INTELLIGENT PROTECTION MANAGEMENT CORP. Stock Compensation Disclosure

10.	Stock-Based Compensation

 

The Snap Interactive, Inc. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on May 16, 2016. A total of 181,604 shares of the Company’s common stock may be delivered pursuant to outstanding options awarded under the 2011 Plan, however no additional awards may be granted under such plan. The Snap Interactive, Inc. 2016 Long-Term Incentive Plan (the “2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards under the 2016 Plan is 428,572 shares, 100% of which may be issued pursuant to incentive stock options. In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash. As of December 31, 2016, there were 37,860 shares available for future issuance under the 2016 Plan.

 

On October 7, 2016, as a result of the Merger, each outstanding AVM stock option was assumed by SNAP and converted into a stock option representing the right to purchase shares of SNAP’s common stock, with the number of shares underlying such stock option and the exercise price thereof being adjusted by the exchange ratio in the Merger, with any fractional shares rounded down to the next lowest number of whole shares. The resulting number of options assumed was 252,966 at the time of the Merger.

 

Stock Options

 

The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the years ended:

 

		December 31,
		2016				2015
Expected volatility			76.6-139.2	%			77.0%-86.6	%
Expected life of option			5.5				6.0
Risk free interest rate			1.1%-1.8	%			1.7%-2.1	%
Expected dividend yield			0.0	%			0.0	%

 

The expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise. The expected life of options has been determined using the "simplified" method as prescribed by Staff Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term. The volatility of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award. The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly. The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock based awards vest.

 

The following tables summarize stock option activity during the year ended December 31, 2016:

 

		Number of Options				Weighted Average  Exercise Price
Outstanding at January 1, 2016			278,380			$	4.89
Granted			168,360				4.65
Exchanged as part of the Merger			177,219				11.43
Expired or canceled, during the period			-				-
Forfeited, during the period			(50,849	)			-
Outstanding at December 31, 2016			573,110			$	6.94
Exercisable at December 31, 2016			355,351			$	8.46

 

On December 31, 2016, the aggregate intrinsic value of stock options that were outstanding and exercisable was $280,170 and $148,251, respectively. On December 31, 2015, the aggregate intrinsic value of stock options that were outstanding and exercisable was $126,918. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date.

 

The aggregate fair value for the options granted during the years ended December 31, 2016 and 2015 was $682,740 and $263,359, respectively.

 

At December 31, 2016, there was $748,701 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 2.72 years.

 

Restricted Stock Awards

 

The following table summarizes restricted stock award activity for the year ended December 31, 2016:

 

		Number of Restricted Stock Awards				Weighted Average  Grant Date Fair Value
Outstanding at January 1, 2016			211,857			$	3.06
Granted			-				-
Exchanged as part of the Merger			264,286				20.29
Forfeited or canceled, during the period			-				-
Vested			(211,857	)			3.06
Outstanding at December 31, 2016			264,286			$	20.29

 

At December 31, 2016, there was $2,039,113 of total unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 2.75 years.

 

On October 7, 2016, the Company entered into amendments to (i) a restricted stock award agreement, by and between the Company and Clifford Lerner, dated March 3, 2016, related to the award of 142,858 shares of restricted common stock of the Company to Mr. Lerner and (ii) a restricted stock award agreement, by and between the Company and Mr. Lerner, dated December 14, 2011, related to the award of 121,429 shares of restricted common stock of the Company to Mr. Lerner (together, the “Restricted Stock Award Amendments”). The Restricted Stock Award Amendments amended the vesting schedule of Mr. Lerner’s restricted stock awards to provide that (x) Mr. Lerner’s restricted stock shall vest 40% upon the first anniversary of the closing of the Merger and 30% on each of the second and third anniversaries of the closing of the Merger, provided, in each case, that Mr. Lerner is employed by the Company on such dates, and (y) the consummation of the Merger shall not cause the vesting of such restricted stock to accelerate. The Company accounted for this amendment in accordance with modification accounting. The Company recognized $185,374 of stock compensation expense for these share during the year ended December 31, 2016.

 

Stock-based compensation expense for the Company’s stock options and restricted stock included in the consolidated statements of operations is as follows:

 

		December 31,
		2016				2015
Product development expense		$	117,147			$	192,800
General and administrative expense			235,973				13,771
Total stock-based compensation expense		$	353,120			$	206,571