NOTE 8. 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 have an exercise price of $0.50 per share and are exercisable for two years. If our common stock closes 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 March 31,
		2018		2017
Employee Awards	$	723,085	$	1,409,395
Consulting Awards		–		25,440
Feinsod Agreement		1,035,486		–
	$	1,758,571	$	1,434,835

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 (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 10 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. In April 2016, we filed a Registration Statement on Form S-8 (the “Registration Statement”), which automatically became effective in May 2016. The Registration Statement relates to 10,000,000 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 March 31, 2018, there were 8,327,257 shares available to issue under the Incentive Plan. In April 2018, stockholders approved an increase of 5,000,000 shares of common stock that may be granted under our 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 during the three months ended March 31, 2018:


Exercise price	$ 2.21 – 7.17
Stock price on date of grant	$ 2.21 – 7.17
Volatility	140 %
Risk-free interest rate	2.17 – 2.36 %
Expected life (years)	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	707,050		3.14
Exercised	(507,221)		0.87
Forfeited	(16,350)		2.45
Outstanding at March 31, 2018	8,888,757		1.45	2.1	$	8,909,000

Exercisable at March 31, 2018	7,113,307	$	1.13	1.8	$	8,541,000

Based on our estimated forfeiture rates, we expect 1,763,315 Employee Awards will vest. As of March 31, 2018, there was approximately $2,691,657 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of nine months.

Warrants for Consulting Services

As needed, we may issue warrants 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
Outstanding and exercisable at March 31, 2018	52,500	$	1.54	0.9	$	35,375

Feinsod Employment Agreement

On December 8, 2017, we entered into an employment 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 and, accordingly, the underlying shares are not registered. 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
Exercised	(2,825,000)	$	0.52
Outstanding and exercisable at March 31, 2018	526,700	$	1.36	3.4	$	566,260