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Note 2 - Financing Activities
3 Months Ended
Mar. 31, 2012
Additional Financial Information Disclosure [Text Block]
Note 2.  Financing Activities

On March 9, 2012, the Company entered into an LOC Agreement (the LOC Agreement) with Frank T. Nickell, who beneficially owned approximately 40% of the Company’s outstanding common stock as of March 26, 2012, pursuant to which Mr. Nickell established an irrevocable standby letter of credit by JPMorgan Chase Bank, N.A. (JPMorgan) that allows the Company to borrow from JPMorgan up to $2.0 million. The line of credit (LOC) with JPMorgan will expire on July 1, 2013 but will automatically renew until July 1, 2014 unless terminated by JPMorgan at least 14 days prior to the end of the current term, at which time the Company may draw up to the balance remaining on the LOC. Amounts outstanding under the LOC accrue interest at the rate of 0.75% per annum and are due and payable on or before July 1, 2014. Pursuant to the LOC Agreement, the Company agreed to use commercially reasonable efforts to consummate an equity financing prior to the termination date of the LOC in which it would sell and issue shares of its common stock at a price per share of at least $0.60 for aggregate proceeds of at least $3.0 million, upon consummation of which all amounts outstanding under the LOC shall be immediately repaid.

In connection with the LOC Agreement, the Company issued to Mr. Nickell a five-year fully vested warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share and agreed to reimburse Mr. Nickell for his reasonable expenses in connection with the LOC, including, without limitation, any interest accrued and payable by Mr. Nickell in connection with the LOC. As of March 31, 2012, reimbursements to Mr. Nickell had not been significant.

As the warrant was issued to obtain a letter of credit rather than in connection with a debt issuance, the Company measured this warrant at fair value on the inception date and accounted for it as equity in accordance with Accounting Standard Codification (ASC) 505-50-25, Equity-Based Payments to Non-Employees. The issuance of this warrant was equivalent to the payment of a loan commitment or access fee, and, therefore, the offset was recorded as deferred debt issuance costs to be amortized on a straight-line basis over the term of the LOC.

The Company estimated the fair value of this warrant to be $464,870 on March 9, 2012, based on the Black-Scholes option pricing model using an exercise period of 5 years, risk-free rate of 0.90%, volatility of 161%, and a trading price of the underlying shares of $0.25. For the three months ended March 31, 2012, the Company recognized a total of $12,117 of amortization expense related to the establishment of the LOC.

As of March 31, 2012, there were no borrowings outstanding under the LOC.