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13. STOCK OPTIONS AND WARRANTS

6 Months Ended

Jun. 30, 2013

NOTE 14 – STOCK OPTIONS AND WARRANTS

Blast 2003 Stock Option Plan and 2009 Stock Incentive Plan

As of June 30, 2013, 3,424 shares of common stock granted under the 2003 Stock Option Plan and 2009 Stock Incentive Plan approved when the Company was known as Blast Energy Services, Inc. (“Blast”) remain outstanding and exercisable. No options were issued under these plans in 2013.

2012 Incentive Plan

On July 27, 2012, the shareholders of the Company approved the 2012 Equity Incentive Plan (the “2012 Incentive Plan”), which was previously approved by the Board of Directors on June 27, 2012, and authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, performance shares and other securities as described in greater detail in the 2012 Incentive Plan, to the Company’s employees, officers, directors and consultants. A total of 2,000,000 shares of Common Stock are eligible to be issued under the 2012 Incentive Plan, of which 13,334 shares have been issued as restricted stock, and 1,986,666 remain available for future issuance.

PEDCO 2012 Equity Incentive Plan

As a result of the July 27, 2012, merger by and between the Company, Blast Acquisition Corp., a wholly-owned Nevada subsidiary of the Company (“MergerCo”), and Pacific Energy Development Corp., a privately-held Nevada corporation (“PEDCO”) pursuant to which MergerCo was merged with and into PEDCO, with PEDCO continuing as the surviving entity and becoming a wholly-owned subsidiary of the Company, in a transaction structured to qualify as a tax-free reorganization (the “Merger”), the Company assumed the PEDCO 2012 Equity Incentive Plan (the “PEDCO Incentive Plan”), which was adopted by PEDCO on February 9, 2012. The PEDCO Incentive Plan authorized PEDCO to issue an aggregate of 1,000,000 shares of common stock in the form of restricted shares, incentive stock options, non-qualified stock options, share appreciation rights, performance share, and performance unit under the PEDCO Incentive Plan. As of June 30, 2013, options to purchase an aggregate of 405,804 shares of the Company’s common stock and 591,791 shares of the Company’s restricted common stock have been granted under this plan (all of which were granted by PEDCO prior to the closing of the merger with the Company, with such grants being assumed by the Company and remaining subject to the PEDCO Incentive Plan following the consummation of the merger). The Company does not plan to grant any additional awards under the PEDCO Incentive Plan.

Options

During the six months ended June 30, 2013, the Company recognized stock option based compensation expense of $433,800. The remaining amount of unamortized stock options expense at June 30, 2013 is $45,794.

The intrinsic value of outstanding and exercisable options at June 30, 2013 was $4,722,792 and $3,424,362, respectively.

The intrinsic value of outstanding and exercisable options at December 31, 2012 was $6,870,330 and $3,144,095, respectively.

Option activity during the six months ended June 30, 2013 was:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (# years)
Outstanding at January 1, 2013		1,218,206		$	0.92		9.30
Granted		-			-
Exercised		-			-
Rescinded		127,800			0.48
Forfeited and cancelled		(6,782	)		21.99

Outstanding at June 30, 2013		1,339,224		$	0.55		8.86

Exercisable at June 30, 2013		969,058		$	0.58		8.83

Warrants

As discussed in Note 9, the Company issued 76,198 warrants to purchase shares of the Company’s common stock to investors in conjunction with its Bridge Financing. Fair value of $243,771 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for the warrants issued include: (1) discount rate of 0.60%; (2) expected term of 4 years; (3) expected volatility of 85%; and (4) zero expected dividends. Fair value of $256,857 was recorded as a debt discount which was calculated using Monte Carlo simulation. The debt discount as of June 30, 2013, was $166,415. Interest expense for the six month period ended June 30, 2013 was $90,443.

Somerley Limited (“Somerley”) acted as the Company’s placement agent with respect to a portion of the Bridge Financing sold to non-U.S. investors. As compensation, Somerley received total cash fees of $40,000 and Bridge Warrants to purchase a total of up to 9,524 shares of the Company’s common stock at an exercise price of $5.25 per share valued at $31,176 using the Black-Scholes option pricing model.

The intrinsic value of outstanding as well as exercisable warrants at June 30, 2013 and December 31, 2012 was $653,557 and $1,883,479, respectively.

Warrant activity during the six months ended June 30, 2013 was:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (# years)
Outstanding at January 1, 2013		633,631		$	18.25		2.43
Granted		85,722			5.25
Exercised		-			-
Forfeited and canceled		(5,015	)		183.63

Outstanding at June 30, 2013		714,338		$	15.53		2.16

Exercisable at June 30, 2013		714,338		$	15.53		2.16