In conjunction with the Beam acquisition, the agreement provided for an anti-dilution benefit to former members of Beam whereby until such time as a former member sells or disposes of all of his Company common shares of stock, any Triggering Event, as defined by the Agreement, whereby the issue price of the Company stock is below $1.58 shall cause the Company to issue a warrant to each former member to purchase an additional number of Company common shares at the Triggering Event price so as to preserve such Beam Member’s pre-Triggering Event percentage ownership in the Company. The Company has recorded warrants payable and a provision for warrants payable for warrants that was required to be issued based on the Triggering Events occurring during the period of February 26, 2013 through June 30, 2014. The warrants were subsequently issued on August 8, 2014. The Company estimated the warrants payable using the Black Scholes model and recorded the fair value as of June 30, 2014 and December 31, 2013.   The measurement is based on significant inputs that are not observable in the market, which Topic 820“Fair Value Measurements and Disclosures” of the FASB Accounting Standards Code refers to as Level 3 inputs. The warrants payable balance at June 30, 2014 and December 31, 2013 was $247,800 and $1,216,000 respectively. During the quarter ended June 30, 2014, the Company changed significant estimates used to calculate the fair value of these warrants including the term, the impact of Beam member stock sales and the impact thereof on their subsequent percentage of ownership on a prospective basis and changes to percentage of ownership on a fully diluted basis. The effects of the changes in these estimates as well as the effect of the mark to market adjustment for the three months ended June 30, 2014 was a gain of $474,800 and a gain of $968,200 for the six months ended June 30, 2014. The fair value of the warrants, at June 30, 2014, was estimated using the Black-Scholes valuation model and the following assumptions: (1) an expected volatility 84% based on historical volatility; (2) an interest rate of 0.11% (3) an expected life of one year and (4) a zero dividend yield. The stock price was determined based on the closing market price on the date of the grant.

 

The effects of the change in estimate affected the following periods in the following manner:

 

		Effects of Change in			Effects of Mark to			Total Effect of
		Estimate			Market			Change
		Increase/(Decrease)			Adjustment			Increase/(Decrease)
Time period		Loss			Gain/(Loss)			Loss
Three months ended June 30, 2014		$	(431,400)		$	(43,400)		$	(474,800)
Six months ended June 30, 2014		$	(925,500)		$	(42,700)		$	(968,200)