Note 16: Stock Warrants and Options

As indicated in Note 15, we issued 714,286 warrants in connection with the sale of common stock during the year ended December 31, 2010.  Additionally, we issued 266,667 warrants in connection with the sale of common stock during the quarter ended June 30, 2011.  We have accounted for these warrants as equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and as such, will be classified in stockholders’ equity as they meet the definition of “…indexed to the issuer’s stock” in EITF 01-06 (ASC 815-40) The Meaning of Indexed to a Company’s Own Stock.  The Company has estimated the fair value of the warrants issued in connection with the sale of common stock at $323,128 for the year ended December 31, 2010 and $42,549 for the nine months ended September 30, 2011, respectively using the Black-Scholes option pricing model.

We issued 231,250 and 138,750 stock options to our board members during each of the nine months ended September 30, 2011 and 2010 respectively.  The warrants were valued at the fair market value of the services performed that resulted in an expense of $20,000 and $12,000 for the nine months ended September 30, 2011 and 2010 respectively.

Key assumptions used by us are summarized as follows:

The warrants issued have been accounted for as an equity transaction.  The cost of the options issued to our board members was classified as operating expenses for the nine months ended September 30, 2011 and 2010, respectively.

A summary of changes in share purchase warrants during the nine months ended September 30, 2011 is as follows:

A summary of changes in stock options during the nine months ended September 30, 2011 is as follows: