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13. STOCK OPTIONS AND WARRANTS

9 Months Ended

Sep. 30, 2015

NOTE 13 – STOCK OPTIONS AND WARRANTS

Blast 2003 Stock Option Plan and 2009 Stock Incentive Plan

As of September 30, 2015, 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 at a weighted average exercise price of $35.05. No options were issued under these plans during the nine months ended September 30, 2015.

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. The 2012 Incentive Plan was amended on June 27, 2014 to increase by 5,000,000 the number of shares of common stock reserved for issuance under the Plan. As of September 30, 2015, a total of 7,000,000 shares of common stock are eligible to be issued under the 2012 Incentive Plan, of which 4,114,802 shares have been issued as restricted stock, 1,817,000 shares are subject to issuance upon exercise of issued and outstanding options, and 1,068,198 remain available for future issuance. At the Annual Meeting of Stockholders held on October 7, 2015, the Company’s stockholders approved an amendment to the 2012 Incentive Plan to increase by 3,000,000, the number of shares of common stock reserved for issuance under the 2012 Incentive Plan.

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 shares, and performance units under the PEDCO Incentive Plan. As of September 30, 2015, 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

On January 7, 2015, the Company granted options to purchase an aggregate of 1,265,000 shares of common stock to certain of its consultants and employees at an exercise and market price of $0.37 per share, including an option to purchase 370,000 shares to Chairman and Chief Executive Officer, Frank C. Ingriselli, an option to purchase 325,000 shares to President and Chief Financial Officer, Michael L. Peterson, and an option to purchase 270,000 shares to Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2014 annual equity incentive compensation review process. The options have terms of five years and fully vest in January 2017. 50% vest six months from the date of grant, 20% vest one year from the date of grant, 20% vest eighteen months from the date of grant and 10% vest 2 years from the date of grant, all contingent upon the recipient’s continued service with the Company, subject in all cases to the terms of the Vesting Agreements. The aggregate fair value of the options on the date of grant, using the Black-Scholes model, was $213,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of 1.47%, (2) expected term of 3.8 years, (3) expected volatility of 60%, and (4) zero expected dividends.

During the nine months ended September 30, 2015, the Company recognized stock option expense of $384,000. The remaining amount of unamortized stock options expense at September 30, 2015, was $163,000.

The intrinsic value of outstanding and exercisable options at September 30, 2015 was $1,000 and $1,000, respectively.

The intrinsic value of outstanding and exercisable options at December 31, 2014 was $34,000 and $34,000, respectively.

Option activity during the nine months ended September 30, 2015 was:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Contract Term
	Shares			Price		(# years)
Outstanding at January 1, 2015		1,827,224		$	1.08		6.5
Granted		1,265,000			0.37
Exercised		(19,445	)		0.30
Forfeited and cancelled		(13,888	)		0.30

Outstanding at September 30, 2015		3,058,891		$	0.80		5.0

Exercisable at September 30, 2015		2,162,540		$	0.76		5.4

Warrants

During the nine months ended September 30, 2015, the Company recognized warrant expense of $669,000. The remaining amount of unamortized warrant expense at September 30, 2015, was $-0-.

During the nine months ended September 30, 2015, the Company issued the following warrants exercisable to purchase shares of common stock:

On July 1, 2015, the Company granted a warrant exercisable for an aggregate of 100,000 shares of common stock valued at $18,000 to an investor relations firm as sole consideration for its future services. The warrant has a 3 year term and is exercisable on a cashless basis at an exercise price of $0.44 per share with respect to 50% of the shares issuable thereunder following the date of grant and with respect to the balance 50% of the shares issuable thereunder on or after October 1, 2015.

On April 24, 2015, the Company granted warrants exercisable for an aggregate of 349,111 shares of common stock to certain of the Senior Notes lenders related to the deferral of approximately $524,000 of principal and interest under the Senior Notes and subordinated note held by RJC. Each warrant has a 3 year term and is exercisable on a cashless basis at an exercise price of $1.50 per share. The fair value of these warrants of $40,000 was recorded as additional deferred financing costs.

On August 28, 2015, the Company also granted warrants exercisable for an aggregate of 1,201,004 shares of common stock to certain of the Senior Notes lenders related to the current and future deferral of principal and interest under the Senior Notes and subordinated note held by RJC. Each warrant has a 3 year term and will be exercisable on a cashless basis at an exercise price of $0.75 per share. The fair value of these 1,201,004 warrants of $120,000 was recorded as additional deferred financing costs.

The intrinsic value of outstanding as well as exercisable warrants at September 30, 2015 and December 31, 2014 was $-0- and $-0-, respectively.

Warrant activity during the nine months ended September 30, 2015 was:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Contract Term
	Shares			Price		(# years)
Outstanding at January 1, 2015		6,594,129		$	2.13		3.9
Granted		1,650,115			0.89
Exercised		-			-
Forfeited and cancelled		(440,962	)		3.67

Outstanding at September 30, 2015		7,803,282		$	1.78		3.2

Exercisable at September 30, 2015		7,753,282		$	1.79		3.2