Note 7 - Private Placement of Common Shares and Related Warrants

12 Months Ended

Dec. 31, 2012

Notes

Note 7 - Private Placement of Common Shares and Related Warrants

NOTE 7 - PRIVATE PLACEMENT OF COMMON SHARES AND RELATED WARRANTS

On May 2, 2012, we entered into a term sheet agreement (the “May 2012 Term Sheet”) with Cambria to act as the placement agent in connection with our private offering (the “May 2012 Offering”) of “Investment Units” to accredited investors for a purchase price of $20,000 per Investment Unit.  Each Investment Unit consisted of (i) 20,000 shares of common stock priced at $1.00 per share and (ii) a five year warrant to purchase up to 10,000 shares of common stock at an exercise price of $1.50 per share.  The investor warrants have a 5 year term and include piggyback registration rights.  During 2012, we issued 155,000 investor warrants associated with the May 2012 Offering that were estimated to have a fair value of approximately $6,360.  For the twelve months ended December 31, 2012, the May 2012 Offering resulted in the issuance of 310,000 shares of common stock (plus the 155,000 investor warrants mentioned above) in exchange for net cash proceeds of $277,701.

Under the terms of the May 2012 Term Sheet and the 2011 Advisory Agreement, Cambria received: (i) a cash fee of 13% of the gross proceeds received in the May 2012 Offering; (ii) selling warrants equal to 10% of the number of shares of common stock issued in the May 2012 Offering; and (iii) the right to receive additional warrants upon an investors’ future exercise of investor warrants received in the May 2012 Offering.  The May 2012 Term Sheet was amended in July 2012 to include provisions that in the event we, our management, affiliates, agents or Consultants introduced a potential investor to Cambria who participates in the offering, we will only pay Cambria a commission equivalent to 5% of the gross sales price of the shares of common stock sold.  The May 2012 Term Sheet, as amended, expired September 20, 2012.

During 2012, we 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 cash fee, the fair value of seller warrants and future common shares are all recorded as a cost of capital.

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.

On September 27, 2012, the Company approved a subsequent private offering (the “October 2012 Offering”) to certain investors with whom the Company, its management and/or agents have a pre-existing relationships.  The October 2012 Offering consisted of an offering of “Investment Units” to accredited investors for a purchase price of $20,000 per Investment Unit.  Each Investment Unit consists of (i) 20,000 shares of common stock priced at $1.00 per share and (ii) a five year warrant to purchase up to 10,000 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.

On October 12, 2012, we accepted a subscription from an accredited investor to purchase 12.5 Investment Units for a purchase price of $20,000 per Investment Unit, for gross proceeds to the Company of $250,000.  No placement agent fees were paid in connection with this investment. 

On November 7, 2012, we accepted a subscription from an accredited investor to purchase 12.5 Investment Units for a purchase price of $20,000 per Investment Unit, for gross proceeds to the Company of $250,000.  No placement agent fees were paid in connection with this investment. 

For the twelve months ended December 31, 2012, we issued 250,000 investor warrants associated with the October 2012 Offering that were estimated to have a relative fair value of approximately

$10,256.  For the twelve months ended December 31, 2012, the October 2012 Offering resulted in the issuance of 500,000 shares of common stock (plus the 250,000 investor warrants mentioned above) in exchange for net cash proceeds of $500,000. 

Warrant activity for the period ended December 31, 2012, was as follows:

	Warrants	Weighted Average Exercise Price
Warrants outstanding, December 31, 2011	400,000	$0.60
Granted	426,000	1.50
Exercised	-	-
Forfeited	-	-
Warrants outstanding, December 31, 2012	826,000	$0.82

The assumptions used and the weighted average calculated value of warrants issued during 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