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11. Stockholder's Equity
 9 Months Ended
Sep. 30, 2013
Equity [Abstract]  
Stockholder's Equity

Issuance of Common Stock for Cash

 

During the second quarter of 2013, the Company sold an aggregate of 725,000 of its unregistered common stock to existing stockholders and other parties for $653,604, net of offering costs.  In connection with the sale, 362,500 warrants to purchase shares of the Company’s common stock for $1.20 were issued.  The warrants expire on June 28, 2014 and contain a provision that require the Company to make a cash payment to holders of the warrants equal to the Black-Scholes value of the remaining unexercised portion of the warrant in the event of a Fundamental Transaction.

 

Generally accepted accounting principles required the Company to account for the warrants as a derivative liability.  At June 28, 2013, the closing date of the private placement, the Company allocated $108,750 of the cash proceeds, which represented the fair value of the warrants, to the warrants and recorded the amount as a derivative liability.  The fair value of the warrants was estimated, using the Black-Scholes option pricing model with the following assumptions:

 

 

Risk-free interest rate   0.15%
Expected dividend Yield   None 
Expected term   one year 
Expected volatility   75.4%

 

 

Since issuance, the holders of 212,500 warrants have agreed to rescind the cash payment provision that gave rise to the derivative liability, and the Company expects the remainder of the warrant holders to rescind the provision in the near future.  At September 30, 2013, the fair value of the outstanding warrants was calculated at $72,000.

 

During the nine months ended September 30, 2012, the Company sold an aggregate of 2,056,334 shares of unregistered common stock to existing stockholders and other parties for $4,711,842.  In connection with the sales of the Company’s common stock, 1,028,167 warrants to purchase shares of the Company’s common stock at $2.50 per share, and 1,425,982 warrants at $3.50 per share, were issued.  Expenses of $414,661 connected to the issuance of the unregistered shares were deducted from additional paid in capital.

 

Issuance of Common Stock for Services

 

At December 31, 2011, the Company declared, but did not issue, 95,835 shares of unregistered common stock to be paid to its directors for services, having a fair value of $230,004, based on the current stock price at the date declared.  During the first six months of 2012, the company issued 149,500 shares of unregistered common stock with a fair market value of $358,800 to the Directors as compensation for past and future services. During the first six months of 2012, the Company awarded 39,406 of the remaining 53,665 shares of unregistered common stock to its directors for services, having a fair value of $151,191, based on the current stock price at the date awarded.  6,423 new shares with a fair value of $25,000 were issued to directors who were not board members at December 31, 2011. This expense is classified with general and administrative expense in the consolidated statement of operations.

 

 

 

Common Stock Warrants

 

The Company's Board of Directors has the authority to issue stock warrants for the purchase of preferred or unregistered common stock to directors and employees of the Company.

 

Transactions in common stock warrants are as follows:

 

    Number of Warrants     Exercise Prices  
Balance, December 31, 2010     725,000     $ .20 - $.75  
   Warrants exercised     (125,000 )   $ .30 - $.40  
Balance, December 31, 2011     600,000     $ .30 - $.60  
Warrants issued     1,734,667     $ 2.50 - $4.50  
   Warrants exercised     (250,000 )   $ .30 - $2.50  
   Warrants expired     (150,000 )   $ .30 - $.40  
Balance, December 31, 2012     1,934,667     $ .25 - $4.50  
Warrants issued     -       -  
   Warrants exercised     -       -  
   Warrants expired     -       -  
Balance, December 31, 2012     1,934,667     $ .25 - $4.50  
   No activity first quarter of 2013     -       -  
Warrants issued second quarter of 2013     362,500     $ 1.20  
Balance, September 30, 2013     2,297,167     $ .25 - $4.50  
                 
The above common stock warrants expire as follows:          
Year ended December 31:                
2013     412,500          
2014     1,157,750          
2015     476,917          
Thereafter     250,000          
      2,297,167