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9. STOCK OPTIONS AND WARRANTS

9 Months Ended

Sep. 30, 2013

Stock Options

During the three month period ended September 30, 2013, the Company issued a total of 400,000 stock options, with a total valuation of $84,783, to certain of the Company’s employees. Each stock option has a strike price of $0.22 and a 10 year term. These stock options will vest pro-ratably over a defined period of service and were valued using the Black-Scholes option pricing methodology. The assumptions used in the valuation of these options include volatility of 128.75%, expected dividends of 0.0%, a discount rate of 2.66%, and expected terms of 10 years.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock.

During the three and nine months ended September 30, 2013, the Company recorded stock option based compensation of $90,899 and $261,069, respectively.

Warrants

During the six months ended June 30, 2013, pursuant to a private placement, the Company issued 6,450,667 warrants to purchase common stock which is based on the number of units sold in the private offering. These warrants have an exercise price of $0.20 per share and expire 1 year from the date of issuance.

As a part of the Company’s private placement, the Company issued 645,067 warrants in the six months ended June 30, 2013 to the placement agents. These warrants, valued at $130,402, are exercisable for 5 years at an exercise price of $0.25. The Company estimated the fair value of the warrants utilizing the Black-Scholes pricing model. The following table summarizes the assumptions used:

Assumptions
Expected term	5 yrs
Expected Volatility	130.96	%
Risk free rate	0.14	%
Dividend Yield	0.00	%

There was no financial statement accounting effect for the issuance of these warrants as their fair value has been charged to Additional Paid-in-Capital as an offering cost and was offset by a credit to Additional Paid-in-Capital for their fair value when recording the issuance of these warrants.

During the nine months ended September 30, 2013, 5,050,348 warrants have expired.