Note 7. Stock incentive plan and stock–based compensation

The Company’s board of directors established the 2012 Stock Incentive Plan (the “Plan”) on April 15, 2012, and the Company’s shareholders ratified the Plan at the annual meeting of the Company’s stockholders on May 30, 2012. The Company has 415,000 shares of Common Stock that are reserved to grant Options, Stock Awards and Performance Shares (collectively the “Awards”) to “Participants” under the Plan. The Plan is administered by the board of directors or the Compensation Committee of the board of directors, which determines the individuals to whom Awards shall be granted as well as the type, terms and conditions of each Award, the option price and the duration of each award.

At the annual meeting of the stockholders of MGT held on September 27, 2013, stockholders approved an amendment to the Plan (the “Amended and Restated Plan”) to increase the amount of shares of Common Stock that may be issued under the Amended and Restated Plan to 1,335,000 shares from 415,000 shares, an increase of 920,000 shares and to add a reload feature.

Options granted under the Plan vest as determined by the Company’s Compensation and Nominations Committee and expire over varying terms, but not more than seven years from date of grant. In the case of an Incentive Stock Option that is granted to a 10% shareholder on the date of grant, such Option shall not be exercisable after the expiration of five years from the date of grant. No option grants were issued during the three and six months ended June 30, 2014 and 2013. As of June 30, 2014, no options are outstanding.

Issuance of restricted shares – directors, officers and employees

Restricted shares are valued using closing market price on the date of grant and vest one–third each six months from the date of issue, for which the stock–based compensation expense is recognized over their vesting period. Unvested shares are subject to forfeiture if the applicable recipient is not a director, officer and/or employee of the Company at the time the restricted shares are to vest.

A summary of the Company’s employee’s restricted stock as of June 30, 2014, is presented below:

	Number of shares		Weighted average grant date fair value
Non–vested at December 31, 2013		52,667	$	5.20
Granted		85,000		1.88
Vested		(48,668)		4.67
Forfeited		–		–
Non–vested at June 30, 2014		88,999	$	2.37

On July 1, 2014, a total of 12,000 restricted shares were granted and issued to certain employees with an aggregate fair value of $12.

The Company recorded the following amounts related to stock–based compensation expense in the accompanying Consolidated Statements of Operations and Comprehensive (Loss) / Income:

	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
Selling, general and administrative	$	93	$	346	$	216	$	705
		93		346		216		705

In the three months and six months ended June 30, 2014, and 2013, the Company did not allocate any stock–based compensation expense to non–controlling interest.

Unrecognized compensation cost

As of June 30, 2014, unrecognized compensation costs related to non–vested stock–based compensation arrangements was $174 and is expected to be recognized over a weighted average period of 1.21 years.

Stock–based compensation – non–employees

On November 12, 2013, the Company entered into a consulting agreement for investor relations media services for a period of three months. In consideration for the services, the Company was scheduled to pay $20 upon execution of the agreement and $25, 30 and 60 days subsequent to the date of the agreement; and 10,000 shares of the Company’s Common Stock upon execution of the agreement and 10,000 shares of the Company’s Common Stock 30 and 60 days from the date of the agreement, respectively. The Company expensed $57 associated to the issuance of 20,000 shares based on the closing market price on November 12, 2013 and December 12, 2013. The agreement was cancelled January 3, 2014.

On May 16, 2014, the Company entered into a consulting agreement for services related to its fantasy sports platform for a period of one year, cancellable with 30 days’ notice. In consideration for the services, the Company is scheduled to pay $6 per month and 12,000 shares of the Company’s Common Stock vesting monthly over the term of the agreement. As of June 30, 2014, the Company has expensed $3 related to the agreement.

On June 16, 2014 the Company entered into a Settlement Agreement with J&S Gaming, Inc. (“J&S”) which provides for the issuance by the Company of 75,000 shares to J&S and the release by J&S of the Company’s obligation to consummate a previously contemplated transaction. The stock was recorded at the fair market value of $49 on July 29, 2014, date of approval from NYSE , and was subsequently issued on August 8, 2014.

Warrants

The following table summarizes information about warrants outstanding as of June 30, 2014:

	Number of warrants		Weighted average exercise price
Warrants outstanding at December 31, 2013		920,829	$	3.46
Issued		100,000		3.75
Exercised		–		–
Expired		–		–
Warrants outstanding at June 30, 2014		1,020,829	$	3.47

For the three and six months ended June 30, 2014 and 2013, all issued warrants are exercisable and expire through 2017.