NOTE 2 – Stockholders’ Equity

Common Stock

Effective March 17, 2016, our Amended and Restated Articles of Incorporation were amended pursuant to a Certificate of Change Pursuant to Nevada Revised Statutes 78.209 (the “Certificate of Change”) filed with the Nevada Secretary of State. The Certificate of Change provided for both a reverse stock split of the outstanding shares of our common stock on a 1-for-100 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”).

As a result of the Reverse Stock Split, the number of issued and outstanding shares of our common stock decreased from 622,969,835 pre-Reverse Stock Split shares to 6,229,710 post-Reverse Stock Split shares (after adjustment for any fractional shares). Pursuant to the Share Decrease, the number of authorized shares of our common stock decreased from 750,000,000 to 7,500,000 shares of common stock. All amounts shown for common stock included in these financial statement are presented post-Reverse Stock Split.

As of March 31, 2016, the Company had 7,500,000 shares of authorized common stock, $0.001 par value per share.

On May 23, 2013, the Company issued 20,000 shares of the Company’s common stock to a consultant as noncash compensation for services to be rendered valued at $45,400 or $2.27 per share. Of these shares, 10,000 (valued at $22,700) vested immediately and 9,607 (valued at $21,808) vested during the year ended December 31, 2015. The remaining 393 shares (valued at $892) vested and were earned by the consultant during the three months ending March 31, 2016.

In January 2014, the Company issued 437,500 shares of stock to an investor for a total purchase price of $3,500,000. In connection with the purchase and sale of the shares, the Company agreed to issue to the investor a warrant to purchase up to 142,593 shares of the Company’s common stock, at an exercise price of $15 per share. The warrant had a term of nine months from the date of issuance (January 10, 2014) and had a fair value of approximately $1,212,037. In May 2014, the term of the warrant was extended by nine months to expire in July 2015 and had a fair market value in excess of the remaining fair market value of the original warrant of approximately $1,283,333. A warrant was also issued as part of the offering to a consultant to purchase up to 21,875 shares of common stock at $8 per share, valued at approximately $271,250. That warrant had a term of two years from the date of issuance (January 10, 2014). Offering costs paid from the proceeds of the offering were approximately $199,089.

The fair value of the warrant of $1,212,037 was calculated using a Black-Scholes option pricing model with the following assumptions: expected life of nine months, expected volatility of 202%, a risk-free interest rate of 0.09%, and an expected dividend yield of 0%. The fair value of the warrant of $271,250 was calculated using a Black-Scholes option pricing model with the following assumptions: expected life of two years, expected volatility of 201%, a risk-free interest rate of 0.39%, and an expected dividend yield of 0%.

The fair value of the new warrant related to the extension of the warrant expiration of $1,283,333 (net) was calculated using a Black-Scholes option pricing model with the following assumptions: expected life of 14 months, expected volatility of 226%, a risk-free interest rate of 0.1%, and an expected dividend yield of 0%.

In June 2014, the Company issued 62,500 shares of stock to an investor for a total purchase price of $500,000. In connection with the purchase and sale of the shares, the Company agreed to issue to the investor a warrant to purchase up to 20,370 shares of the Company’s common stock, at an exercise price of $15 per share. The warrant had a term of one year from the date of issuance (June 4, 2014) and had a fair value of approximately $132,407. A warrant was also issued as part of the offering to a consultant to purchase up to 3,125 shares of common stock at $8 per share, valued at approximately $36,250. That warrant has a term of two years from the date of issuance (June 4, 2014). Offering costs paid from the proceeds of the offering were approximately $25,035.

The fair value of the warrant of $132,407 was calculated using a Black-Scholes option pricing model with the following assumptions: expected life of one year, expected volatility of 163%, a risk-free interest rate of 0.1%, and an expected dividend yield of 0%. The fair value of the warrant of $36,250 was calculated using a Black-Scholes option pricing model with the following assumptions: expected life of two years, expected volatility of 287%, a risk-free interest rate of 0.41%, and an expected dividend yield of 0%.

During July 2014, the Company issued an aggregate of 60,000 shares of common stock to three employees valued at $12.90 per share or $774,000. Twenty-five percent of each employee’s shares vested immediately upon the grant date, 25% of such shares vested upon the first annual anniversary of each employee’s start date, and 25% of such shares will vest on each of the second and third annual anniversary of each employee's start date, provided that such employee remains in the Company’s continuous employ through such vesting dates.

In November 2014, the Company issued 15,000 shares of stock to a director, subject to restrictions, pursuant to the Company's 2013 Equity Incentive Plan (the “2013 Plan”). The shares were valued at $9.40 or $141,000. All shares vested during the year ended December 31, 2015.

In March 2015, the Company issued 10,000 shares of stock to a director. The Company also issued 5,000 shares of stock to an officer, and an aggregate of 21,038 shares of stock to two consultants, subject to vesting restrictions. The shares were issued pursuant to the 2013 Plan. The shares were valued at $5.30 or $191,000. 33,037 of the shares vested during the year ended December 31, 2015. Another 429 shares (valued at $2,275) vested during the three months ending March 31, 2016 and the remaining 2,572 shares unvested at March 31, 2016 (valued at $13,630) are reflected as prepaid assets.

In August 2015, in conjuction with the hiring of Ron Fisher, the Company's Vice President of Business Development, the Company issued to Mr. Fisher 2,500 shares of common stock, subject to performance-based vesting restrictions. The shares, valued at $14,750, remain unvested at March 31, 2016.

In November 2015, the Company issued 625 shares of common stock to an employee valued at $6.50 per share, or $4,063, and issued 2,500 shares of common stock to an employee valued at $6.15 per share, or $15,375.

In February 2016, the Company issued 625 shares of common stock to a new employee, valued at $4.82 per share, or $3,013.

In March 2016, the Company issued 3,080 shares of common stock to a consultant, valued at $4.87 per share, or $15,000.

As of March 31, 2016, there were 6,232,778 shares of common stock issued and outstanding. As of December 31, 2015, there were 6,239,073 shares of common stock issued and outstanding, reflecting 22,500 and 32,500 shares, respectively, issued but unvested shares pursuant to the Company's 2011 Equity Incentive Plan (the “2011 Plan”) and the 2013 Plan. As of March 31, 2016, an aggregate of 1,500 shares and 167,132 shares of common stock were reserved for issuance under the 2011 Plan and the 2013 Plan, respectively.

Deferred Compensation

As described under the Common Stock heading above, during July 2014, the Company issued to three employees an aggregate of 60,000 shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Plan. Such shares were valued at the fair value of $774,000 or $12.90 per share. This compensation is being expensed over the vesting period. As of March 31, 2016, the balance of unvested compensation cost expected to be recognized is $258,000 (20,000 shares valued at $12.90) and is recorded as a reduction of stockholders’ equity. The unvested compensation is expected to be recognized over the weighted average period of approximately 2 years (through July 2017).

As described under the Common Stock heading above, in November 2014, the Company issued 15,000 shares of stock to a director, subject to restrictions, pursuant to the 2013 Plan. The shares were valued at $9.40 or $141,000. All shares vested during the year ended December 31, 2015.

As described under the Common Stock heading above, the Company issued 10,000 shares of stock to a director in March 2015. The Company also issued 5,000 shares of stock to an officer, and an aggregate of 21,038 shares of stock to two consultants, subject to vesting restrictions. The shares were issued pursuant to the 2013 Plan. The shares were valued at $5.30 or $191,000. 33,037 of the shares vested during the year ended December 31, 2015. Another 429 shares (valued at $2,275) vested during the three months ending March 31, 2016 and the remaining 2,572 shares unvested at March 31, 2016 (valued at $13,630) are reflected as prepaid assets.

As described under the Common Stock heading above, in August 2015, the Company issued 2,500 shares of stock to an employee, subject to performance-based vesting restrictions, pursuant to the Company's 2013 Equity Incentive Plan (the “2013 Plan”). The shares were valued at $5.90 or $14,750. All shares remained unvested as of March 31, 2016.

As of March 31, 2016, the balance of unvested compensation cost expected to be recognized is $272,750 and is recorded as a reduction of stockholders’ equity. The unvested compensation is expected to be recognized over the weighted average period of approximately 2 years (through July, 2017).

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value per share. No shares of preferred stock were issued and outstanding at March 31, 2016 or December 31, 2015.

Stock Options

During 2015, the Company granted a total of 56,875 options to three employees with vesting periods ranging from one to four years beginning August 10, 2015. As of March 31, 2016, none of the option grants had vested, and only a nominal amount of compensation cost had been recognized during the year. The weighted average period over which total compensation cost of the options of $306,796 will be recognized is 3.81 years. The weighted average exercise price of the options was $5.94 and the weighted average fair value of the options on the dates of grant was $5.91. The estimated fair value of the options was determined using the Black-Scholls pricing model using the following assumptions:

Expected term:	10 years

Volatility:	180-184	%

Dividend yield:	0.00	%

Risk-free interest rate:	2.24-2.32	%

During 2016, the Company granted a total of 21,875 options to three employees with vesting periods ranging from three to four years beginning February 16, 2016. As of March 31, 2016, compensation cost of $53,540, including options granted during 2015 was recognized during the period, for options vesting. The weighted average period over which total compensation cost of the options of $116,177 ($306,796 in 2015) will be recognized is 3.91 years. The weighted average exercise price of the options was $5.75 and the weighted average fair value of the options on the dates of grant was $5.73. The estimated fair value of the options was determined using the Black-Scholls pricing model using the following assumptions:

Expected term:	10 years

Volatility:	176-184	%

Dividend yield:	0.00	%

Risk-free interest rate:	2.24-2.32	%

Warrants

As of March 31, 2016, the Company had one outstanding warrant remaining to purchase a total of 3,125 shares of common stock at an exercise price of $8 per share. Such warrant will expire on June 4, 2016.

During the three months ending March 31, 2016, a warrant to purchase 21,875 shares of common stock at an exercise price of $8 per share expired.

During the year ending December 31, 2015, a warrant to purchase 20,370 shares of common stock at an exercise price of $15 per share, as well as a warrant to purchase 142,593 shares of common stock at an exercise price of $15 per share, expired.