Annual report pursuant to section 13 and 15(d)

11. Warrants

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11. Warrants
 12 Months Ended
Dec. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Warrants

In connection with the sale of shares of its common stock in 2010 the Company issued warrants to purchase a total of 471,108 shares of its common stock at $0.40 per share exercisable for a three-year period.

 

During the 2012, 5,380,952 warrants were issued to various holders as part of the debenture issued on June 27, 2012. The warrants have an exercise price of $0.33, subject to adjustment, and a term of five (5) years. As of December 31, 2013, these warrants are subject to a cashless exercise provision, resulting in a derivative valuation subsequent to issuance. The Company used the Black-Scholes pricing model, and recorded a derivative liability in the amount of $53,222 which was fully expensed in 2012 in accordance with ASC 815-10-25. The following assumptions were used in the valuation:

 

Risk-free interest rate     .72%  
Expected life in years     4.49  
Dividend yield     0  
Expected volatility     70.28%  

  

The following schedule summarizes the changes in the Company’s warrants during 2012 and 2011:

 

    Number of Warrants     Exercise Price per Share     Weighted Average Exercise Price per Share  
                   
Balance at December 31, 2010     471,108     $ 0.40     $ 0.40  
Warrants Granted     –       –       –  
Warrants Exercised     –       –       –  
Warrants Expired     –       –       –  
Balance at December 31, 2011     471,108       0.40       0.40  
Warrants Granted     5,380,952       0.33       0.33  
Warrants Exercised     –       –       –  
Warrants Expired     –       –       –  
Balance at December 31, 2012     5,852,060     $ 0.33 - 0.40     $ 0.34  
                         
Exercisable at December 31, 2012     5,852,060     $ 0.33 - 0.40     $ 0.34  

 

The following schedule summarizes the outstanding warrants at December 31, 2012:

 

Number of Warrants Outstanding at
December 31, 2012		     Number of Warrants Exercisable at
December 31, 2012		     Expiration Date     Exercise Price  
                     
  471,108       471,108       2013     $ 0.40  
  5,380,952       5,380,952       2017       0.33