Quarterly report pursuant to Section 13 or 15(d)

Warrants

v2.4.0.8
Warrants
6 Months Ended
Jun. 30, 2014
Warrants  
Warrants

NOTE 9 – WARRANTS

 

The following is a summary of the Company’s warrant activity:

 

    Warrants     Weighted
average
exercise price
    Weighted 
average
remaining 
contractual
term in years
    Aggregate
intrinsic value
 
Outstanding January 1, 2013     3,693,971     $ 0.450       4.81     $ -  
Exercisable January 1, 2013     3,693,971     $ 0.450       4.81     $ -  
Granted     -                          
Exercised     -                          
Forfeited     (298,138 )                        
Outstanding December 31, 2013     3,395,833     $ 0.450       5.28     $ -  
Exercisable December 31, 2013     3,395,833     $ 0.450       5.28     $ -  
Canceled     (3,395,833 )                        
Granted     28,405,782                          
Exercised     -                          
Forfeited     -                          
Outstanding June 30, 2014     28,405,782     $ 0.653       4.61     $ -  
Exercisable June 30, 2014     28,405,782     $ 0.653       4.61     $ -  

 

Under ASC No. 718, the Company estimates the fair value of warrants granted on each grant date using the Black-Scholes option valuation model. The fair value of warrants issued with debt is recorded as a debt discount and amortized over the life of the debt. The range of fair value assumptions related to warrants outstanding as of June 30, 2014 and December 31, 2013, were as follows:

 

    June 30, 2014     December 31, 2013  
Dividend yield     0.0%       0.0%  
Risk-free rate     0.12% - 0.66%       0.62% - 4.59%  
Expected volatility     112% - 159%       108% - 167%  
Expected term     1.0  - 2.5 years       2.5 - 10.0 years  

  

The expected volatility was calculated based on the historical volatilities of publicly traded peer companies, determined by the Company. The risk free interest rate used was based on the U.S. Treasury constant maturity rate in effect at the time of grant for the expected term of the warrants to be valued. The expected dividend yield was zero, as the Company does not anticipate paying a dividend within the relevant time frame. The expected warrant term is the life of the warrant.

 

The Company recognized $11,610 and $5,229,589, in stock based compensation expense during the three and six-month periods ended June 30, 2014, respectively. Warrants issued prior to February 7, 2014, were issued in conjunction with the origination of notes payable and were accounted for as a discount on the related notes. See Note 6 for the expense associated with the issuance of these warrants.