Convertible Notes Payable

9 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

CONVERTIBLE NOTES PAYABLE

NOTE 5       CONVERTIBLE NOTES PAYABLE

During the six month period ended December 31, 2013, the Company issued $250,000 of 10% convertible promissory notes to certain private investors. The convertible notes mature after three years, at which time all outstanding principal and accrued interest is due.  The notes are convertible at any time by the investors into the Company's current registered offering (see Note 6) with $200,000 being convertible into the offering at a 20% discount to the offering price of $1.60 per share, or $1.28 per share, and $50,000 being convertible at a 50% discount to the offering price, or $0.80 per share. In addition to the interest due, the Company has agreed to issue 125,000 warrants to the lenders at an exercise price of 125% of the share price of the proposed offering or $2.00 per share. These convertible notes are secured by all of the Company’s assets.

The warrants are exercisable at $2.00 per share and expire after three years. The aggregate fair value of the warrants was estimated at $157,584, using a binomial option pricing model and the following assumptions:

Volatility 154% - Dividend rate 0% - Interest rate 0.77% - Term 3 years

In addition, the Company recognized a beneficial conversion feature related to the convertible notes of $90,444, which was credited to additional paid-in capital.  Interest on the notes is being recognized using the effective yield method over the three year life of the notes.

During February 2014 the holder of the $200,000 convertible note agreed to convert the note into 200,000 shares of the Company’s common stock (see Note 6). This note holder also agreed to purchase an additional 100,000 shares of the Company’s common stock for $100,000 in cash. The Company granted the note holder an option to purchase 200,000 common shares at $1.50 per share and 200,000 shares at $2.00 per share for a three year period.

Convertible notes payable consist of the following at March 31, 2014:

Notes payable	$	50,000
Beneficial conversion feature and unamortized warrants		(48,362	)
	$	1,638

Charges to operations related to the warrants and beneficial conversion feature during the period ended March 31, 2014, were $42,082.