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Convertible Notes
9 Months Ended
Mar. 31, 2014
Debt Disclosure [Abstract]  
Convertible Notes

On February 7, 2014 (the “February 2014 Offering”) and March 3, 2014 (the “March 2014 Offering”), the Company held two separate closings of private placement offerings pursuant to which it sold to various accredited investors (collectively, the “Investors”) $2,942,495 and $992,500 (before deducting placement agent fees and expenses of the offering), respectively, in principal amount of its 10% convertible promissory notes (the “Notes”). An additional $25,000 of the Notes was issued for the settlement of legal fees during the period from February 7, 2014 through March 31, 2014. The Notes mature within one year from the date of issuance.

 

The Notes will automatically convert into shares of the Company’s to-be authorized Series C Convertible Preferred Stock, $0.001 par value per share (the “Series C Preferred Stock”), at a pre-Reverse Split conversion price of $0.005 per share and a post-Reverse Split conversion price of $0.50 per share (the “Conversion Price”), upon the Company’s filing of a Certificate of Designation of Series C Convertible Preferred Stock (the “Certificate of Series C Designation”) with the Secretary of State of the State of Nevada following completion of the proxy voting process to increase our authorized preferred stock, and which Series C Preferred Stock shall be convertible into shares of the Company’s Common Stock on a one share for one share basis. The Company evaluated the shares and determined a contingent beneficial conversion feature of $3,959,995 existed within this transaction. The beneficial conversion is contingent upon the filing of the Series C Convertible Preferred Stock Designation, and the Reverse Split. The beneficial conversion amount related to the value of the Notes will be accreted back to the Notes in accordance with the requirements of FASB ASC Topic 470-20, Accounting for Debt Instruments with Specific Conversion Features, when the contingency is met.

 

Also in connection with the February and March 2014 Offerings, the Company paid cash of $295,150 and issued an aggregate of 590,300 warrants (post 1 for 100 Reverse Split) as payment of commissions. The Warrants entitle the holder to purchase shares of Common Stock at an exercise price of $0.50 per share and will be exercisable for three (3) years from the date of issuance. The fair value of the warrants was determined to be $1,120,970. The warrants and the cash commissions were recorded as deferred financing costs which are being amortized to interest expense over the life of the Notes using the effective interest method. Amortization of $333,878 was recorded against these deferred financing costs during the period from February 7, 2014 through March 31, 2014.

 

 

During the period from February 7, 2014 through March 31, 2014, additional amortization expense of $13,190 was recognized associated with the debt discounts related to the outstanding notes originally issued in November 2013. The unamortized discount associated with these notes was $230,279 as of March 31, 2014.