Equity Transactions

6 Months Ended

Jun. 30, 2011

9.	Equity Transactions

Stock Splits

On January 12, 2011, the Company’s board of directors approved a reverse split of the Company’s common stock on a 1 new share for 1.5 old share basis. As a result, the Company’s authorized common shares decreased from 150,000,000 to 100,000,000. Par value remained unchanged.

Private Placements

In January 2010, the Company issued an aggregate of 6,666,667 restricted shares of its common stock at a price of $0.0015 to four individuals in a private transaction. Two of the individuals are our sole officers at June 30, 2011. Proceeds received from the sale of the stock totaled $10,000.

Also in January 2010, the Company issued 706,667 restricted shares of the Company’s common stock at a price of $1.125 per share in a private transaction. Proceeds received from the sale of the stock totaled $795,000.

On December 14, 2010, the Company received an irrevocable commitment from a third party to purchase 5,833,333 shares of the Company’s common stock at a price of $0.60 per share, resulting in aggregate funds to be received of $3,500,000. The Company collected $3,166,667 of subscriptions receivable during February and March 2011 and, as a result, issued 5,277,778 shares of its common stock. As discussed in Note 10, the Company collected the remaining $333,333 of stock subscriptions receivable in April 2011. As a result, the Company has presented stock subscriptions receivable of $2,666,667 as a current asset on its December 31, 2010 balance sheet, and $833,333 as a reduction of stockholder’s equity in its December 31, 2010 balance sheet.

Issuance of Warrants

In connection with the sale of the Convertible Debenture (Note 5), the Company granted to the purchaser of the Debenture warrants to purchase up to 416,667 shares of the Company’s common stock at an initial exercise price of $1.20 per share. The warrants had an expiration date of April 15, 2012.

The initial exercise price of the warrants was subject to reduction in the event that the Company subsequently sold, or granted any option to purchase, shares of the Company’s common stock at an effective price that is less than the initial conversion price. The initial conversion price was also subject to a reduction in the event that the Company should issue dividends, declare a stock split, or engage in a merger transaction.

As discussed in Note 5, the number of warrants outstanding was increased from 416,667 to 833,333 in December 2010 as a result of the reduction of the initial exercise price of $1.20 per share to an adjusted exercise price of $0.60 per share. On December 15, 2010, the holder of the warrants fully exercised the warrants and received 833,333 shares of the Company’s common stock. The Company received gross proceeds of $500,000 from the exercise of the warrants.

A summary of warrant activity for the six-month period ended June 30, 2011 and the eight-month period ended December 31, 2010 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contract		Intrinsic
	Warrants			Price		Term		Value
Outstanding at April 30, 2010		-			-		-		-

Issued		416,667		$	1.20	2 years			-
Increase due to reduction in exercise price		416,666		$	0.60		-		-
Exercised		(833,333	)	$	0.60		-		-

Outstanding at December 31, 2010		-			-		-		-

Issued		-		$	-		-		-
Exercised		-		$	-		-		-
Outstanding at June 30, 2011		-		$	-		-	$	-

The assumptions used in the Black-Scholes Option Pricing Model for the warrants granted during the year ended December 31, 2010 were as follows:

Risk-free interest rate		1.04	%
Expected volatility of common stock		250	%
Dividend yield	$	0.00
Expected life of warrants	2 years
Weighted average fair market value of warrants granted	$	0.62

Issuance of Stock Options

On December 30, 2010, the Company granted options to purchase 2,141,842 shares of its common stock to four individuals in connection with their contribution of certain intellectual property related to exploratory opportunities and transactions to the Company. The options have a five-year life, vested immediately and have an exercise price of $0.60 per share. The options expire on December 30, 2015. The intellectual property was valued at $1,247,195, which equals the value of the options granted as calculated using the Black-Scholes Option Pricing Model.

A summary of stock option activity for the six-month period ended June 30, 2011 and the eight-month period ended December 31, 2010 is presented below:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Stock		Exercise		Contract		Intrinsic
	Options		Price		Term		Value

Outstanding at April 30, 2010		-		-		-		-

Granted		2,141,842	$	0.60	5.0 years			-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Cancelled		-		-		-		-

Outstanding at December 31, 2010		2,141,842	$	0.60	5.0 years			-

Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Cancelled		-		-		-		-

Outstanding and Exercisable at June 30, 2011		2,141,842	$	0.60	4.5 years		$

The options outstanding as of June 30, 2011 and December 31, 2010 have an intrinsic value of $0.75 and $0.12 per share and an aggregate intrinsic value of $1,606,382 and $257,021, respectively.

The assumptions used in the Black-Scholes Option Pricing Model for the options granted during the eight-month period ended December 31, 2010 were as follows:

Market value of the Company's Common Stock	$	0.60
Risk free interest rate		2.06	%
Expected volatility of common stock		193	%
Dividend yield	$	0.00
Expected life of warrants	5 years

Shares Reserved for Future Issuance

As of June 30, 2011 and December 31, 2010, the Company has reserved 3,808,509 shares of its common stock in the event that the Debenture is converted prior to maturity and the outstanding options are exercised prior to their expiration.

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SAB TOPIC 4.E)
-URI http://asc.fasb.org/extlink&oid=6228006&loc=d3e74512-122707

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21484-112644

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 4
-Subparagraph (SAB TOPIC 4.C)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187143-122770

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Glossary Preferred Stock
-URI http://asc.fasb.org/extlink&oid=6521494

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section C

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21488-112644

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.29-31)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph d

Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

Reference 16: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 30
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6405834&loc=d3e23285-112656

Reference 17: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644

Reference 18: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(d),(e))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 19: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 20: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644

Reference 21: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 22: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 6
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21506-112644

Reference 23: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 11
-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21564-112644

+ Details

American Eagle Energy Inc. 10-Q/A