Quarterly report pursuant to Section 13 or 15(d)

Equity Transactions

v3.7.0.1
Equity Transactions
3 Months Ended
Mar. 31, 2017
Equity [Abstract]  
Equity Transactions

NOTE 4 – EQUITY TRANSACTIONS

 

Common Stock:

 

During the three months ended March 31, 2017, the Company issued an aggregate of 1,250,000 shares of common stock to employees with a total fair value of $847,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $847,000 upon issuance. The shares issued were valued at the date earned under the respective agreements.

 

During the three months ended March 31, 2017, the Company issued an aggregate of 1,560,000 shares of restricted common stock to consultants with a total fair value of $1,065,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $1,065,000 upon issuance. The shares issued were valued at the date earned under the respective agreements.

 

Common Stock with Vesting Terms:

 

The following table summarizes common stock with vesting terms activity:

 

          Weighted
          Average
    Number of     Grant Date
    Shares     Fair Value
Non-vested, December 31, 2016 20,833    $ 0.50
  Granted    
  Vested (20,833)     0.50
  Forfeited    
Non-vested, March 31, 2017   $
           

 

In February 2015, the Company granted and issued 500,000 shares of its restricted common stock to a consultant pursuant to a consulting agreement. The 500,000 shares are forfeitable and are deemed earned upon completion of service over a period of twenty-four months. The Company recognizes the fair value of these shares as they vest. As of December 31, 2016, 479,167 of these shares had vested. During the three months ended March 31, 2017, the remaining 20,833 of these shares vested and as a result, the Company recognized compensation cost of $46,000. As of March 31, 2017, there were no unvested shares and no unearned compensation costs to be recorded.

 

When calculating basic net income (loss) per share, these shares are included in weighted average common shares outstanding from the time they vest. When calculating diluted net income per share, these shares are included in weighted average common shares outstanding as of their grant date.

 

Options

 

The following table summarizes common stock options activity:

 

          Weighted
          Average
    Options     Exercise Price
December 31, 2016 12,900,000    $ 2.83 
  Granted 570,000      1.00 
  Exercised    
  Cancelled    
  Forfeited (7,500,000)     3.97 
Outstanding, March 31, 2017 5,970,000      3.32 
Exercisable, March 31, 2017 4,585,000    $ 3.43 
           

 

During the period ended March 31, 2017, the Company granted stock options to consultants to purchase a total of 570,000 shares of common stock. A total of 185,000 options vested upon grant while the remaining 385,000 options will vest through February 2018 at a rate of 35,000 shares per month. The options are exercisable at $1.00 per share and will expire over 4 years. The fair values of the options are recorded at their respective grant dates computed using the Black-Scholes Option Pricing Model. During the three months ended March 31, 2017, the Company recognized $111,000 in compensation expense based upon the vesting of outstanding options. As of March 31, 2017 the unamortized compensation expense for unvested options was $231,000 which will be recognized over the vesting period.

 

The weighted average exercise prices, remaining lives for options granted, and exercisable as of March 31, 2017, were as follows:

 

                     
    Outstanding Options       Exercisable Options
Options           Weighted       Weighted
Exercise Price       Life   Average Exercise       Average Exercise
Per Share   Shares   (Years)   Price   Shares   Price
                     
$1.00   1,720,000   0.75 – 3.86   $1.00   1,335,000   $1.00
$2.50   1,250,000   1.75   $2.50   750,000   $2.50
$5.00   3,000,000   2.75   $5.00   2,500,000   $5.00
    5,970,000       $3.32   4,585,000   $3.43

 

At March 31, 2017, the Company’s closing stock price was $0.65 per share. As all outstanding options had an exercise price greater than $0.65 per share, there was no intrinsic value of the options outstanding at March 31, 2017.

 

Warrants:

 

The following table summarizes common stock warrants activity:

 

        Weighted
        Average
        Exercise
    Warrants   Price
  December 31, 2016       200,000     $ 0.50  
  Granted       1,000,000       1.75  
  Exercised       —         —    
  Cancelled       —         —    
  Forfeited       —         —    
  Outstanding, March 31, 2017       1,200,000     $ 1.54  
  Exercisable, March 31, 2017       1,200,000     $ 1.54  

 

In March 2017, pursuant to an employee separation agreement, the Company granted warrants to purchase a total of 1,000,000 shares of restricted common stock with an exercise price of $1.50 and $2.00 which will expire December 31, 2018. The warrants are fully vested and exercisable upon grant. Total fair value of the warrants at grant date amounted to $291,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of grant.

 

The weighted average exercise prices, remaining lives for warrants granted, and exercisable as of March 31, 2017, were as follows:

 

    Outstanding and Exercisable Warrants  
Warrants          
Exercise Price       Life  
Per Share   Shares   (Years)  
$0.50   200,000   0.6  
$1.50   500,000   1.75  
$2.00   500,000   1.75  
    1,200,000      

 

At March 31, 2017, the Company’s closing stock price was $0.65 per share and the aggregate intrinsic value of the warrants outstanding at March 31, 2017 was $30,000.

 

The table below represents the average assumptions used in valuing the stock options and warrants granted in fiscal 2017:

 

    Three-Months Ended March 31,  
    2017  
  Expected life in years 1.75 – 3.92  
  Stock price volatility 127% - 158%  
  Risk free interest rate 1.26 % - 1.60%  
  Expected dividends -
  Forfeiture rate   -  


The assumptions used in the Black Scholes models referred to above are based upon the following data: (1) the contractual life of the underlying non-employee options is the expected life. The expected life of the employee option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. (2) The expected stock price volatility was based upon the Company’s historical stock price over the expected term of the option. (3) The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options. (4) The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future. (5) The expected forfeiture rate is based on historical forfeiture activity and assumptions regarding future forfeitures based on the composition of current grantees.