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

9 Months Ended

Sep. 30, 2016

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

Stock options and warrants

Note 7. 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:

·	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 and nine months ended September 30, 2016 and 2015, which are included in the accompanying condensed consolidated statements of operations, in the following categories:

	Three Months Ended					Nine Months Ended
	2016		2015			2016			2015

Selling, general and administrative expenses	$	144,187		$	214,848		$	365,899		$	910,854
Research and development expenses		-			23,236			2,560			108,213
Total stock-based compensation	$	144,187		$	238,084		$	368,459		$	1,019,067

During the nine months ended September 30, 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 utilized assumptions in the estimation of fair value of stock-based compensation for the nine months ended September 30, 2016 and 2015 as follows:

	2016			2015

Dividend yield		0	%		0	%
Expected price volatility		99-100	%		93	%
Risk free interest rate		1.20	%		1.39	%
Expected term	5 years			5 years

A summary of activity under the Plan for the nine months ended September 30, 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		227,000			2.89
Exercised		-			-
Forfeited		(25,445	)		36.30
Outstanding at September 30, 2016		534,115		$	21.55		7.9		$	31,780

Exercisable at September 30, 2016		355,403		$	30.61		7.0		$	8,085

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 30, 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 September 30, 2016.

During the nine months ended September 30, 2016, 77,000 options were issued to non-employee directors under the Plan, exercisable at an average of $2.89 per share. The options expire ten years from the date of grant and vest 50% upon on the date of grant, and 25% on each of July 1, 2016 and October 1, 2016.

During the nine months ended September 30, 2016, 150,000 options were issued to officers and employees under the Plan, exercisable at an average of $2.89 per share. The options expire ten years from the date of grant and vest 50% upon each of the nine month and the one year anniversary of the grant date.

During the nine months ended September 30, 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, with 25% vesting on the date of grant, and an additional 25% vesting on each of April 1, 2015, July 1, 2015, and October 1, 2015.

During the nine months ended September 30, 2015, 93,813 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 the nine month anniversary of grant date and the remaining balance vesting over the following nine quarters in arrears.

During the nine months ended September 30, 2016, a total of 25,445 options that were granted under the Plan were forfeited, of which 21,825 were vested and 3,620 were unvested. The vested options were exercisable at an average of $39.81 per share and the unvested options were exercisable at an average of $15.13 per share. During the nine months ended September 30, 2015, a total of 27,178 options that were granted under the Plan were forfeited, of which 4,644 were vested and 22,534 were unvested. The vested options were exercisable at an average of $90.88 per share and the unvested options were exercisable at an average of $16.40 per share.

The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the nine months ended September 30, 2016 and 2015, was approximately $363,000 and $461,000, respectively. Based upon the Company's experience, approximately 80% of the outstanding nonvested stock options, or approximately 143,000 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 nine months ended September 30, 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		227,000			2.89		2.13
Vested		(78,004	)		6.25		4.65
Forfeited		(3,620	)		15.13		10.75

Nonvested at September 30, 2016		178,712		$	3.54	$	2.59

At September 30, 2016, based upon employee, officer, director and consultant options granted under the Plan to that point, there was approximately $201,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of one year.

Other common stock purchase options and warrants:

As of September 30, 2016, in addition to the Plan options discussed above, the Company had outstanding 527,003 non-qualified options and warrants in connection with offering warrants, an officer's employment, and options issued to six new employees, hired in connection with the Company's acquisition of BiOptix that were not issued under the Plan.

During the nine month period ended September 30, 2016, 95,000 options were granted outside of the Plan and during the nine month period ended September 30, 2015, no stock options were granted outside of the Plan. Operating expenses for the nine months ended September 30, 2016 included $2,961 related to stock-based compensation and the nine months ended September 30, 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 nine months ended September 30, 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		95,000		3.78
Exercised		-		-
Forfeited		-		-

Outstanding at September 30, 2016		527,003	$	13.36		3.0	$	-

Exercisable at September 30, 2016		432,003	$	15.47		1.5	$	-

During September 2016, non-qualified stock options made outside of the Company's 2002 Stock Incentive Plan, were issued to six new employees, hired in connection with the Company's acquisition of BiOptix, to purchase an aggregate of 95,000 shares of common stock. The exercise price of the stock options granted is $3.78 per share, the options are subject to a two year vesting schedule with 50% of each of the stock options vesting and becoming exercisable at the six month anniversary of the date of grant, and the balance of the options vesting ratably in quarterly installments over the following six quarters. The stock options have a term of ten years after the date of grant, subject to earlier termination of employment or cessation of service with the Company. At September 30, 2016, based upon compensatory options granted outside of the Plan to that point, there was approximately $234,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately two years.

During the nine months ended September 30, 2016 and 2015, no warrants were exercised. Included at September 30, 2016 in the 527,003 total outstanding options are 429,503 non-compensatory rights, exercisable at an average of $15.40 per common share, expiring through May 2018, granted in connection with public offerings, and 97,500 rights exercisable at an average of $4.38 per common share, expiring through September 2021, issued under compensatory arrangements.

- 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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