NOTE 11. STOCKHOLDERS’ EQUITY

Fall 2017 Capital Raise

During the year ended December 31, 2017, in a private placement we raised $4 million of equity by issuing four million shares of our common stock and four million warrants (“Fall 2017 Warrants”) to purchase shares of our common stock (together “Units”) for $1.00 per Unit. The Fall 2017 Warrants had an exercise price of $0.50 per share and were exercisable for two years. If our common stock closed above $5.00 for ten consecutive days, we may call the warrants, giving the warrant holders 10 days to exercise. During the quarter ended March 31, 2018, we called the warrants and all were exercised. All four million Fall 2017 Warrants were outstanding as of December 31, 2017. In consideration for the sale of the Units, we received $3,750,000 in cash and extinguished $250,000 of 12% Notes.

Share-based compensation

Share-based expense consisted of the following:


		Three months ended September 30,				Nine months ended September 30,
		2018		2017		2018		2017
Employee Awards	$	931,706	$	839,322	$	2,341,933	$	2,969,811
Consulting Awards		–		–		163,965		25,440
Feinsod Agreement		357,702		–		1,747,002		–
	$	1,289,408	$	839,322	$	4,252,900	$	2,995,251

Employee Stock Options

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified, our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 15 million shares of our common stock, and is designed to provide an additional incentive to executives, employees, directors and key consultants, aligning our long term interests with participants. A Registration Statement on Form S-8 for the initial 10 million shares automatically became effective in May 2016, and a Registration Statement on Form S-8 for the additional 5 million shares and 900,000 shares under the Feinsod Agreement automatically became effective in June 2018 (collectively, the “Registration Statements”). The Registration Statements relate to 15,000,000 shares of our common stock, which are issuable pursuant to or, upon exercise of, options that have been granted or may be granted under our Incentive Plan. As of September 30, 2018, there were 13,200,206 shares available to issue under the Incentive Plan.

Share-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. The following summarizes the Black-Scholes assumptions used for Employee Awards granted:


	Three months ended
	September 30, 2018	June 30, 2018	March 31, 2018
Exercise price	$2.19 – 4.02	$3.71	$2.21 – 7.17
Stock price on date of grant	$2.19 – 4.02	$3.71	$2.21 – 7.17
Volatility	42 - 133%	133%	140%
Risk-free interest rate	2.69 – 2.89%	2.59%	2.17 – 2.26%
Expected life (years)	3.0	3.0	2.5
Dividend yield	–	–	–

The following summarizes Employee Awards activity:


	Number of Shares		Weighted-average Exercise Price per Share	Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017	8,705,278	$	1.28
Granted	1,397,050		3.46
Exercised	(634,272)		0.99
Forfeited	(585,060)		3.28
Outstanding at September 30, 2018	8,882,996		1.51	6.4	$	20,908,000

Exercisable at September 30, 2018	7,319,446	$	1.06	7.0	$	20,298,000

Based on our estimated forfeiture rates, we expect 1,554,857 Employee Awards will vest. As of September 30, 2018, there was approximately $2,759,160 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of ten months.

Consulting Services

As needed, we may issue warrants, stock and/or options to third parties in exchange for consulting services. Stock-based compensation costs for award grants to third parties for consulting services (“Consulting Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. Consulting Awards are revalued at each reporting date until fully vested, which may generate an expense or benefit.


	Number of Shares		Weighted-average Exercise Price per Share	Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017	127,500	$	2.40
Exercised	(75,000)		1.31
Granted	35,000		3.08
Expired	(30,000)		1.92
Outstanding and exercisable at September 30, 2018	57,500		2.27	1.4	$	89,425

The following summarizes the Black-Scholes assumptions used for Consulting Awards granted:


	Three months ended
	September 30, 2018	June 30, 2018	March 31, 2018
Exercise price	–	$3.08	–
Stock price on date of grant	–	$3.08	–
Volatility	–	134%	–
Risk-free interest rate	–	2.3%	–
Expected life (years)	–	2.0	–
Dividend yield	–	–	–

We granted 25,000 shares of common stock with a fair value of $92,500 to a non-employee for consulting services, which were issued in July 2018.

Feinsod Agreement

On December 8, 2017, we entered into an agreement (the “Feinsod Agreement”) with Michael Feinsod for his continued service as our Executive Chairman of our Board of Directors. Pursuant to the agreement, Mr. Feinsod received (a) 600,000 stock options that vest on the anniversary date of the agreement for the next three years, or 200,000 per year (“Time-based Options”); and (b) three tranches of 100,000 stock options that vest when our stock price has an average trading price for 20 days of $3.50, $5.00 and $6.50 (“Market-based Options”). The options have an exercise price of $3.45 per share and a ten year life. These options were not issued under the Incentive Plan; however, the underlying shares were included in the Registration Statement on Form S-8 that automatically became effective in June 2018. During the quarter ended March 31, 2018, the $3.50 and $5.00 Market-based Options vested and, accordingly, the expense associated with those options was recognized immediately.

Warrants with Debt

The following summarizes warrants issued with debt:


	Number of Shares		Weighted-average Exercise Price per Share	Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017	3,351,700	$	0.65
Granted	6,000,000		2.35
Exercised	(3,296,786)		0.76
Outstanding and exercisable at September 30, 2018	6,054,914	$	2.28	1.6	$	9,453,597