EQUITY

3 Months Ended

Mar. 31, 2013

EQUITY [Abstract]

EQUITY

NOTE 8 - EQUITY

Preferred stock:

The Company has authorized the issuance of up to 1,000,000 shares of preferred stock, none of which have been issued to date. The designations, preferences, limitations, restrictions, and relative rights of the preferred stock shall be established by the board of directors.

Common stock:

In connection with the Company's 2011 debt offering, 1,970,462 shares were issued for proceeds of $2,983,888 through November 2012. Additionally, the Company issued 67,688 shares of stock with notes payable valued at $102,500 in 2012. Notes and accrued interest of $2,308,175 have converted into 1,411,203 shares of common stock through March 31, 2013.

In connection with the Company's 2012 private placement offering to raise $1,500,000 for 1,000,000 shares at $1.50 per share that began in December 2012, 77,764 shares were issued by December 31, 2012, for proceeds of $116,644. An additional 562,341 shares were issued for proceeds of $843,512 during the quarter ended March 31, 2013.

In connection with services provided to the Company, the Company issued 3,443 common shares valued at $5,164 ($1.50 per share) during the quarter ended March 31, 2013.

Stock options:

Effective November 13, 2012, the Company adopted the 2012 Stock Option Plan (the "Plan"). Under the Plan, the Company may grant stock options, restricted and other equity awards to any employee, consultant, independent contractor, director or officer of the Company. A total of 1.5 million shares of common stock may be issued under the Plan (which number is subject to adjustment as described in the Plan).

In 2012, the Company granted stock options to the Company's CEO to purchase an aggregate of 660,368 shares of common stock. The Company's CEO was granted a five-year term option to acquire 660,368 shares of Company common stock at approximately $0.015 per share with 66,035 options vesting immediately and the remaining shares vest upon the achievement of the performance objectives determined by management, as defined. In March 2013, the board of directors modified the stock option agreement, revising the vesting conditions of the agreement from performance objectives to a service condition. Under the revised agreement 264,149 shares vest in March 2014 and the remaining 330,184 shares vest in March 2015. The Company valued the modified options at the modification date. Based on the Black Scholes option model, the fair value of the modified share option is $1.48 per share. The revised fair value of the option agreement of approximately $882,000 will be expensed over the remaining requisite service period of two years. During the three months ended March 31, 2013, the CEO exercised the vested options for $995.

In March 2013, the Company granted certain members of the Denver-based restaurant management team stock options to purchase an aggregate of 90,000 shares of common stock. These options were granted with a five-year term exercisable at approximately $1.50 per share with 45,000 options vesting immediately and the remaining shares to vest one year later in March 2014. None of these options were exercised by March 31, 2013.

The stock-based compensation cost that has been included as a charge to general and administrative expense in the statements of operations was approximately $94,049 for the three months ended March 31, 2013 (none for the quarter ended March 31, 2012). For the three months ended March 31, 2013, there was approximately $915,000 of unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized over a weighted-average period of less than five years.

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The weighted-average fair value of options granted during the three months ended March 31, 2013 was $0.96 per share. The assumptions utilized to determine the fair value of options granted during the three months ended March 31, 2013, were as follows:

	2013
Risk free interest rate	0.79%
Expected volatility	105%
Expected term	2-5 years
Expected dividend yield	0

The expected term of stock options represents the period of time that the stock options granted are expected to be outstanding. The expected volatility is based on the historical price volatility of the common stock of similar companies since the Company does not have a sufficient history on the public stock exchange. The risk-free interest rate represents the U.S. Treasury bill rate for the expected term of the related stock options. The dividend yield represents the anticipated cash dividend over the expected term of the stock options.

The following tables set forth the activity in the Company's Plan for the three months ended March 31, 2013:

						Weighted
				Weighted		average
	Shares			average		remaining		Aggregate
	under			exercise		contractual		intrinsic
	option			price		life		value
Outstanding at January 1, 2013		660,368		$	-			$	-
Granted		90,000		$	1.50		4.75	$	2,700
Exercised		(66,035	)	$	-		-	$	-
Forfeited/cancelled		-		$	-		-	$	-
Outstanding at March 31, 2013		684,333		$	0.21		4.56	$	903,074
Exercisable at March 31, 2013		45,000		$	1.50		4.70	$	1,350

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company's common stock on March 31, 2013, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on March 31, 2013.

The following table summarizes the activity and value of non-vested options as of and for the three months ended March 31, 2013:

				Weighted
				average
	Number of			grant date
	options			fair value
Non-vested options outstanding at January 1, 2013		594,333		$	-
Granted		90,000		$	0.96
Vested		(45,000	)	$	0.96
Forfeited/cancelled		-		$	-
Non-vested options outstanding at March 31, 2013		639,333		$	1.45

Warrants:

On December 14, 2012, the Company entered into an indemnification agreement with JW Roth and Gary Tedder, both directors of the Company, for their personal risk regarding personal guarantees in favor of the Franchisor, which are the subject of an Area Development Agreement between the Franchisor and SH. In addition to the indemnification agreements, the Company compensated Messrs. Roth and Tedder for their personal guarantees in the form of a warrant to purchase up to 200,000 shares, per director, exercisable for ten years at $1.00 per share with the warrant vested immediately with a cashless exercise feature. Approximately $55,500 has been recognized as stock-based compensation for the three months ended March 31, 2013. The remaining prepaid balance of $138,750 is recorded at March 31, 2013, and will be expensed through the remainder of 2013.

As of March 31, 2013, the Company had a promissory note with an aggregate face amount of $200,000 outstanding. By the original terms, the holder of the note received additional consideration in the form of an immediately vested stock warrant of 50,000 common shares at an exercise price of $0.50 per share exercisable for the three years from the date of execution of the note. The Company used the Black Scholes pricing model to determine the fair value of the warrants. The Company used the contractual term of the warrant, a risk free interest rate of 0.39% and a volatility of 105%. A relative fair value of approximately $44,000 was calculated based on the fair value of the warrant and note payable.