7. Warrant Derivative Liability

6 Months Ended

Jun. 30, 2012

7. WARRANT DERIVATIVE LIABILITY

ASC 815-40-15 “Derivatives and Hedging” requires freestanding contracts that are settled in our own stock, including common stock warrants, to be designated as an equity instrument, asset or liability. Under the provisions of ASC 815-40-15, a contract designated as an asset or a liability must be carried at fair value until exercised or expired, with any changes in fair value recorded in the results of operations. In the Company’s July and August 2011 financings, the Company issued 6 units of Series A and B warrants to each purchase 6,250 shares of common stock per unit. The Series A contained full-ratchet anti-dilution adjustments and the Series B provided for weighted-average anti-dilution adjustments for lower priced issuances of common stock. The warrant derivative liability was initially and subsequently measured at fair value with changes in fair value recorded in earnings in each reporting period. The Company recorded non-cash income of $22,060 for the three months ended June 30, 2012 and a non-cash charge of $(7,771) for the six months ended June 30, 2012, in the consolidated statements of operations to record the change in fair value of the warrant derivative liability. Fair value was estimated using a Black Scholes option pricing model which approximates the binomial method, which included variables such as the expected volatility of the Company’s share price, interest rates, and dividend yields. These variables were projected based on the Company’s historical data, experience, and other factors. The fair value of the warrants was determined using the Black Scholes option pricing model with the following assumptions:

	June 30, 2012	December 31, 2012
Risk free interest rate	0.20%	0.20%
Volatility	506%	484%
Dividend	0	0
Expected term	1.25 years	1.5 years

Iron Eagle Group, Inc. 10-Q/A