Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
9 Months Ended
Sep. 30, 2021
Stockholders' Equity Note [Abstract]  
Stockholders’ Equity

Note 9 – Stockholders’ Equity

 

2019 Equity Incentive Plan

 

On August 13, 2021, the Board approved an amendment to the 2019 Equity Incentive Plan (the “Plan”) to increase the number of shares of common stock authorized under the Plan from 3,463,305 shares to 7,800,000 shares, subject to the approval of the Company’s stockholders. On November 11, 2021, the Board approved revising the number of shares of common stock authorized under the Plan to be 3,763,305 shares, subject to the approval of the Company’s stockholders. As of September 30, 2021 there were 233,444 shares available under the plan.

 

Common Stock

 

On January 4, 2021, the Company issued to its non-executive directors an aggregate of 126,584 shares of common stock from its 2019 Equity Incentive Plan for their director services to the Company. The Company recognized stock-based compensation of $200,000 in connection with the issuance of these shares.

 

Stock Options

 

On May 6, 2021, the Company granted ten-year stock options to purchase an aggregate of 160,000 shares of common stock to its directors. The shares vest in equal annual installments over four years and have an exercise price of $2.48 per share, which represents the Company’s closing stock price on the day prior to the date of grant. The options had an aggregate grant date fair value of $145,777 and are being amortized into expense over the vesting period.

 

On July 13, 2021, the Company granted ten-year stock options to purchase an aggregate of 200,000 shares of common stock to Ms. Wu. The shares vest in equal annual installments over four years and have an exercise price of $2.21 per share, which represents the Company’s closing stock price on the day prior to the date of grant. The options had an aggregate grant date fair value of $202,910 and are amortized over the vesting period.

 

The grant date value of the options granted were calculated using the Black-Scholes option pricing model, with the following assumptions used:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Risk free interest rate     1.01 %     0.55% - 0.69 %     1.01% - 1.58 %     0.55% - 0.69 %
Expected term (years)     6.25       6.25       6.25       6.25  
Expected volatility     46 %     38 %     40% - 46 %     38 %
Expected dividends     0.00 %     0.00 %     0.00 %     0.00 %

 

A summary of the option activity during the nine months ended September 30, 2021 is presented below:

 

          Weighted     Weighted        
          Average     Average        
    Number of     Exercise     Remaining     Intrinsic  
    Options     Price     Term (Yrs)     Value  
                         
Outstanding, January 1, 2021     2,430,000     $ 4.15              
 
 
Granted     360,000       2.33                  
Exercised    
-
     
-
                 
Expired    
-
     
-
                 
Forfeited     (225,000 )     4.51                  
Outstanding, September 30, 2021     2,565,000     $ 3.88       6.76     $
-
 
                                 
Exercisable, September 30, 2021     1,360,000     $ 4.09       4.79     $
-
 

 

Options outstanding and exercisable as of September 30, 2021 are as follows:

 

Options Outstanding     Options Exercisable  
            Weighted        
      Outstanding     Average     Exercisable  
Exercise     Number of     Remaining Life     Number of  
Price     Options     In Years     Options  
$ 2.11       80,000       8.75       20,000  
$ 2.17       120,000       8.85       120,000  
$ 2.21       200,000      
-
     
-
 
$ 2.48       160,000      
-
     
-
 
$ 4.09       1,725,000       3.74       1,050,000  
$ 5.66       280,000       7.97       170,000  
                       2,565,000       4.79       1,360,000  

 

In connection with the Sale Transaction, options for the purchase of an aggregate 340,000 common shares held by two officers of WPT became fully vested upon the consummation of the sale of WPT, pursuant to the original terms of the options agreements, and they were modified to permit exercise of the options for the remainder of the current option term. Further, options for the purchase of 187,500 common shares became vested upon the consummation of the sale of WPT and they were modified to permit exercise for a one-year period following the closing of the Sale Transaction. The Company recognized stock-based compensation expense included in discontinued operations, of approximately $156,000 related to the modification of these awards.

 

For the three months ended September 30, 2021 and 2020, the Company recorded $613,070 and $312,117, respectively, of stock-based compensation expense related to stock options issued as compensation, of which $633,197 and $55,063, respectively, was included in net income of discontinued operations on the accompanying condensed consolidated statements of operations. During the nine months ended September 30, 2021 and 2020, the Company recorded $1,122,767 and $766,279, respectively, of stock-based compensation expense related to stock options issued as compensation, of which $746,410 and $156,695, respectively, was included in net income of discontinued operations on the accompanying condensed consolidated statement of operations. As of September 30, 2021, there was $1,191,826 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the weighted average remaining vesting period of 2.56 years.

 

Restricted Common Stock

 

A summary of the non-vested restricted common stock activity during the nine months ended September 30, 2021 is presented below: 

 

          Weighted  
    Number of     Average  
    Restricted     Grant Date  
    Stock     Fair Value  
Non-vested balance, January 1, 2021     199,143     $ 2.03  
Granted     80,000       2.00  
Vested     (174,143 )     1.69  
Forfeited     (25,000 )     2.17  
Non-vested balance, September 30, 2021     80,000     $ 2.00  

 

In connection with the Sale Transaction, 11,521 restricted shares of common stock held by an officer of WPT became fully vested upon the upon the consummation of the sale of WPT. The Company recorded a credit to stock-based compensation expense included in discontinued operations, of $15,466 related to the modification of these awards.

 

For the three months ended September 30, 2021 and 2020, the Company recorded $58,923 and $265,050, respectively, of stock-based compensation expense related to restricted stock issued as compensation of which $(12,425) and $13,836, respectively, was included in net income of discontinued operations on the accompanying condensed consolidated statements of operations. During the nine months ended September 30, 2021 and 2020, the Company recorded $219,853 and $496,361, respectively, of stock-based compensation expense related to restricted stock issued as compensation of which $14,848 and $26,302, respectively, was included in net income of discontinued operations on the accompanying condensed consolidated statements of operations. As of September 30, 2021, there was $140,274 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 0.9 years.

 

Restricted Stock Units

 

On January 19, 2021, the Company entered into a Restricted Stock Unit Agreement with its then Chief Executive Officer (“CEO”), pursuant to which the CEO received restricted stock units having a stated value equal to $1,000,000. The restricted stock units represent the right to receive $1,000,000, contingent upon the closing of the Sale Transaction, which is payable upon the earlier of the two-year anniversary of the closing date of the Sale Transaction (provided that the CEO remains continuously employed by the Company through such date), or the termination of the CEO’s employment without cause after the closing of the Sale Transaction (as defined in his employment agreement) (as applicable, the “Vesting Date”). At the time of payment, the Company may elect to pay the $1,000,000 award in cash or in shares of common stock valued at the fair market value of our common stock on the Vesting Date, or any combination thereof. All issuances of common stock will be issued from the 2019 Equity Incentive Plan. If payments or benefits provided or to be provided by the Company or its affiliates to the CEO pursuant to the agreement or otherwise (“Covered Payments”) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986 (the “Code”) that would be subject to the excise tax imposed under Section 4999 of the Code (collectively, the “Excise Tax”), payments to be made under the agreement will be reduced to the minimum extent necessary to ensure that no portion of the Covered Payments is subject to the Excise Tax. Pursuant to the Separation Agreement, the Vesting Date was amended to be the earlier of (i) the sale of substantially all of the assets or equity interests comprising the Company’s esports business, or (ii) the two-year anniversary of the sale of CSI (provided that the CEO provides consulting services (when, as and if requested) to the Company through such date). The Company recorded a charge to stock-based compensation and a corresponding credit to accrued compensation expense in the amount of $100,000 and $300,000 for the three and nine months ended September 30, 2021, respectively, representing the amortization of this award. See Note 8 – Commitments and Contingencies – Resignation of Chief Executive Officer.