WARRANT LIABILITY

6 Months Ended

Jun. 30, 2014

WARRANT LIABILITY

In connection with its March 11, 2014 financing, the Company issued warrants to purchase 20,400,000 shares of Common Stock. The Company recognizes these warrants as liabilities at their fair value on the date of grant, then measures the fair value of the warrants on each reporting date, and records a change to the warrant liability as appropriate. The warrants have certain pricing provisions which apply if the Company sells or issues Common Stock or Common Stock equivalents at a price that is less than the exercise price of the warrants, over the life of the warrants, excluding certain exempt issuances.

The Company recognized an initial warrant liability for the warrants issued in connection with the Offering completed in March 2014. The initial warrant liability recognized on the related warrants totaled $862,920, which was based on the March 11, 2014 five-day weighted average closing price per share of our Common Stock of $0.24. On June 30, 2014, the five day weighted average closing price per share of Common Stock was $0.243. Due to the fluctuations in the market value of our common stock from March 11, 2014 through June 30, 2014, we recorded a change in the fair value of the warrant liability of $26,520 during the six months ended June 30, 2014.

The assumptions used in connection with the valuation of warrants issued utilizing the binomial lattice valuation model were as follows:

	June 30, 2014			Initial Measurement March 11, 2014

Number of shares underlying the warrants		20,400,000			20,400,000
Exercise price	$	0.3125		$	0.3125
Volatility		28.3	%		28.3	%
Risk-free interest rate		1.62	%		1.62	%
Expected dividend yield		0			0
Expected warrant life (years)		4.70			5
Stock Price	$	0.242		$	0.240