Stockholders' equity

3 Months Ended

Dec. 31, 2013

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

Stockholders' equity

Stock options

On January 8, 2013, the Company’s Board of Directors approved the adoption of the SpendSmart Networks, Inc. 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued pursuant to stock awards under the 2013 Plan (as approved by the Board of Directors but subject to future shareholder approval solicited by a Proxy Statement filed in January 2013) shall not exceed in the aggregate 3,000,000 shares of the common stock of the Company. On August 4, 2011, the Board of Directors approved the adoption of the SpendSmart Networks, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued pursuant to stock awards under the Plan shall not exceed in the aggregate 1,666,667 shares of the common stock of the Company. The Company also have a stockholder-approved Plan (the IdeaEdge, Inc. 2007 Equity Incentive Plan - the “2007 Plan”, previously approved by our shareholders). The 2007 Plan has similar provisions and purposes as the 2011 Plan. The total number of shares of common stock that may be issued pursuant to stock awards under the 2007 Plan (as amended) shall not exceed in the aggregate 4,000,000 shares of the common stock of our Company. Upon shareholder approval of the 2013 Plan, our Board has expressed its intentions to issue no more shares under the 2011 and 2007 Plans.

At December 31, 2013 and September 30, 2013, we have outstanding a total of 1,566,667 and 1,651,678, respectively, of incentive and nonqualified stock options granted under the 2011 Plan and the 2007 Plan, all of which (for the purpose of computing stock based compensation) we have estimated will eventually vest. All of the options have terms of five years with expiration dates ranging from April 2014 to August 2017.

Stock option activity during the following periods was as follows:

	For the three months ended			For the twelve months ended
	December 31,			September 30,
	2013			2013			2012
Beginning balance outstanding		1,651,678			1,649,110			1,486,333
Options issued during the year		-			333,334			393,333
Options expired or cancelled during the year		(85,011	)		(330,766	)		(230,556	)
Ending balance outstanding		1,566,667			1,651,678			1,649,110

Warrants

During the twelve months ended September 30, 2012, the Company issued warrants to purchase the Company’s common stock to third parties providing consulting and advisory services, including five-year warrants to purchase up to 2,033,333 shares to members of the Company’s Board of Directors (includes grants made not during members’ terms of service on the Board) during fiscal 2012, respectively. The Company also issued warrants to purchase shares of the Company’s common stock to investors in connection with the issuances of restricted shares of common stock during the twelve months ended September 30, 2013 and 2012 (the value of which was offset against the proceeds of the issuance of common stock and not charged to operations). Outstanding warrants from all sources have terms ranging from two to five and a half years.

In recompense for services performed on our behalf, we issued warrants to purchase up to 138,333 shares of our common stock during the three months ended December 31, 2013, including a five-year warrant to purchase up to 133,333 shares (exercise price of $2.00 per share) to a member of our Board of Directors and a five-year warrant to purchase up to 5,000 shares at $2.00 to our CFO (Chord Advisors, LLC).  The expense recorded for the three month period ended December 31, 2013 for both of these items was $29,452.  In recompense for services performed on our behalf, we issued warrants to purchase up to 6,300,000 shares of our common stock during the year ended September 30, 2013, including a five year warrant to purchase up to 2,000,000 shares (exercise price of $10.35 per share) to a member of our Board of Directors.  Through December 31, 2013, we have not issued any warrants to advisors, consultants and in connection with the purchase of intellectual property.  Warrants to purchase up to 150,000 shares of common stock have expired.  Warrants to purchase up to 3,881,325 shares of common stock remain outstanding at December 31, 2013, of which 3,279,367 have vested.

Warrant activity (including warrants issued to investors and for consulting and advisory services) during the three months ended December 31, 2013 and the twelve months ended September 30, 2013 and 2012 was as follows:

	For the three months ended			For the twelve months ended
	December 31,			September 30,
	2013			2013			2012
Beginning balance outstanding		7,907,435			7,396,481			3,599,761
Warrants issued during the year
For consulting and advisory services		138,333			486,667			2,196,333
In connection with sales of common and preferred stock		200,000			726,383			1,780,971
Warrants expired or cancelled during the year		(267,778	)		(39,667	)		(133,513	)
Warrants exercised		-			(662,429	)		(47,071	)
Ending balance outstanding		7,977,990			7,907,435			7,396,481

The numbers and exercise prices of all options and warrants outstanding at December 31, 2013 are as follows:

Shares Outstanding		Weighted Average Exercise Price		Expiration Fiscal Period
	35,380		8.70	1st Qtr, 2014
	57,333		9.75	2nd Qtr, 2014
	35,000		7.65	3rd Qtr, 2014
	81,973		7.80	4th Qtr, 2014
	78,100		7.80	1st Qtr, 2015
	10,600		10.05	2nd Qtr, 2015
	83,918		6.60	43rd Qtr, 2015
	479,246		7.65	4th Qtr, 2015
	872,800		7.20	1st Qtr, 2016
	960,100		6.45	2nd Qtr, 2016
	1,263,958		6.90	3rd Qtr, 2016
	516,808		7.80	2nd Qtr, 2016
	859,750		6.15	1st Qtr, 2017
	1,076,475		7.65	2nd Qtr, 2017
	1,599,208		6.75	3rd Qtr, 2017
	1,195,675		6.75	4th Qtr, 2017
	66,667		5.85	1st Qtr, 2018
	138,333		1.95	4th Qtr, 2018
	133,333		7.05	4th Qtr, 2022
	9,544,657

Stock based compensation

Results of operations for the twelve months ended September 30, 2013 include stock based compensation costs totaling $9,495,292 ($6,040,144 for the twelve months ended September 30, 2012) all of which was charged to personnel related expenses in connection with the issuance of stock options and warrants issued to employees, directors, advisors and consultants (not including shares of stock issued directly for services). During the three months ended December 31, 2013, we recognized stock-based compensation expense totaling $1,268,307 in connection with the issuance of stock options and warrants issued to employees, directors, advisors and consultants (not including shares of stock issued directly for services).

For purposes of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula. Compensation expense is recognized upon actual vesting of the options. The following weighted average assumptions were utilized for the calculations during the twelve months ended September 30, 2013 and 2012 and the three months ended December 31, 2013 and 2012:

	For the three months ended			For the twelve months ended
	December 31,			September 30,
	2013			2013			2012
Expected life (in years)	4.99 years			4.33 years			4.04 years
Weighted average volatility		90.07	%		93.89	%		89.17	%
Forfeiture rate		0	%		0	%		0	%
Risk-free interest rate		1.41	%		0.74	%		0.54	%
Expected dividend rate		0	%		0	%		0	%

The weighted average expected option and warrant term for employee stock options granted reflects the application of the simplified method set out in SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107). The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all options. The Company utilized this approach as its historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term. Expected volatilities are based on the historical volatility of the Company’s stock. The Company estimated the forfeiture rate based on our expectation for future forfeitures and (for the purpose of computing stock based compensation given the contractual vesting of the Company’s options and warrants outstanding) the Company assumes that all options and warrants will vest. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at or near the time of grant. The Company has never declared or paid dividends and have no plans to do so in the foreseeable future.

As of December 31, 2013, $11,431,942 of total unrecognized compensation cost related to unvested stock based compensation arrangements is expected to be recognized over a weighted-average period of 37.9 months. The following table summarizes option activity in connection with stock options and warrants (which resulted in stock based compensation charges) as of and for the three months ended December 31, 2013 and the year ended September 30, 2013:

				Weighted Average Exercise Price			Weighted Average Remaining Contractual	Aggregate Instrinsic
	Shares			Price			Term	Value
Outstanding at September 30, 2013		5,544,671		$	6.84
Granted		138,333			1.95
Cancelled or expired		(235,012	)		(7.60	)
Exercised		-			-
Outstanding at September 30, 2103		5,447,992		$	6.75		37.9 months	$	-
Exercisable		4,225,664		$	6.75		37.0 months	$	-
				Weighted Average Exercise Price			Weighted Average Remaining Contractual	Aggregate Instrinsic
	Shares			Price			Term	Value
Outstanding at September 30, 2012		5,095,103		$	6.85
Granted		820,001			6.86
Cancelled or expired		(370,433	)		(6.91	)
Exercised		-			-
Outstanding at September 30, 2103		5,544,671		$	6.84		40.6 months	$	-
Exercisable		4,362,580		$	6.90		39.4 months	$	-

Additional disclosure concerning options and warrants is as follows:

	For the 3 Months Ended		For the Years Ended
	December 31,		September 30,		September 30,
	2013		2013		2012
Weighted average grant date fair value of options and warrants granted	$	1.95	$	6.86	$	6.52
Aggregate intrinsic value of options and warrants exercised		-		-		3.75
Weighted average fair value of options and warrants vested		4.50		6.90		6.67

The range of exercise prices for options and warrants granted and outstanding (which resulted in stock based compensation charges) was as follows at December 31, 2013 and September 30, 2013:

		Number of Options and Warrants
Exercise Price Range		December 31, 2013	September 30, 2013
$	1.95 - $6.15	998,334	1,003,334
$	6.16 - $6.30	230,000	230,000
$	6.31 - $6.45	1,440,000	1,440,000
$	6.46 - $7.05	1,253,333	1,267,604
$	7.20 - $15.00	1,526,325	1,603,733
		5,447,992	5,544,671

A summary of the activity of our non-vested options and warrants for the following periods:

	For the three months ended			For the twelve months ended
	December 31,			September 30,
	2013			2013			2012
Non-vested outstanding, beginning		1,182,090			2,707,530			1,763,850
Granted		138,333			820,000			2,589,667
Vested		(298,095	)		(2,271,736	)		(1,405,431	)
Cancelled		(133,333	)		(73,704	)		(240,556	)
Non-vested outstanding, ending		888,995			1,182,090			2,707,530

Common Shares Reserved for Future Issuance

The following table summarizes shares of our common stock reserved for future issuance at September 30, 2013:

	For the three months ended		For the twelve months ended
	December 31,		September 30,
	2013		2013		2012
Stock options outstanding		1,566,667		1,651,678		1,649,110
Stock options available for future grant		7,100,000		481,655		284,223
Warrants		7,977,990		7,907,435		7,396,481
Total common shares reserved for future issuance		16,644,657		10,040,768		9,329,814