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:

Notes payable and accrued interest Of $830,984 were converted into 417,828 shares of common stock during the six months ended June 30, 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, the Company changed the offering price to $0.75 per share on May 28, 2013. The change in offering price and the subscriptions sold through June 30, 2013, resulted in a maximum of 2,000,000 shares available for issuance in which 1,904,875 shares have been issued for proceeds of 1,428,686 since December 2012.

In connection with services provided to the Company, the Company issued an additional 35,554 common shares valued at $26,664 ($0.75 per share) during the six months ended June 30, 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 vesting upon the achievement of the performance objectives determined by management, as defined. During the three months ended March 31, 2013, the CEO exercised the vested options for $995. 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 pricing model, the fair value of the modified share option is $1.44 per share. On June 20, 2013, the Company's CEO resigned his position. In connection with his resignation, the Company agreed to accelerate the vesting of a portion of his options for 264,149 shares from March 2014 to June 2013. The Company valued the modified options at the modification date which resulted in approximately $198,000 of stock option expense based on a value of $0.75 per share. He exercised these options in a cashless exercise, and the stock certificate is being held by the Company per a lock-up provision until March 2014.

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 June 30, 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 $157,600 and $251,600 for the three and six months ended June 30, 2013, respectively, (none for the three and six ended June 30, 2012). As of June 30, 2013, there was approximately $32,000 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 six months ended June 30, 2013 was $0.96 per share. The assumptions utilized to determine the fair value of options granted during the six months ended June 30, 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 six months ended June 30, 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		-
Exercised		(330,184	)	$	0.02	-		242,685
Forfeited/Cancelled		(330,184	)	$	0.02	-		242,685
Outstanding at June 30, 2013		90,000		$	1.50	4.75		-
Exercisable at June 30, 2013		45,000		$	1.50		4.75		-

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 June 30, 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 June 30, 2013.

The following table summarizes the activity and value of non-vested options as of and for the six months ended June 30, 2013:

				Weighted
	Number			Average
	Of			grant date
	Options			fair value
Non-vested options outstsanding at January 1, 2013		594,333		$	-
Granted		90,000			0.96
Vested		(309,149	)		1.37
Forfeited/cancelled		(330,184	)		1.44
Non-vested options outstanding at June 30, 2013		45,000		$	0.96

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. The Company used the contractual term of the warrant, a risk free interest rate of 1.61% and a volatility of 105% as assumptions in the Black Scholes model. Approximately $55,500 and $111,000 has been recognized as stock-based compensation for the three and six months ended June 30, 2013, respectively. The remaining prepaid balance of $83,250 is recorded at June 30, 2013, and is to be expensed through the remainder of 2013.

As of June 30, 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.