NOTE 7 – EQUITY

Preferred stock:

The Company authorized the issuance of up to 18,242,700 shares of Series A convertible preferred stock in January 2014, of which 18,242,687 shares were issued on January 22, 2014. As of March 1, 2014, the holders of 13,357,828 Series A preferred shares chose to convert their Series A preferred stock into shares of the Company's common stock at a ratio of one to one. These Series A preferred shares were then subsequently cancelled. As of March 31, 2015 and December 31, 2014, 4,884,859 Series A convertible preferred shares remain issued and outstanding.

Each share of Series A convertible preferred is entitled to 25 votes and is convertible into shares of common stock on a one-for-one basis. Other rights of the Series A convertible preferred are identical to the common stock rights.

Common stock:

The Company's issued 91,291 common shares of stock at $0.30 per share for proceeds of $27,387 and 650,000 common shares of stock at $0.20 per share for proceeds of $130,000 between January and March 31, 2015.

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 4 million shares of common stock may be issued under the Plan (as amended on January 22, 2014).

In the three months ended March 31, 2015, the Company granted options to purchase up to 120,000 shares to two of its restaurant managers that vest evenly over three years, with the first tranche vesting on February 2, 2016 and each year thereafter with an exercise price of $0.25 per share. In addition, the Company granted options to another of its store managers to purchase up to 20,000 shares that vest evenly over two years beginning on March 16, 2015, with an exercise price of $0.27.

The stock-based compensation cost related to options that have been included as a charge to general and administrative expense in the statements of operations was approximately $74,200 and $54,500 for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, there was approximately $260,600 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, 2015 and 2014 was $0.25 and $0.20 per share, respectively. The assumptions utilized to determine the fair value of options granted during the three months ended March 31, 2015 and 2014, are as follows:

	2015		2014
Risk free interest rate		0.79%		0.79%
Expected volatility		205%		205%
Expected term		5 years		5 years
Expected dividend yield		0		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. 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, 2015:

						Weighted
				Weighted		average
	Shares			average		remaining		Aggregate
	under			exercise		contractual		intrinsic
	option			price		life		value
Outstanding at January 1, 2015		2,636,039		$	0.29			$	-
Granted		140,000			0.25		-		-
Exercised		-			*		-		-
Forfeited/cancelled		(281,236	)		0.10		-		-
Outstanding at March 31, 2015		2,494,803			0.31		3.70	$	237,944
Exercisable at March 31, 2015		1,305,042		$	0.33		3.38	$	84,492

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the market price of the Company's common stock on March 31, 2015, 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, 2015.

The following table summarizes the activity and value of non-vested options as of and for the three months ended March 31, 2015:

				Weighted
				average
	Number of			grant date
	options			fair value
Non-vested options outstanding at January 1, 2015		1,494,663		$	0.09
Granted		140,000			0.23
Vested		(163,666	)		0.37
Forfeited/cancelled		(281,236	)		0.10
Non-vested options outstanding at March 31, 2015		1,189,761		$	0.07

Warrants:

In May 2014, in connection with services provided to the Company, the Company issued a warrant for 30,000 common shares to exercise at $0.30 per share cancellable by the Company at any time. The Company used the contractual term of the warrant, a risk-free interest rate of 0.39% and a volatility of 105% with a value of $12,247. In September 2014, in connection with appointments to the Board of Directors, the Company issued warrants for 200,000 common shares to exercise at $0.30 per share. The warrants vest on September 15, 2015, a risk-free interest rate of 0.79% and a volatility of 205% with values of $53,924. In December 2014, in connection with appointments to the Board of Directors, the Company issued warrants for 100,000 common shares to exercise at $0.30 per share. The warrants vest on December 5, 2016, a risk-free interest rate of 0.79% and a volatility of 205% with values of $20,942.

In December 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. The personal guarantees are still in effect for the royalty payments due to the Franchisor. 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.

As of December 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 to purchase 50,000 common shares at an exercise price of $0.50 per share exercisable for three years from the date of execution of the note.

In connection with the Loan the Company has with BB14, the Company issued a warrant to BB14 for the purchase of 7,500,000 shares of common stock exercisable for a period of five years at $0.10 per share with the warrant vesting in one year. In addition, to compensate JW Roth, a director of the Company, for his personal guarantee in connection with BB14 obtaining financing to facilitate the Loan, the Company issued a warrant to Mr. Roth for the purchase of 7,500,000 shares of common stock exercisable for a period of five years at $0.10 per share with the warrant vesting in one year. 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 0.79% and a volatility of 205%. A relative fair value of approximately $730,880 was calculated and assigned to the warrants based on their fair values.