Annual report pursuant to Section 13 and 15(d)

Equity Transactions

v3.7.0.1
Equity Transactions
12 Months Ended
Dec. 31, 2016
Equity [Abstract]  
Equity Transactions

NOTE 7 – EQUITY TRANSACTIONS

 

Common Stock:

 

Year Ended December 31, 2015:

 

In December 2014 the Company agreed to issue a total of 5,500,000 shares of the Company’s restricted common stock as a form of signing bonus to two employees with a fair value of $987,500. The entire fair value of $987,500 was expensed in 2014 and the 5.5 million common shares were subsequently issued in 2015.

 

During the year ended December 31, 2015, the Company issued an aggregate of 4,780,417 shares of common stock to employees and consultants with a total fair value of $2,341,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $2,341,000 upon issuance. The shares issued were valued at the date of the respective agreements.

 

In February 2015, the Company issued 2,500,000 shares of the its restricted common stock in exchange for all of the issued and outstanding shares of Franklin Networks, Inc., a Tennessee corporation. In December 2015, the Company cancelled 2,500,000 shares of its restricted common stock due to rescission and unwinding of the acquisition agreement. The value of the shares on the issuance date was $1,700,000 and the value of the shares on the rescission date was $500,000, resulting in a net charge to additional paid in capital of $1,200,000.

 

Year Ended December 31, 2016:

 

During the year ended December 31, 2016, the Company issued an aggregate of 1,843,987 shares of common stock to employees with a total fair value of $413,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $413,000 upon issuance. The shares issued were valued at the date of the respective agreements.

 

During the year ended December 31, 2016, the Company issued an aggregate of 4,509,912 shares of restricted common stock to consultants with a total fair value of $1,951,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $1,951,000 upon issuance. The shares issued were valued at the date of the respective agreements.

 

During the year ended December 31, 2016, the Company issued an aggregate of 100,000 shares of restricted common stock to consultants for cash of $15,000.

 

In April 2016, the Company cancelled a total of 325,000 shares of common stock issued to an employee pursuant to a settlement and termination agreement. Pursuant to current accounting guidelines, no further accounting was necessary for the cancellation of the 325,000 shares of common stock other than to remove the par value amounting to $33.00.

 

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, 2014 -   $ -
  Granted 600,000     0.61
  Vested (270,833)     0.57
  Forfeited -     -
Non-vested, December 31, 2015 329,167   $ 0.47
  Granted -     -
  Vested (308,334)     0.47
  Forfeited -     -
Non-vested, December 31, 2016 20,833   $ 0.50

 

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.

 

During the year ended December 31, 2015, 270,833 of these shares vested and as a result, the Company recognized compensation cost of $61,000.

 

During the year ended December 31, 2016, another 308,334 of these shares vested and as a result, the Company recognized compensation cost of $273,000. As of December 31, 2016, total unvested shares totaled 20,833 shares with unearned compensation costs of $13,000 which will be recognized in 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.

 

Options:

 

The following table summarizes common stock options activity:

 

        Weighted
        Average
        Exercise
    Options   Price
  December 31, 2015       —       $ —    
  Granted       12,900,000       2.83  
  Exercised       —         —    
  Cancelled       —         —    
  Forfeited       —         —    
  Outstanding, December 31, 2016       12,900,000     $ 2.83  
  Exercisable, December 31, 2016       4,400,000     $ 2.83  

 

In June 2016, the Company granted options to purchase 3.75 million shares of common stock valued at $472,000 pursuant to the planned acquisition of MMOJoe (see Note 6). The stock options are fully vested, exercisable at a price per share of $1.00, $2.50 and $5.00 and will expire starting December 31, 2017 through December 31, 2019.

 

In August 2016, the Company granted an employee options to purchase a total of 7.5 million shares of common stock with an exercise price per share 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. Total fair value of the options at grant date amounted to $201,000 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. The first tranche of 1 million shares became exercisable on January 1, 2017 with a fair value of the options at grant date of $28,000 computed using the Black-Scholes Option Pricing Model. During the year ended December 31, 2016, the Company recognized compensation expense of $28,000. Subsequent to December 31, 2016, the employment agreement was terminated, all options cancelled, and no further compensation expense for these options will be recognized.

 

In October 2016, the Company granted an employee options to purchase a total of 1.5 million shares of common stock with an exercise price per share of $1.00, $2.50 and $5.00 and will expire starting December 31, 2017 through December 31, 2019. The options are fully vested upon grant but are only exercisable in three tranches starting in October 2016 and January 2018 and 2019. Total fair value of the options at grant date amounted to $145,000 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 year ended December 31, 2016, the Company recognized compensation expense of $62,000. As of December 31, 2016, future unamortized costs amounted to approximately $82,000.

 

In October, 2016, the Company signed and investor relations consulting agreement with a third party granting options to purchase 50,000 shares of restricted common stock per month beginning October 24, 2016 through October 24, 2017 with an exercise price of $1.00 per share that will expire 36 months from date of grant. The options are granted monthly and fully vested and exercisable upon grant. As of December 31, 2016, 150,000 options were granted. Total fair value of the options at their respective grant dates amounted to $59,000 computed using the Black-Scholes Option Pricing Model. During the year ended December 31, 2016, the Company fully recognized the $59,000 compensation expense.

 

The weighted average exercise prices, remaining lives for options granted, and exercisable as of December 31, 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   2,150,000   1.21 - 3   $1.00   1,150,000   $1.00
$2.50   2,750,000   2.21 - 2.5   $2.50   750,000   $2.50
$5.00   8,000,000   3.21 - 3.5   $5.00   2,500,000   $5.00
    12,900,000       $3.97   4,400,000   $3.40

 

At December 31, 2016, the Company’s closing stock price was $0.62 per share and the aggregate intrinsic value of the options outstanding at December 31, 2016 was $0. There were no stock options issued or outstanding during the year ended December 31, 2015.

 

Warrants:

 

The following table summarizes common stock warrants activity:

 

        Weighted
        Average
        Exercise
    Warrants   Price
  December 31, 2015       —       $ —    
  Granted       200,000       0.50  
  Exercised       —         —    
  Cancelled       —         —    
  Forfeited       —         —    
  Outstanding, December 31, 2016       200,000     $ 0.50  
  Exercisable, December 31, 2016       200,000     $ 0.50  

 

In October and November 2016, pursuant to advisory services agreement, the Company granted warrants to purchase a total of 200,000 shares of restricted common stock with an exercise price of $1.00 and will expire 12 months after date of grant. The options are fully vested and exercisable upon grant. Total fair value of the options at grant date amounted to $50,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of grant.

 

    Outstanding Warrants       Exercisable Warrants
Warrants           Weighted       Weighted
Exercise Price       Life   Average  Exercise       Average  Exercise
Per Share   Shares   (Years)   Price   Shares   Price
$0.50   200,000   1   $0.50   200,000   $0.50
    200,000       $0.50   200,000   $0.50

 

At December 31, 2016, the Company’s closing stock price was $0.62 per share and the aggregate intrinsic value of the warrants outstanding at December 31, 2016 was $24,000. There were no stock warrants issued or outstanding during the year ended December 31, 2015.

 

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

 

      Year Ended
December 31,
      2016
  Expected life in years   0.61 – 3.5
  Stock price volatility   132% - 156%
  Risk free interest rate   0.62 % - 1.54%
  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.