On June 20, 2011, the Company completed an initial round of financing in a private offering (the “ Offering ”) made to a limited number of “ accredited investors ” pursuant to the exemptions from registration afforded by Rule 506 of Regulation D and under Section 4(2) of the Securities Act of 1933. The amount of the Offering was initially set at $400,000, increased to $500,000 to meet investor interest and ultimately closed at $525,000.
In the Offering, the Company sold 21 units (the “ Units ”), each Unit consisting of a $25,000 principal amount, 8% one-year senior secured convertible promissory note (the “ Note ”) and a warrant (the “ Warrant ”) to purchase 833,334 shares of our common stock (the “ Shares ”).
Interest on the Notes accrues and is payable together with the principal amount of the Notes at maturity, which is one year from the date of issuance (the “ Maturity Date ”). The Notes are convertible at the option of the holders at any time prior to the Maturity Date, into Shares at a conversion price of $ .03 per Share, subject to adjustment in the case of stock splits, stock dividends and similar recapitalization events. The Notes are secured by a first lien on the Company’s assets.
The Warrants are exercisable at an exercise price of $.12 per Share for a period of five (5) years from issuance. The exercise price is subject to adjustment in the case of stock splits, stock dividends and similar recapitalization events. The Warrants may also be exercised on a cashless basis.
The foregoing description of the Notes and Warrants are qualified in its entirety by reference to the forms of Note and Warrant included as Exhibits to this Report.
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