Quarterly report pursuant to Section 13 or 15(d)

Equity Transactions

v3.5.0.2
Equity Transactions
9 Months Ended
Sep. 30, 2016
Equity [Abstract]  
Equity Transactions

NOTE 5 – EQUITY TRANSACTIONS

 

Common Stock:

 

During the nine months ended September 30, 2016, the Company issued an aggregate of 1,443,987 shares of common stock to employees with a total fair value of $232,012 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $232,012 upon issuance. The shares issued were valued at the date of the respective agreements.

 

During the nine months ended September 30, 2016, the Company issued an aggregate of 1,981,598 shares of restricted common stock to consultants with a total fair value of $533,833. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $533,833 upon issuance. The shares issued were valued at the date of the respective agreements.

 

During the nine months ended September 30, 2016, the Company issued an aggregate of 100,000 shares of restricted common stock to consultants for cash of $15,000. The common shares had a fair value of $19,000 at the date of grant, and as a result, the Company reflected an expense of $4,000 upon issuance. The shares issued were valued at the date of the respective agreements.

 

Common Stock with Vesting Terms:

 

In August 2015, the Company granted and issued 100,000 shares of its restricted common stock to an employee pursuant to an employment agreement. The 100,000 shares vest over a period of one year with a fair value of $37,000 at the date of grant.

 

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, 2015, 270,833 of these shares had vested. During the nine months ended September 30, 2016, another 245,834 of these shares vested and as a result, the Company recognized compensation cost of $247,500. As of September 30, 2016, total unvested shares totaled 83,333 shares with unearned compensation costs of $54,350 which will be recognized in the remainder of fiscal year 2016 and in fiscal 2017.

 

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.

 

The following table summarizes common stock with vesting terms activity:

 

        Weighted
        Average
    Number of   Grant Date
    Shares   Fair Value
Non-vested, December 31, 2015       329,167     $ 0.47  
Granted       —         —    
Vested       (245,834 )     0..47  
Forfeited       —         —    
Non-vested, September 30, 2016       83,333     $ 0.50  

 

Options

 

In June 2016, the Company granted options to purchase 3.75 million shares of common stock pursuant to the planned acquisition of MMOJoe (see Note 4). The stock options are fully vested, exercisable at a price per share of $1.00, $2.50 and $5.00 and will expire starting in December 31, 2017 through December 31, 2019.

 

In August 2016, the Company granted an employee option to purchase a total of 7.5 million shares of common stock with an exercise price of $1.00, $2.50 and $5.00. The options are fully vested upon grant but are only exercisable in three tranches starting in January 2017, 2018 and 2019. These options will expire starting in December 2017 through December 2019.

 

Total fair value of the options at grant date amounted to $200,575 computed using the Black-Scholes Option Pricing Model. The Company determined the appropriate treatment is to recognize the fair value of the options over the service period, which would be when the options are fully exercisable. During the period ended September 30, 2016, the Company recognized compensation expense of $25,020. As of September 30, 2016, future unamortized costs amounted to approximately $176,000.

 

The following table summarizes common stock options activity:

 

        Weighted
        Average
    Options   Exercise Price
December 31, 2015       —       $ —    
Granted       11,250,000       3.97  
Exercised       —         —    
Forfeited       —         —    
Outstanding September 30, 2016       11,250,000       3.97  
Exercisable, September 30, 2016       3,750,000     $ 3.97  

 

The weighted average exercise prices, remaining lives for options granted, and exercisable as of September 30, 2016, 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       1,500,000       1.42 - 1.5     $ 1.00       500,000     $ 1.00  
$ 2.50       2,250,000       2.42 - 2.5     $ 2.50       750,000     $ 2.50  
$ 5.00       7,500,000       3.42 - 3.5     $ 5.00       2,500,000     $ 5.00  
          11,250,000             $ 3.97       3,750,000     $ 3.97  

 

At September 30, 2016, 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, the aggregate intrinsic value of the options outstanding at September 30, 2016 was $0.

 

The table below represents the average assumptions used in valuing the stock options granted in fiscal 2016:

 

      Nine-Months Ended September 30,  
      2016  
Expected life in years     0.71 – 3.5  
Stock price volatility     132 % - 141%  
Risk free interest rate     0.64 % - 1.08%  
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.