CONVERTIBLE NOTES PAYABLE

6 Months Ended

Jun. 30, 2013

CONVERTIBLE NOTES PAYABLE [Abstract]

CONVERTIBLE NOTES PAYABLE

NOTE 8 – CONVERTIBLE NOTES PAYABLE

During the first quarter of fiscal 2012, the Company secured financing from three accredited investors (the “Investors”) pursuant to which it sold senior secured convertible promissory notes (each a “Note” and collectively the “Notes”) and warrants and received gross proceeds of $200,000.   The Notes had a twenty-four month term and accrued interest at the rate of 8% per annum.  The principal balance of the Notes was convertible at the rate of $1.00 per share into an aggregate of 200,000 shares of the Company’s common stock, $.00005 par value (the “Common Stock”).  The interest was payable either upon maturity of the Notes or quarterly at the Investors’ option in shares of our Common Stock.  Any amount of principal or interest that was not paid when due bore interest at a rate of interest equal to the eighteen percent (18%) per annum.  Attached to the Notes were warrants that entitled the Investors to purchase a specified number of shares of common stock of the Company at a price of $1.50 per share within five years.  The value of the warrants was discounted against the Notes and was amortized as interest expense using the effective interest method over the term of the Notes. The valuation of the related discount for the warrants was calculated using the Black Scholes model and was equal to $40,508. The key inputs to the model were: the number of warrants (100,000), share prices on the grant dates of $0.59 and $0.70, exercise price of $1.50, terms of 5 years, volatilities of 98.16 and 103.66%, and discount rates of 0.91% and 0.88%.  On November 5, 2012, the $200,000 principal balance together with accrued and unpaid interest was converted into Common Stock.

As of June 30, 2013 and December 31, 2012, the Company does not have any convertible notes payable outstanding.

Amortization on Convertible Notes

For the period ended June 30, 2012, the Company recorded amortization on debt discounts in the amount of $30,509. The value of the related warrants and the beneficial conversion value were discounted against the Notes and were amortized as interest expense using the effective interest method over the term of the Notes.

The total debt discount as of June 30, 2013 and December 31, 2012, was $0.