Note 6 - Financing Agreements

3 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Note 6 - Financing Agreements

NOTE 6 – FINANCING AGREEMENTS

(1)   Financing Agreement

On August 29, 2012, we entered into an Equity Based Financing Agreement with one non-US investor pursuant to which, the investor agreed to make available up to $2,500,000 by way of advances until August 29, 2013 (the “Completion Date”) in accordance with the terms of the agreement. The Completion Date may be extended for an additional term of up to twelve months at the option of our Company or the investor upon written notice on or before the Completion Date in accordance with the notice provisions of the Financing Agreement. We will issue, within ten (10) Banking Days following the date of the receipt by our Company of any advance under the agreement, shares of our common stock at a price equal to 80% of the average of the closing prices of our common stock for the preceding 5 Banking Days immediately preceding the date of the notice, as quoted on Yahoo Finance or other source of stock quotes as agreed to by the parties.

During the fiscal year ended June 30, 2013, the Company received amounts totaling $550,000 under the financing agreement by way of equity private placements for 781,250 shares of common stock at $0.64 per share and 65,736 shares of common stock at $0.76062, respectively.

The shares were issued as follows:

Issue Date	Shares Issued		Value Per Share		Issuance Valuation
September  4, 2012		781,250	$	0.64	$	500,000
May 3, 2013		65,736	$	0.76062	$	50,000

(2)   Private Placement Agreement

On May 9th and May 20th, 2013 respectively, we entered into  two Private Placement Agreements, one with a   U.S. investor and one with a  non-US investor pursuant to which, the investors have funded a total of $85,000 by way of private placement units subscription agreements for a total of 188,888 units of the common stock of the Company at a price of $0.45 per unit, each unit consisting of one share and one share purchase warrant entitling the subscribers to purchase one additional share of common stock at $0.75 per share within one year from the original date of the  private placement. The 188,888 shares of common stock were issued as of September 30, 2013.

(3)   Securities Purchase Agreement (“SPA”)

On September 9, 2013, the Company entered into securities purchase agreements (the “SPA”) to raise a total $600,000 with five accredited investors introduced by Palladium to the Company.   Under the terms of the SPA, the purchasers subscribed for a total of 4,000,000 shares of the common stock of the Company at $0.15 per share and an equal number of warrants exercisable at $0.30 per share for a period of five years.    Under the SPA the purchasers have the option to purchase up to an equal number of shares and warrants as those purchased on the initial closing for a period of nine months from the initial closing date.  Each purchaser shall be entitled to one closing on the exercise of the subsequent closing option warrants have piggy back registration rights.   Subject to no  effective registration statement registering the warrants within 180 days after the initial exercise date of the warrants, then the warrants shall have a cashless exercise provision. The warrants further have exercise limitations of 4.99% as a beneficial ownership limitation which the holder may increase or decrease upon 61 days prior notice to the Company, however, the beneficial ownership limitation shall not exceed 9.99% of the number of shares held by the holder.

Under the terms of the SPA, the purchasers that hold outstanding stock or warrants  at the time of any subsequent funding have the right to participate in any subsequent financing up to 100% of the subsequent financing on the terms negotiated with any funders for a period of eighteen months from the date of the SPA.   Further, the shares of common stock issued under the SPA have a purchase price reset until the sooner of (i) the purchaser no longer holds and securities, and (ii) five years after the initial closing date whereby should the Company issue or sell any shares of common stock or any common stock equivalent at a price less than the per share purchase price(the Dilutive Financing”), then the Company shall issue additional shares of common stock to the purchasers who hold outstanding shares on the date of such Dilutive Financing for no additional consideration.  The warrants also have a warrant dilution adjustment which requires the issuance of additional warrant shares to reflect any dilutive financing undertaken by the Company whereby the holders of any outstanding warrants shall receive additional warrants based on the price of the Dilutive Financing.

The gross proceeds from issuance of the common stock under the SPA were allocated, at the date of the transaction, based upon the common stock and warrant’s relative fair values. The Company obtained third-party valuations to assist in quantifying the relative fair value of the debt and equity components. As a result of the fact that the warrants include a full reset dilutive feature we have treated the warrants as a derivative liability as of issuance and revalue at each quarterly period thereafter until expiry.  The fair value of the warrants was determined using a Monte Carlo Options Lattice model.

Allocation of proceeds arising from the SPA on the inception date is as follows:

Classification	Allocation
Common Stock (par value)		4,000
Paid-in Capital (Common Stock)		(647,455)
Derivative Liabilities (Warrants)		1,243,455
Proceeds	$	600,000

Information and significant assumptions embodied in our valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of the inception date is illustrated in the following tables:

	Warrant Derivative
Warrants to purchase common stock:
Strike price	$	0.30
Volatility		110	%
Term (years)		5.00
Risk-free rate		1.71	%
Dividends		-

Information and significant assumptions embodied in our valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of September 30, 2013 are illustrated in the following tables:

	Warrant Derivative
Warrants to purchase common stock:
Strike price	$	0.30
Volatility		112	%
Term (years)		4.95
Risk-free rate		1.39	%
Dividends		--

On September 30, 2013 as a result of the revaluation of the warrant derivatives the Company recorded a further expense of $2,899 in respect of the change in the fair value of the  warrant liability.

(4)   On September 9, 2013, the Company entered into a unit subscription agreement with Big North Graphite Corp., for a total of 2,666,667 units at $0.075 per unit. The transaction was subsequently rescinded and the proceeds have been returned to the Company. No shares were issued to the Company by Big North and no shares will be issued as the Offering will not be finalized.