Riot Platforms, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock options and warrants

Stock options and warrants

3 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock options and warrants

Note 6. Stock options and warrants:

Stock options:

The Company currently provides stock-based compensation to employees, directors and consultants, both under the Company's 2002 Stock Incentive Plan, as amended (the "Plan"), and non-qualified options and warrants issued outside of the Plan. During September 2015, the Company's shareholders approved amendments to the Plan to increase the number of shares reserved under the Plan from 459,141 to 709,141. The Company estimates the fair value of the share-based awards on the date of grant using the Black-Scholes option-pricing model (the "Black-Scholes model"). Using the Black-Scholes model, the value of the award that is ultimately expected to vest is recognized over the requisite service period in the statement of operations. Option forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company attributes compensation to expense using the straight-line single option method for all options granted.

The Company’s determination of the estimated fair value of share-based payment awards on the date of grant is affected by the following variables and assumptions:

·	The grant date exercise price – the closing market price of the Company’s common stock on the date of the grant;
·	Estimated option term – based on historical experience with existing option holders;
·	Estimated dividend rates – based on historical and anticipated dividends over the life of the option;
·	Term of the option – based on historical experience, grants have lives of approximately 3-5 years;
·	Risk-free interest rates – with maturities that approximate the expected life of the options granted;
·	Calculated stock price volatility – calculated over the expected life of the options granted, which is calculated based on the daily closing price of the Company’s common stock over a period equal to the expected term of the option; and
·	Option exercise behaviors – based on actual and projected employee stock option exercises and forfeitures.

The Company recognized total expenses for stock-based compensation during the three-month periods ended March 31, 2016 and 2015 of $47,884 and $433,402, respectively. These expenses are included in the accompanying statements of operations for the three-month periods ended March 31, in the following categories:

	2016		2015

Selling, general and administrative expenses	$	45,324	$	392,362
Research and development expenses		2,560		41,040

Total stock-based compensation	$	47,884	$	433,402

During the three months ended March 31, 2016 and 2015, respectively, no options were exercised.

Stock incentive plan options:

The Company currently provides stock-based compensation to employees, directors and consultants under the Plan. The Company did not grant any stock-based compensation to employees, directors or consultants for the three months ended March 31, 2016. Stock-based compensation to employees, directors and consultants for the three months ended March 31, 2015 utilized assumptions in the estimation of fair value of stock-based compensation as follows: a dividend yield of 0%, an expected price volatility of 93%, a risk free interest rate of 1.39%, and an expected term of 5 years.

A summary of activity under the Plan for the three months ended March 31, 2016 is presented below:

	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding at January 1, 2016		332,560		$	35.36
Granted		-			-
Exercised		-			-
Forfeited		(7,382	)		20.98

Outstanding at March 31, 2016		325,178		$	35.75		7.5		$	-

Exercisable at March 31, 2016		305,265		$	37.10		7.5		$	-

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on March 31, 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on March 31, 2016.

During the three months ended March 31, 2015, 43,000 options were issued to non-employee directors under the Plan, exercisable at an average of $15.12 per share. The options expire ten years from the date of grant and vested over one year, based upon 25% on the date of grant, and 25% on each of April 1, 2015, July 1, 2015, and October 1, 2015.

During the three months ended March 31, 2015, 98,813 options were issued to officers and employees under the Plan, exercisable at an average of $15.12 per share. The options expire ten years from the date of grant and vest over two years with 50% vesting upon six month anniversary of grant date and the remaining balance vesting over the following six quarters in arrears.

During the three months ended March 31, 2016, a total of 7,382 options that were granted under the Plan were forfeited, of which 3,762 were vested and 3,620 were unvested. The vested options were exercisable at an average of $26.61 per share and the unvested options were exercisable at an average of $15.13 per share. During the three months ended March 31, 2015, a total of 21,668 options that were granted under the Plan were forfeited, of which 1,876 were vested and 19,792 were unvested. The vested options were exercisable at an average of $193.36 per share and the unvested options were exercisable at an average of $16.48 per share.

The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the three months ended March 31, 2016 and 2015, was approximately $127,000 and $234,000, respectively. Based upon the Company’s experience, approximately 80% of the outstanding nonvested stock options, or approximately 16,000 options, are expected to vest in the future, under their terms.

A summary of the activity of nonvested options under the Plan to acquire common shares granted to employees, officers, directors and consultants during the three months ended March 31, 2016 is presented below:

Nonvested Shares	Nonvested Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value

Nonvested at January 1, 2016		33,336		$	15.54	$	11.41
Granted		-			-		-
Vested		(9,803	)		16.67		12.92
Forfeited		(3,620	)		15.13		10.75

Nonvested at March 31, 2016		19,913		$	15.06	$	10.79

At March 31, 2016, based upon employee, officer, director and consultant options granted under the Plan to that point, there was approximately $128,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of less than one year.

Other common stock purchase options and warrants:

As of March 31, 2016, in addition to the stock incentive plan options discussed above, the Company had outstanding 432,003 non-qualified options and warrants in connection with offering warrants and an officer’s employment that were not issued under the Plan.

During the three month periods ended March 31, 2016 and 2015, respectively, no stock options were granted outside of the Plan. Operating expenses for the three months ended March 31, 2016 and 2015, did not include any value related to stock-based compensation of non-qualified options and warrants.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the three months ended March 31, 2016:

	Shares Underlying Options / Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding at January 1, 2016		432,003	$	15.47
Granted		-		-
Exercised		-		-
Forfeited		-		-

Outstanding and exercisable at March 31, 2016		432,003	$	15.47	2.0	$	-

During the three months ended March 31, 2016 and 2015, no warrants were exercised.

The total fair value of stock options previously granted to a former officer that vested and became exercisable during the three months ended March 31, 2016 and 2015, was zero. At March 31, 2016, there was no unrecognized cost for non-qualified options that will be recorded in the future.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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