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Convertible Debt Offering (Convertible Note [Member]) | 6 Months Ended
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Dec. 31, 2013
Convertible Note [Member] |
CONVERTIBLE DEBT OFFERING | NOTE 5. CONVERTIBLE DEBT OFFERINGS August Convertible Notes Offering On August 29, 2013, the Company issued senior secured convertible notes (the “August Convertible Notes”) with an original issue discount of 12% and a conversion price of $0.068 per share (the “August Conversion Price”) for gross proceeds of $616,000. The term of the August Convertible Notes include an eighteen-month maturity period, with partial redemption beginning on September 1, 2014. The August Convertible Notes bear interest at a rate of 8% per annum, which is paid quarterly. Interest is payable in cash or at the Company’s option in shares of common stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the volume weighted average price (the “VWAP”) for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $0.01. Upon any Event of Default (as defined in the August Convertible Notes), the outstanding principal amount of each August Convertible Note, plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the noteholders’ election, immediately due and payable in cash. Commencing five days after the occurrence of any Event of Default, the interest rate on each August Convertible Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The August Conversion Price is subject to “full ratchet” and other customary anti-dilution protections. As of February 14, 2014, with the timely filing of its Form 10-Q, the Company is in compliance with the covenants of the August Convertible Notes which require the timely filing of the Company’s periodic reports with the SEC. The August Convertible Notes limit the Company’s ability to (i) incur additional indebtedness, (ii) pay dividends or make distributions to its shareholders, (iii) incur liens that would rank senior in priority or pari passu to the August Convertible Notes, or (iv) sell or otherwise dispose of any assets or rights of the Company or its subsidiaries. In connection with the issuance of the August Convertible Notes, warrants to purchase 9,058,824 shares of the Company’s common stock (“August Convertible Note Warrants”) were issued. The August Convertible Note Warrants are exercisable for five years on a cashless basis. The August Convertible Note Warrants are exercisable at $0.082 per share and are subject to “weighted average” and other customary anti-dilution protections (see Note 6). August Convertible Note Redemption On September 1, 2014, October 1, 2014, November 1, 2014, December 1, 2014, January 1, 2015 and February 1, 2015, the Company is obligated to redeem an amount equal to $51,333 and on March 1, 2015, the Company is obligated to redeem an amount equal to $308,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the August Convertible Notes) (collectively, the “Periodic Redemption Amount”). In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the August Convertible Notes, the Company may elect to pay the Periodic Redemption Amount in shares of its common stock based on a conversion price equal to the lesser of (a) $0.068 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date. Debt Discounts The fair value of the August Convertible Note Warrants and the corresponding Debt Conversion Feature, issued on August 29, 2013, totaling $113,091 is recorded as a debt discount in the accompanying consolidated condensed balance sheet as of December 31, 2013 and is amortized as interest expense in the accompanying condensed statements of operations over the term of the August Convertible Notes using the effective interest method (see Note 6). Original Issue Discount For certain convertible debt issue, the Company may provide the debt holder with an original issue discount. The August Convertible Notes were issued with an original issue discount of 12%. The original issue discount is recorded as debt discount, reducing the face amount of each August Convertible Note and is amortized to interest expense over the term of the August Convertible Notes.
August Convertible Note Face Value |  | $ | 616,000 |
Debt Discount |  |  |  |
August Convertible Notes – Issued Warrant Derivative |  |  | 87,264 |
Conversion Feature Derivative |  |  | 25,827 |
Original Issue Discount |  |  | 66,000 |
Total Debt Discount |  | $ | 179,091 |
Amortization of Debt Discount, as of December 31, 2013 |  |  | (38,933 | )
Debt Discount, Net |  | $ | 140,158 |
August Convertible Notes Carrying Value at December 31, 2013 |  | $ | 475,842 |
Deferred Financing Costs Transaction Fees The Company paid $12,065, collectively, in legal fees to Gottbetter & Partners and Loeb & Loeb, and $50,000 in professional fees to the lead investor in the August Convertible Notes offering.
Legal fees and other fees associated with the August Convertible Notes offering |  | $ | 62,065 |
Total Deferred Financing Costs |  | $ | 62,065 |
Amortization of Deferred Financing Costs, as of December 31, 2013 |  |  | (13,493 | )
Deferred Financing Costs, Net, as of December 31, 2013 |  | $ | 48,572 |
June Convertible Notes Offering On June 20, 2013, the Company issued $1,500,000 senior secured convertible notes (the “June Convertible Notes”) with an original issue discount of 12%, and a conversion price of $0.068 per share (the “June Conversion Price”), for gross proceeds of $1,680,000. The term of the June Convertible Notes includes an eighteen-month maturity period, with partial redemptions beginning on June 1, 2014. The June Convertible Notes bear interest at 8% per annum, which is paid quarterly beginning on November 1, 2013. Interest is payable in cash or at the Company’s option in shares of the Company’s common stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $0.01. Upon any Event of Default (as defined in the June Convertible Notes), the outstanding principal amount of the June Convertible Notes plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the holders’ election, immediately due and payable in cash. Commencing five days after the occurrence of any Event of Default, the interest rate on the June Convertible Notes shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The June Conversion Price is subject to “full ratchet” and other customary anti-dilution protections. As of February 14, 2014, with the timely filing of its Form 10-Q, the Company is in compliance with the covenants of the June Convertible Notes which require the timely filing of the Company’s periodic reports with the SEC. The June Convertible Notes limit the Company’s ability to (i) incur additional indebtedness, (ii) pay dividends or make distributions to its shareholders, (iii) incur liens that would rank senior in priority or pari passu to the June Convertible Notes, or (iv) sell or otherwise dispose of any assets or rights of the Company or its subsidiaries. In connection with the issuance of the June Convertible Notes, warrants to purchase 24,705,882 shares of the Company’s common stock (“June Convertible Note Warrants”) were issued. The June Convertible Note Warrants are exercisable for five years on a cashless basis. The June Convertible Note Warrants are exercisable at $0.082 per share and are subject to “weighted average” and other customary anti-dilution protections (see Note 6). June Convertible Note Redemption On June 1, 2014, July 1, 2014, August 1, 2014, September 1, 2014, October 1, 2014 and November 1, 2014, the Company is obligated to redeem an amount equal to $140,000 and on December 1, 2014, the Company is obligated to redeem an amount equal to $840,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the June Convertible Notes) (collectively, the “June Periodic Redemption Amount”). In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the June Convertible Notes, the Company may elect to pay the June Periodic Redemption Amount in shares of its common stock based on a conversion price equal to the lesser of (a) $0.068 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date. Debt Discounts The fair value of the June Convertible Note Warrants and the corresponding Debt Conversion Feature, issued on June 20, 2013, totaling $1,423,177 is recorded as a debt discount in the accompanying condensed consolidated balance sheet as of December 31, 2013 and is amortized as interest expense in the accompanying condensed consolidated statements of operations over the term of the June Convertible Notes using the effective interest method (see Note 6). Original Issue Discount For certain convertible debt issue, the Company may provide the debt holder with an original issue discount. The June Convertible Notes were issued with an original issue discount of 12%. The original issue discount is recorded to debt discount, reducing the face amount of each June Convertible Note and is amortized to interest expense over the term of the June Convertible Notes.
June Convertible Notes Face Value |  | $ | 1,680,000 |
Debt Discount |  |  |  |
June Convertible Notes – Issued Warrant Derivative |  |  | 752,126 |
Conversion Feature Derivative |  |  | 491,051 |
Original Issue Discount |  |  | 180,000 |
Total Debt Discount |  | $ | 1,423,177 |
Amortization of Debt Discount, as of December 31, 2013 |  |  | (481,516 | )
Debt Discount, Net |  | $ | 941,661 |
June Convertible Notes Carrying Value at December 31, 2013 |  | $ | 738,339 |
Deferred Financing Costs Transaction Fees The Company paid Gottbetter Capital Markets (“GCM”) who acted as the sole placement agent for the June Convertible Notes offering a commission of 7.2% of the first $1,400,000 funds raised in the June Convertible Notes offering for a total payment of $100,000. In addition, GCM received five-year broker warrants to purchase approximately 1.9 million shares of the Company’s common stock at an exercise price of $0.082 per share (the “June Convertible Note Broker Warrants”). The June Convertible Note Broker Warrants are identical to the June Convertible Note Warrants in all material respects. The Company also paid $117,446 in legal fees to Gottbetter & Partners and $85,207 in professional fees to the lead investor in the June Convertible Notes offering. The following table sets forth a summary of the fees and costs associated with the June Convertible Notes offering.
Placement agent and other fees associated with the June Convertible Notes offering |  | $ | 304,293 |
June Convertible Note Broker Warrants |  |  | 60,886 |
Total Deferred Financing Costs |  | $ | 365,179 |
Amortization of Deferred Financing Costs, as of December 31, 2013 |  |  | (123,554 | )
Deferred Financing Costs, Net, as of December 31, 2013 |  | $ | 241,625 |
December 2012 Convertible Notes Offering On December 21, 2012 the Company issued senior secured convertible notes (the “Convertible Notes”). The term of the Convertible Notes include an eight month maturity period and an annual interest rate of 12% which is accrued until payment or until the Convertible Notes are converted into equity. The Convertible Notes were issued at a price of $200,000 per unit, for total gross proceeds of $2,000,000 with an original issue discount of 0.2%. The Convertible Notes are convertible at a per share conversion price of $0.25, which is subject to a one-time reset right (“Conversion Price Reset”) as well as “weighted average” and other customary anti-dilution protections (“Debt Conversion Feature”). The Conversion Price Reset will be available on the earlier of (the “Reset Date”) (i) the date of maturity of the 12% Notes or (ii) the completion of a subsequent financing by the Company of at least $5,000,000, if the closing price of the Company’s stock is less than $0.30 on the Reset Date. For (i) the conversion price after the reset will be equal to 70% of the 5-day VWAP immediately preceding the Reset Date. For (ii) the Conversion Price after the reset will be equal to 70% of 5-day VWAP immediately after the Reset Date. In connection with the issuance of Convertible Notes, 8,000,000 five-year cashless exercise warrants (“Convertible Note Warrants”) were issued with “weighted average” and other customary anti-dilution protections. 4,000,000 Convertible Note Warrants are exercisable at $0.50 and 4,000,000 Convertible Note Warrants are exercisable at $1.00 (see Note 6 for further detail). As of June 20, 2013, the Convertible Notes and the Convertible Note Warrants were converted into equity. The Convertible Notes were converted at a per share price of $0.07, as the Company’s stock price was less than $0.30 on the Reset Date, for 30,276,190 shares. The Convertible Note Warrants were converted into 7,000,000 shares of the Company’s common stock. Debt Discounts Convertible Note Warrants and Debt Conversion Feature The fair value of the Convertible Note Warrants and the Debt Conversion Feature, issued as of December 21, 2012, totaling $1,353,720 was recorded as a debt discount in the accompanying balance sheet and was amortized as interest expense in the accompanying statement of operations over the term of the Convertible Note using the effective interest method (see Note 6 for further detail). As of June 30, 2013, the full value of this debt discount had been amortized as a result of the conversion of the Convertible Notes and Convertible Note Warrants into equity. Deferred Financing Costs Transaction Fees The Company paid Aegis Capital Corp. (“Aegis”), who acted as the sole placement agent for the Convertible Notes Offering a commission of 10% of the funds raised in the Convertible Notes Offering and a 3% non-accountable reimbursement of its expenses, for a total payment of $406,900, which is recorded as a deferred financing cost in the accompanying balance sheet. The Company incurred additional fees of $96,556 for legal and escrow agent fees in connection with the Convertible Notes Offering, which are recorded as a deferred financing cost in the accompanying balance sheet. Convertible Note Broker Warrants In addition, Aegis received five-year warrants (the “Convertible Note Broker Warrants”) to purchase 1,600,000 shares of the Company’s common stock. The Convertible Note Broker Warrants were issued with “weighted average” and other customary anti-dilution protections. The Convertible Note Broker Warrants are identical to the Convertible Note Warrants in all material respects, except that they are exercisable at $0.25. As of June 20, 2013, the Convertible Note Broker Warrants were considered converted into 1,440,000 shares of common stock based on the same conversion terms as the Convertible Note Warrants. The Convertible Note Broker Warrants were valued at approximately $137,238 based on a Black-Scholes model (see Note 6 for further detail). Third Party Share Sale The Convertible Note holders were sold 4,000,000 free trading shares by non-affiliated, third party shareholders of the Company at par value. Although the Company was not a party to the sale of these shares by third party shareholders, per FASB ASC Topic 718, the fair value of this non-affiliated third party transaction is recognized by the Company as a deferred financing cost of the Convertible Note transaction. Additionally, the Company will provide no reimbursement or compensation to the selling shareholders of the 4,000,000 free trading shares. As such, the Company does not anticipate recognizing any further expenses in relation to this third-party transaction. The fair value of this third party transaction of $1,156,000 is recorded under deferred financing costs in the accompanying balance sheet.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: 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 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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