STOCK OPTIONS AND WARRANTS

6 Months Ended

Jun. 30, 2013

STOCK OPTIONS AND WARRANTS [Abstract]

STOCK OPTIONS AND WARRANTS

NOTE 6 - STOCK OPTIONS AND WARRANTS

Stock options

HII currently has two stock option plans: (a) the 2005 Stock Incentive Plan reserved 10,000,000 common shares and 8,615,140 stock options have been granted through April 9, 2012, and (b) the 2012 Stock Incentive Plan reserved 10,000,000 common shares and 1,550,000 stock options have been granted through June 30, 2013.  As of June 30, 2013, there are 1,743,000 options outstanding.

During the six months ended June 30, 2013, no options were exercised or expired.

During the six months ended June 30, 2013, 350,000 options were granted to an employee and valued at $41,720 using the Black-Scholes pricing model.   The 350,000 options will vest based on achievement of certain revenue targets, none of which have been met as of June 30, 2013

During the six months ended June 30, 2013, 1,000,000 options were granted to an employee and director and valued at $178,237 using the Black-Scholes pricing model.   The 500,000 options issued to the director vested immediately while the remaining 500,000 options vest monthly over a period of 24 months.  

Significant assumptions used in the valuation of the above options include the following:

Expected term

5 years

Expected volatility

227.64% - 245.43%

Risk free interest rate

0.70%  - 0.76%

Expected dividend yield

0.00%

Stock compensation expense recognized for the six months ended June 30, 2013 related to the above options and options granted in the prior year amounted to $102,569.  Unrecognized compensation cost as of June 30, 2013 of $89,573 is expected to be recognized over a period of 2.5 years.

Warrants

On March 4, 2013, a warrant holder exercised warrants to purchase 375,000 common shares at an exercise price of $0.05, for total proceeds of $18,750.  

On May 23, 2013, a warrant holder exercised warrants to purchase 300,000 common shares at an exercise price of $0.10, for total proceeds of $30,000.

On June 3, 2013, a warrant holder exercised warrants to purchase 25,000 common shares at an exercise price of $0.05, for total proceeds of $1,250.

On June 21, 2013, the Company issued 200,000 warrants in conjunction with the forbearance of a noteholder concerning the note being paid in full two-months after the due date.  The warrants have an exercise price of $0.28 and a term of 5 years.

The warrants were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include the following:

Expected term

5 years

Expected volatility

215.84%

Risk free interest rate

1.42%

Expected dividend yield

0.00%

The fair value of the warrants of $55,154 was immediately recorded as interest expense since the note was fully paid as of June 30, 2013.  

During the six months ended June 30, 2013, 100,000 warrants expired unexercised.

A summary of activity in options and warrants is as follows:

		Options	Weighted Average Remaining Life	Weighted Average Exercise Price	Aggregate Intrinsic Value	Warrants	Weighted Average Remaining Life	Weighted Average Exercise Price	Aggregate Intrinsic Value
Outstanding at December 31, 2012		393,000	4.20	$     0.12	$           -	7,193,269	2.91	$        0.15	$   57,500
Six months ended June 30, 2013
	Granted	1,350,000		0.15		200,000		0.28
	Exercised	-		-		(700,000)		0.07
	Forfeited	-		-		(100,000)		0.25
Outstanding at June 30, 2013		1,743,000	4.49	$     0.14	$240,240	6,593,269	2.50	$         0.16	$ 776,298