Stockholders Equity

3 Months Ended

Mar. 31, 2019

PaymentOnCapitalLease

Stockholders' Deficit

Note 8. Stockholders’ Equity

Stock Option Plans: On March 8, 2006, Lightning Poker adopted an equity incentive plan to enable Lightning Poker to offer key employees, consultants and directors equity interests in Lightning Poker, thereby helping to attract, retain and motivate such persons to exercise their best efforts on behalf of Lightning Poker. After the Merger, the options previously granted by Lightning Poker were exchanged for options to buy the Company's stock under the Company's 2007 Equity Incentive Plan (the "2007 Plan") having substantially the same terms. The options were granted at the discretion of the Board of Directors and the maximum aggregate number of shares issuable under the Stock Plan was 2,500,000. The purchase price of each option was determined by the Board of Directors at the time the option was granted, but in no event less than 100% of the fair market value of the common stock at the time of grant. Options previously granted will not be exercisable after 10 years from the grant date and under the terms of the plan, and no awards may be granted after October 16, 2017.

Options generally vested at 20% per year starting from the grant date and are fully vested after five years. The options can be exercised in partial or full amounts upon a change in control and at such other times as specified in the award agreements.

In order to provide an incentive to designated employees, officers, directors, consultants, independent contractors and other service providers who perform services contributing to the growth of the Company, and by aligning the interests of participants with the interests of stockholders, the Board declared it advisable and in the Company’s best interest and on May 25, 2016, approved the 2016 Stock Option Plan (the “2016 Plan”). The 2016 Plan permits the granting of nonqualified stock options. The shares underlying the options will be shares of the Company’s nonvoting common stock, par value $0.001 per share, and the total aggregate number of shares that may be issued under the 2016 Plan is 5,700,000 shares. The purchase

 price of each option will be determined by the Board at the time the option is granted, but in no event will be less than 100% of the fair market value of the common stock at the time of grant. Options granted will not be exercisable after 10 years from the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based upon publicly traded companies with characteristics similar to those of the Company. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of option transactions in 2019 under the 2007 Plan is as follows:

	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2018		275,000	$	0.37
Options granted		—		—
Options exercised		—		—
Options cancelled		—		—
Options outstanding at March 31, 2019		275,000	$	0.37

There are no awards available for grant remaining under the 2007 Plan.

On March 8, 2017, the Board of Directors approved by unanimous written consent, the authorization to grant to employees with at least one year of service, non-qualified stock options to purchase shares of nonvoting common stock of the Company under its 2016 Plan. The options were issued at an exercise price of $.28 per share and vest ratably over five years. The options are subject to the terms and conditions of the 2016 Plan and each individual’s stock option agreement.

On November 30, 2018, the Board of Directors, based on current valuation information available, authorized the reduction of the option exercise price to $.13 per share which was determined to be the market price of the Company’s stock on that date. The Company calculated the incremental fair value by calculating the fair value of the options immediately before and immediately after the modification. The fair value of the options immediately before the repricing is based on assumptions (e.g., volatility, expected term, etc.) reflecting the current facts and circumstances on the modification date and therefore, differs from the fair value calculated on the grant date.

A summary of option transactions in 2019 under the 2016 Plan is as follows:

	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2018		3,940,000	$	0.13
Options granted		100,000		0.13
Options exercised		—		—
Options cancelled		—		—
Options outstanding at March 31, 2019		4,040,000	$	0.13
Options available for grant under the 2016 Plan at March 31, 2019		1,660,000

Stock-based compensation expense is recognized in the consolidated condensed Statements of Operations based on awards ultimately expected to vest and may be reduced for estimated forfeitures. Additional compensation expense arising from the modification of the exercise price is being recognized over the vesting period. Compensation expense related to stock options for the three months ended March 31, 2019 and 2018 was $16,226 and $11,046, respectively.

The following table summarizes information with respect to stock options outstanding at March 31, 2019:

	Options Outstanding				Vested Options
	Number	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value	Number	Weighted Average Contractual Term (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value
2007 Plan	275,000	0.3	$0.37	-	275,000	0.3	$0.37	-
2016 Plan	4,040,000	8.0	$0.13	-	1,576,000	7.9	$0.13	-

The following table summarizes information with respect to stock options outstanding at December 31, 2018:

	Options Outstanding				Vested Options
	Number	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value	Number	Weighted Average Contractual Term (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value
2007 Plan	275,000	0.5	$0.37	-	275,000	0.5	$0.37	-
2016 Plan	3,940,000	8.2	$0.13	-	788,000	8.2	$0.13	-

As of March 31, 2019, all compensation costs related to share-based compensation arrangements granted under the 2007 Plan had been fully recognized. As of March 31, 2019, there was approximately $187,551 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2016 Plan. The cost is expected to be recognized over a weighted-average period of 3.0 years at an estimated forfeiture rate of 0% for executives and 20% for non-executives.

In computing earnings per share, the Company's Nonvoting Stock is considered a participating security. Each share of Nonvoting Stock has identical rights, powers, limitations and restrictions in all respects as each share of common stock of the Company including the right to receive the same consideration per share payable in respect of each share of common stock, except that holders of Nonvoting Stock shall have no voting rights or powers whatsoever.

The following table summarizes the number of dilutive shares outstanding for each of the periods presented which may dilute future earnings per share, and is included in the calculation of diluted earnings per share on the consolidated condensed Statements of Operations:

	March 31, 2019		March 31, 2018
Common Stock		275,000		375,000
Nonvoting Common Stock		4,040,000		3,940,000

The following table reconciles the changes in stockholder’s equity for the three months ended March 31, 2019:

	Common Stock		Nonvoting Common Stock		Additional Paid In Capital		Accumulated Deficit			Treasury Stock			Total
Balances at December 31, 2018	$	4,917	$	33,300	$	30,467,906	$	(28,835,250	)	$	(20,811	)	$	1,650,062
Net income		—		—		—		204,253			—			204,253
Stock based compensation		—		—		16,226		—			—			16,226
Balances at March 31, 2019	$	4,917	$	33,300	$	30,484,132	$	(28,630,997	)	$	(20,811	)	$	1,870,541

The following table reconciles the changes in stockholder’s equity for the three months ended March 31, 2018:

	Common Stock		Nonvoting Common Stock		Additional Paid In Capital		Accumulated Deficit			Treasury Stock			Total
Balances at December 31, 2017	$	4,917	$	33,300	$	30,384,996	$	(29,854,310	)	$	(19,811	)	$	549,092
Net income		—		—		—		311,171			—			311,171
Stock based compensation		—		—		11,047		—			—			11,047
Balances at March 31, 2018	$	4,917	$	33,300	$	30,396,043	$	(29,543,139	)	$	(19,811	)	$	871,310