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Stockholders' Equity

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Stockholders' Equity

8.	Stockholders’ Equity

The PeerStream, 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 PeerStream, 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 1,300,000 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 September 30, 2018, there were 408,508 shares available for future issuance under the 2016 Plan.

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 following period:

		Nine Months Ended
		September 30,
		2018
Expected volatility			159.0-167.0	%
Expected life of option (years)			5.2-6.3
Risk free interest rate			2.3-2.9	%
Expected dividend yield			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 the options has been determined using the “simplified” method, 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 nine months ended September 30, 2018:

						Weighted
		Number of				Average Exercise
		Options				Price
Stock Options:
Outstanding at January 1, 2018			980,588			$	5.02
Granted			120,130				5.95
Exercised, during period			(6,363	)			4.43
Expired or canceled, during the period			(1,429	)			42.35
Forfeited, during the period			(25,399	)			4.45
Outstanding at September 30, 2018			1,067,527			$	5.10
Exercisable at September 30, 2018			559,232			$	6.05

On September 30, 2018, the aggregate intrinsic value of stock options that were outstanding and exercisable was $1,752,348 and $825,048, respectively. On September 30, 2017, the aggregate intrinsic value of stock options that were outstanding and exercisable was $17,565 and $9,972, respectively. 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.

During the nine months ended September 30, 2018, the Company granted options to employees to purchase an aggregate 120,130 shares of common stock at exercise prices ranging from $5.10 to $6.99. The options vest between one, three and four years and have a term of ten years.

The aggregate fair value for the options granted during the nine months ended September 30, 2018 was $708,501. The aggregate fair value for the options granted during the nine months ended September 30, 2017 was $966,560.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Cost of revenue		$	529			$	333			$	1,870			$	3,279
Sales and marketing expense			981				1,039				3,202				908
Product development expense			14,380				3,396				33,640				36,628
General and administrative expense			211,818				148,714				610,848				436,206
Total stock compensation expense		$	227,708			$	153,482			$	649,560			$	477,021

At September 30, 2018, there was $1,625,919 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 2.1 years.

Restricted Stock Awards

The following table summarizes restricted stock award activity for the nine months ended September 30, 2018:

						Weighted
						Average
		Number of				Grant Date
		RSAs				Fair Value
Restricted Stock Awards:
Unvested at January 1, 2018			158,571			$	20.29
Granted			-				-
Expired or canceled, during the period			-				-
Forfeited, during the period			-				-
Unvested at September 30, 2018			158,571			$	20.29

At September 30, 2018, there was $741,496 of total unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over a weighted average period of 1.0 years.

Stock-based compensation expense relating to restricted stock awards for the three and nine months ended September 30, 2018 was $185,374 and $556,122, respectively, as compared to $185,374 and $556,122, respectively, for the three and nine months ended September 30, 2017.

Lerner Restricted Stock Award Agreements

On June 15, 2018, in connection with Clifford Lerner’s resignation as an officer and employee of the Company, the Company entered into amendments to (i) a restricted stock award agreement, dated March 3, 2016, as amended, related to the original award of 142,858 shares of restricted common stock to Mr. Lerner and (ii) a restricted stock award agreement, dated December 14, 2011, as amended, related to the original award of 121,429 shares of restricted common stock to Mr. Lerner (together, the “Restricted Stock Award Amendments”).

On October 7, 2018, 79,285 shares of Mr. Lerner’s restricted stock vested. Pursuant to the Restricted Stock Award Amendments, the Company was required, in order to assist Mr. Lerner in satisfying his tax withholding obligations with respect to the vesting restricted shares, to withhold 20,000 shares of vesting restricted common stock. The remaining amount of the tax withholding obligation was paid by Mr. Lerner and Mr. Lerner’s unvested shares of restricted common stock will continue to vest as scheduled. The remaining 79, 286 shares will vest on October 7, 2019.