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STOCK OPTIONS AND WARRANTS

12 Months Ended

Dec. 31, 2012

As of the completion of the merger with Bazi International, Inc. on October 15, 2012, the Company assumed warrants and two stock option plans, including the current grants under those plans and the plans themselves. The two plans are the 2003 Stock Incentive Plan and the 2006 Distributor Option Plan. The Company will not grant new options under either of these plans. In 2012, the Company also issued certain Non-Qualified Options to board members, executives and other employees. A summary of these plans is presented below.

Warrants

A summary of the Company’s warrant activity for the year ended December 31, 2012 is presented below:

	Warrants Outstanding			Weighted Average Exercise Price
Outstanding, January 19, 2012		-
Outstanding Warrants Assumed with Merger on October 15, 2012		145,185		$	52.00
Exercised		-			-
Expired		(12,845	)		154.00
Outstanding, December 31, 2012		132,340		$	43.00

As of December 31, 2012, the Company had the following outstanding warrants to purchase its common stock:

Warrants Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (Yrs)
	118,950	$	28.00		2.31
	1,000	$	30.00		2.92
	3,200	$	150.00		0.13
	9,190	$	200.00		0.13
	132,340	$	42.53		2.11

Non-Qualified Stock Options

In 2012, the Company issued stock options pursuant to certain employment agreements, board resolutions and option agreements with employees. The grant date fair values of options granted during the year ended December 31, 2012 was between $0.274 and $0.457 per share for a total of $1,195,575 to be expensed over the vesting periods of the options. Such fair values were estimated using the Black-Scholes stock option pricing model and the following weighted average assumptions.

		2012
Expected life		2.5 years
Estimated volatility		75.0%
Risk-free interest rate		0.30% – 0.43%
Dividends		None

The weighted average estimated fair value per share of the stock options at grant date was $0.309 during the year ended December 31, 2012. The expected life of options granted is based on the “simplified method” described in ASC 718-10 due to changes in the vesting terms and the contractual life of current option grants. Assumed volatility is based on the historical volatility of companies within the similar industry. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected term of the options.

Stock option activity during the year ended December 31, 2012 is summarized as follows:

	Number of Shares		Weighted-Average Exercise Price
Options outstanding at January 19, 2012		–	$	–
Exercised		–		–
Granted		3,870,387		0.69
Forfeited		–		–
Expired		–		–
Options outstanding at December 31, 2012		3,870,387	$	0.69

The following table summarizes information about the Company’s stock options outstanding as of December 31, 2012:

		Oustanding Options
				Weighted Average				Exercisable Options
				Remaining		Aggregate				Aggregate
Range of				Contractual Life		Intrinsic				Intrinsic
Exercise Prices		Number		(Years)		Value		Number		Value
$	0.01		3,133,172		2.54	$	4,355,109		982,950	$	1,366,309
$	1.017		737,217		2.69	$	724,684		-	$	-
Totals			3,870,389		2.57	$	5,079,793		982,950	$	1,366,309

Bazi Intl. Stock Incentive Plans

As a result of the October 15, 2012 reverse merger, the Company assumed two stock option plans of Bazi Intl. known as the 2003 Stock Incentive Plan and the 2006 Distributor Stock Incentive Plan. Both plans are no longer issuing any stock options. Information concerning each plan is summarized below:

2003 Stock Incentive Plan

The 2003 Stock Incentive Plan has a total of 20,806 options to purchase Company common stock outstanding at December 31, 2012, with exercise prices ranging from $15.00 per share to $50.00 per share. The weighted average contractual life of these options is less than two years.

2006 Distributor Stock Incentive Plan

The 2006 Distributor Stock Incentive Plan has a total of 6,650 options to purchase Company common stock outstanding at December 31, 2012, with exercise prices ranging from $15.00 per share to $118.00 per share. The weighted average contractual life of these options is approximately two years.