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Warrants
 6 Months Ended
Jun. 30, 2014
Warrants [Abstract]  
Warrants

9.           Warrants

 

In conjunction with a private placement in October 2010 (the “2010 Private Placement”), the Company issued warrants to Ladenburg, the placement agent for the 2010 Private Placement.  The warrants entitle Ladenburg to purchase up to a total of 1,044,584 shares of common stock for $0.25 per share.  The warrants expire October 28, 2015.  The warrants are exercisable, at the option of the holder, at any time prior to their expiration. The fair value of warrants issued to placement agents was calculated utilizing the lattice method.  The warrants issued to Ladenburg contain provisions that make them redeemable for cash by the holder of the warrant under certain circumstances that are not within the control of the Company. Accordingly, the fair market value of the warrants as of the date of issuance has been classified as liabilities. The fair value of the 2010 Private Placement warrants as of June 30, 2014 and December 31, 2013 was $49,837 and $41,078, respectively.

 

In conjunction with a private placement in 2012 (the “2012 Private Placement”), the Company issued warrants to Ladenburg in March 2012.  The warrants entitle Ladenburg to purchase up to a total of 86,323 shares of common stock for $0.35 per share and expire March 27, 2017.  The Company also issued warrants to Ladenburg in May 2012 in connection with the additional 702,872 shares of common stock issued in the 2012 Private Placement.  These warrants entitle Ladenburg to purchase 29,700 shares of common stock at $0.35 per share and expire May 22, 2017.  The warrants are exercisable, at the option of the holder, at any time prior to their expiration.  The fair value of warrants issued to placement agents was calculated utilizing the lattice method.  The warrants issued to Ladenburg contain provisions that make them redeemable for cash by the holder of the warrant under certain circumstances that are not within the control of the Company.  Accordingly, the fair market value of the warrants as of the date of issuance has been classified as liabilities. The fair value of the 2012 Private Placement warrants as of June 30, 2014 and December 31, 2013 was $5,029 and $4,050, respectively.

 

In connection with the issuance of the 2012 Hillair Debenture disclosed in Note 7, the Company issued 2012 Hillair Warrants to Hillair. The 2012 Hillair Warrants originally entitled Hillair to purchase up to 2,604,651 shares of Common Stock for $0.4488 per share, subject to adjustments upon certain events. The 2012 Hillair Warrants may be exercised at any time on or after June 27, 2013 and expire on June 27, 2018. As a result of the transactions consummated pursuant to the Exchange Agreement and the 2014 SPA as disclosed in Note 7, the number of shares of Common Stock Hillair is entitled to purchase under the 2012 Hillair Warrants has increased to 4,480,000 and can be purchased for $0.25 per share. The fair value of the 2012 Hillair Warrants was calculated utilizing the lattice method. The 2012 Hillair Warrants contain provisions that make them redeemable for cash by the holder of the warrant under certain circumstances that are not within the control of the Company. Accordingly, the fair market value of the 2012 Hillair Warrants as of the date of issuance has been classified as liabilities and has been included as a debt discount of the 2012 Hillair Debenture described in Note 7. The fair value of the 2012 Hillair Warrants as of June 30, 2014 and December 31, 2013 was $404,789 and $89,940, respectively.

 

In connection, with the issuance of the 2012 Hillair Debenture, the Company issued warrants to Merriman. The warrants entitle Merriman to purchase up to 52,093 shares of Common Stock for $0.4488 per share and 52,093 shares of Common Stock at $0.43 per share. The fair value of the warrants as of the date of issuance has been classified as equity and is recorded in deferred loan costs on the accompanying condensed consolidated balance sheets. The fair value of the Merriman warrants as of the date of issuance was $8,166.

 

As part of the issuance of the January 2013 Debentures to Next View and the Other Investor as disclosed in Note 7, the Company issued the January 2013 Warrants to Next View and the Other Investor. The January 2013 Warrants originally entitled Next View and the Other Investor to purchase up to 651,163 and 260,465, respectively, shares of Common Stock for $0.4488 per share, subject to adjustments upon certain events. The January 2013 Warrants issued to Next View and the Other Investor contain substantially all of the same terms as the 2012 Hillair Warrants. As a result of the transactions consummated pursuant to the Exchange Agreement and the 2014 SPA as disclosed in Note 7, the number of shares of Common Stock Next View and the Other Investor are entitled to purchase has increased to 1,120,000 and 448,000, respectively, and can be purchased for $0.25 per share. The fair value of the January 2013 Warrants as of the date of issuance has been classified as liabilities and has been included as a debt discount of the January 2013 Debentures described in Note 7. The fair value of the January 2013 Warrants issued to Next View and the Other Investor as of June 30, 2014 and December 31, 2013 was $125,329 and $31,479, respectively.

In connection, with the issuance of the January 2013 Debentures to Next View and the Other Investor, the Company issued warrants to Merriman. The warrants entitle Merriman to purchase up to 18,233 shares of Common Stock for $0.4488 per share and 18,233 shares of Common Stock at $0.43 per share.  The fair value of the warrants as of the date of issuance has been classified as equity and is recorded in deferred loan costs on the accompanying condensed consolidated balance sheets. The fair value of the Merriman warrants as of the date of issuance was $2,858.

 

As part of the issuance of the April 2013 Debentures to Casano and Masterson as disclosed in Note 7, the Company issued the April 2013 Warrants to Casano and Masterson. The April 2013 Warrants originally entitled Casano and Masterson to purchase up to 1,041,861 and 260,465, respectively, shares of Common Stock for $0.4488 per share, subject to adjustments upon certain events. The April 2013 Warrants issued to Casano and Masterson contain substantially all of the same terms as the 2012 Hillair Warrants. As a result of the transactions consummated pursuant to the Exchange Agreement and the 2014 SPA as disclosed in Note 7, the number of shares of Common Stock Casano and Masterson are entitled to purchase has increased to 1,792,000 and 448,000, respectively and can be purchased for $0.25 per share. The fair value of the April 2013 Warrants as of the date of issuance has been classified as liabilities and has been included as a debt discount of the April 2013 Debentures described in Note 7. The fair value of the April 2013 Warrants issued to Casano and Masterson as of June 30, 2014 and December 31, 2013 was $140,155 and $48,191, respectively.

 

Pursuant to the Exchange Agreement disclosed in Note 7, the Company issued 2014 Exchange Warrants to Hillair, Casano and Masterson. The 2014 Exchange Warrants entitle Hillair, Casano and Masterson to purchase up to 5,107,200, 2,042,880, and 510,720, respectively, shares of Common Stock at $0.275 per share, subject to adjustments upon certain events. The 2014 Exchange Warrants may be exercised at any time after April 10, 2014 and expire on April 10, 2019. The fair value of the 2014 Exchange Warrants issued to Hillair, Casano and Masterson was calculated utilizing the lattice method. The 2014 Exchange Warrants contain provisions that make them redeemable for cash by the holder of the warrant under certain circumstances that are not within the control of the Company. Accordingly, the fair value of the 2014 Exchange Warrants as of the date of issuance has been classified as liabilities and has been included in the loss on extinguishment of debt on the accompanying condensed consolidated statements of operations. The fair value of these warrants as of June 30, 2014 and the date of issuance was $447,777 and $490,601, respectively.

 

As part of the issuance of the 2014 New Debentures as disclosed in Note 7, the Company issued warrants to purchase up to 8,322,000 shares of Common Stock at $0.275 per share (the “2014 New Warrants”), subject to adjustments upon certain events. The 2014 New Warrants contain substantially all of the same terms as the 2014 Exchange Warrants. The fair value of the 2014 New Warrants as of the date of issuance has been classified as liabilities and has been included as a debt discount of the 2014 New Debentures described in Note 7. The fair value of the 2014 New Warrants as of June 30, 2014 and the date of issuance was $486,424 and $532,944, respectively.

A summary of warrant activity as of June 30, 2014 and changes during the six months ended are presented below:

    Number of Warrants     Weighted Average Exercise Price Per Share     Weighted Average Remaining Terms (in years)     Aggregate Intrinsic Value  
                         
Outstanding – December 31, 2013     6,119,864     $ 0.26     3.58   -  
Issued     15,982,800       0.275              
Anti-Dilutive Adjustment     3,469,395       0.25              
Exercised     -       -              
Forfeited     -       -              
Outstanding – June 30, 2014     25,572,059     $ 0.27       4.40     $ -  
                                 
Exercisable –June 30, 2014     25,572,059     $ 0.27       4.40     $ -  

 

The change in fair value of the warrants of $340,459 and $29,569 is included in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2014 and 2013, respectively. The change in fair value of the warrants of $421,057 and $186,261 is included in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2014 and 2013, respectively.

 

The significant assumptions which the Company used to measure the fair value of warrants at June 30, 2014 and December 31, 2013 is as follows:

 

    2014     2013  
Stock price   $ 0.24     $ 0.21  
Term   1.58 – 4.78 Years     1.83 – 4.79 Years  
Volatility       50 %     50 %
Risk-free interest rate      0.88 – 1.62 %     0.38 – 1.75 %
Exercise prices   $ 0.25-0.35     $ 0.25-0.4488  
Dividend yield       0.00 %     0.00 %
Delta     0.03 - 0.08       0.03 – 0.08  
Up ratio     1.081 - 1.142       1.087 – 1.137  
Down ratio       0.861 – 0.919       0.861 – 0.913  
Up transition probability       0.500       0.500