2,500,000. The Board of Directors has the authority to issue shares of Preferred Stock from time to time in a series and to fix, before the issuance of each series, the number of shares in each series and the designation, liquidation preferences, conversion privileges, rights and limitations of each series. There was no preferred stock issued as of December 31, 2014 and 2013.

Common Stock

On August 13, 2013, the Company’s stockholders approved an amendment to the Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock from 10,000,000 to 20,000,000.

On December 13, 2013, the Company closed on an underwritten public offering of 3,450,000 shares of its Common Stock, including 450,000 shares issued pursuant to the underwriter’s 30-day over-allotment option, at a public offering price of $5.95 per share. The aggregate net proceeds to the Company was approximately $18,804,000, after deducting underwriting discounts and commissions and other offering expenses of $1,723,000.

The Company used the net proceeds of the offering to contribute capital to its insurance subsidiary, KICO, to support growth, including possible product expansion, and to repay indebtedness. A registration statement relating to these securities was filed with the SEC and became effective on December 9, 2013.

Other Equity Compensation

For the years ended December 31, 2014 and 2013, there was no other equity compensation.

Stock Options

Pursuant to the Company’s 2005 Equity Participation Plan (the “2005 Plan”), which provides for the issuance of incentive stock options, non-statutory stock options and restricted stock, a maximum of 700,000 shares of the Company’s Common Stock are permitted to be issued pursuant to options granted and restricted stock issued. Effective August 12, 2014, the Company adopted the 2014 Equity Participation Plan (the “2014 Plan”) pursuant to which, subject to shareholder approval on or before August 12, 2015 a maximum of 700,000 shares of common stock of the Company are authorized to be issued pursuant to the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and stock bonuses.  Incentive stock options granted under the 2014 Plan and 2005 Plan expire no later than ten years from the date of grant (except no later than five years for a grant to a 10% stockholder). The Board of Directors or the Stock Option Committee determines the expiration date with respect to non-statutory stock options and the vesting provisions for restricted stock granted under the 2014 Plan and 2005 Plan.

The results of operations for the years ended December 31, 2014 and 2013 include stock-based stock option compensation expense totaling approximately $172,000 and $60,000, respectively. Stock-based compensation expense related to stock options for the years ended December 31, 2014 and 2013 is net of estimated forfeitures of 20% and 21%, respectively. Such amounts have been included in the consolidated statements of income and comprehensive income within other operating expenses.

Stock-based compensation expense in 2014 and 2013 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. The weighted average estimated fair value of stock options granted during the years ended December 31, 2014 and 2013 were $1.60 and $1.43 per share respectively. The fair value of options at the grant date was estimated using the Black-Scholes option-pricing method. The following weighted average assumptions were used for grants during the years ended December 31, 2014 and 2013:

	Years ended
	December 31,
	2014	2013
Dividend Yield	2.97%	2.42% - 3.14%
Volatility	40.53%	45.73% - 46.71%
Risk-Free Interest Rate	0.92%	0.61% - 0.79%
Expected Life	3.25 years	3.25 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

A summary of option activity under the Company’s 2005 Plan for the year ended December 31, 2014 is as follows:

Stock Options	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		321,365		$	3.36		2.26	$	1,257,936
Granted (1)		200,000		$	6.73		-	$	284,000
Exercised		(100,115	)	$	2.49		-	$	466,816
Forfeited		-		$	-		-	$	-
Outstanding at December 31, 2014 (1)		421,250		$	5.16		3.13	$	1,258,013
Vested and Exercisable at December 31, 2014		232,500		$	4.22		2.15	$	912,913

(1)   On August 12, 2014, an additional 50,000 options were granted under the 2014 Plan, which is subject to shareholder approval.

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2014 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the $8.15 closing price of the Company’s Common Stock on December 31, 2014. The total intrinsic value of options exercised in year ended December 31, 2014 was $466,816, determined as of the date of exercise.

Participants in the 2014 Plan and 2005 Plan may exercise their outstanding vested options, in whole or in part, by having the Company reduce the number of shares otherwise issuable by a number of shares having a fair market value equal to the exercise price of the option being exercised (“Net Exercise”). The Company received cash proceeds of $5,877 from the exercise of options for the purchase of 2,500 shares of Common Stock in the year ended December 31, 2014. The remaining 97,615 options exercised in 2014 were Net Exercises. The Company received cash proceeds of $11,750 from the exercise of options for the purchase of 5,000 shares of Common Stock in the year ended December 31, 2013. The remaining 1,250 options exercised in 2013 were Net Exercises.

As of December 31, 2014 and 2013, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $156,000 and $71,000, respectively. Unamortized compensation cost as of December 31, 2014 is expected to be recognized over a remaining weighted-average vesting period of 1.08 years.

As of December 31, 2014, there were 1,135 shares reserved under the 2005 Plan and 650,000 shares reserved under the 2014 Plan.