Private Placement of Common Shares and Related Warrants

3 Months Ended

Jun. 30, 2012

Private Placement of Common Shares and Related Warrants:

Private Placement of Common Shares and Related Warrants

NOTE 6 - PRIVATE PLACEMENT OF COMMON SHARES AND RELATED WARRANTS

On May 2, 2012, the Company entered into a term sheet agreement (the “2012 Term Sheet”) with Cambria to act as the placement agent in connection with the Company’s private offering (the “2012 Offering”) of Investment Units to accredited investors for a purchase price of $20,000 per Investment Unit. Each Investment Unit consists of 20,000 of common stock and a five year warrant to purchase up to 10,000 additional shares of common stock at an exercise price of $1.50 per share.   The investor warrants have a 5 year term and include piggy-back registration rights.  For the six months ended June 30, 2012, the Company issued 105,000 investor warrants associated with the private placement that were estimated to have a fair value of approximately $4,300.  For the six months ended June 30, 2012, the private placement resulted in the issuance of 210,000 shares of common stock (plus the 105,000 investor warrants mentioned above) in exchange for net cash proceeds to the Company of $182,700.

Under the terms of the 2012 Term Sheet and the 2011 Advisory Agreement, Cambria received: (i) a cash fee of 13% of the gross proceeds received in the 2012 Offering; (ii) selling warrants equal to 10% of the number of shares of common stock issued in the 2012 Offering; and (iii) the right to receive additional warrants in the Company upon an investors’ future exercise of investor warrants received in the 2012 Offering.

For the period ended June 30, 2012, the Company issued 21,000 seller warrants with an exercise price of  $1.50 to Cambria that were estimated to have a fair value of approximately $870.  The 13% cash fee, the fair value of seller warrants and future common shares are all netted against gross proceeds to arrive at the net amount received by the Company of $182,700.

The number of future warrants potentially issuable to Cambria upon investors’ future exercise of investor warrants is not estimable at this time.  However, the future warrants will be recorded as an increase and decrease to stockholders’ equity as the value would be a cost of capital.

Warrant activity for the period ended June 30, 2012, was as follows:

	Warrants	Weighted Average Exercise Price
Warrants outstanding, December 31, 2011	400,000	$0.60
Granted	126,000	1.50
Exercised	0	0
Forfeited	0	0
Warrants outstanding, June 30, 2012	526,000	$0.82

The assumptions used and the weighted average calculated value of warrants issued during the period ended June 30, 2012, were as follows:

Risk-free interest rate	0.90%
Expected dividend yield	0.00%
Expected volatility	17.00%
Expected life	5 years
Weighted average calculated value of warrants granted	$0.04