Quarterly report pursuant to Section 13 or 15(d)

Derivative Liability

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Derivative Liability
9 Months Ended
Mar. 31, 2017
Derivative Liability [Abstract]  
DERIVATIVE LIABILITY
NOTE 9   DERIVATIVE LIABILITY

 

On June 10, 2016, the Company entered into a Loan Agreement with an investor pursuant to which the Company reissued a convertible promissory note from a selling investor in the principal amount of for up to $160,330. The Note is convertible into shares of common stock at an initial conversion price subject to adjustment as contained in the Note. The Conversion Price is the 80% of the average closing price of the last thirty trading days of the stock, not lower than $0.10. The Note accrues interest at a rate of 7% per annum and matures on December 10, 2017.

 

Due to the variable conversion price associated with this convertible promissory note, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.

 

The initial fair value of the embedded debt derivative of $206,996 was allocated as a debt discount $76,163 was determined using intrinsic value with the remainder $130,833 charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions: 

 

(1) dividend yield of   0%;
(2) expected volatility of   164%,
(3) risk-free interest rate of   0.87%,
(4) expected life of   36 months
(5) fair value of the Company’s common stock of   $0.26 per share.

 

During the period ended March 31, 2017, the above note was fully converted into shares and hence, now onwards no further derivative liability needs to accrue related to this note.

 

On February 7, 2017, the Company entered into a Loan Agreement with an investor pursuant to which the Company issued a convertible promissory note in the principal amount of for up to $158,500. The Note is convertible into shares of common stock at an initial conversion price subject to adjustment as contained in the Note. The Conversion Price is the 61% of the average closing price of the prior ten days. The Note accrues interest at a rate of 12% per annum and matures on November 12, 2017.

 

Due to the variable conversion price associated with this convertible promissory note, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.

 

The initial fair value of the embedded debt derivative of $158,670 was allocated as a debt discount $101,336 was determined using intrinsic value with the remainder $57,334 charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions:

 

(1) dividend yield of   0%;
(2) expected volatility of   149%,
(3) risk-free interest rate of   0.79%,
(4) expected life of   9 months
(5) fair value of the Company’s common stock of   $0.09 per share.

 

On March 2, 2017, the Company entered into a Loan Agreement with an investor pursuant to which the Company issued a convertible promissory note in the principal amount of for up to $225,000. The Note is convertible into shares of common stock at an initial conversion price subject to adjustment as contained in the Note. The Conversion Price is the 60% of the average of the lowest three intra-day trading prices in the twenty days immediately preceding the applicable conversion. The Note accrues interest at a rate of 0% per annum and matures on September 2, 2017.

 

Due to the variable conversion price associated with this convertible promissory note, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.

 

The initial fair value of the embedded debt derivative of $250,570 was allocated as a debt discount $203,571 was determined using intrinsic value with the remainder $46,999 charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions:

 

(1) dividend yield of   0%;
(2) expected volatility of   134%,
(3) risk-free interest rate of   0.84%,
(4) expected life of   6 months
(5) fair value of the Company’s common stock of   $0.08 per share.

 

During the three and nine months ended March 31, 2017 and 2016, the Company recorded the loss (gain) in fair value of derivative $18,584 and $(-0-) and $(43,834) and $-0-, respectively. 

 

For the three and nine months ended March 31, 2017 and 2016, $51,335 and $-0- and $126,107 and $-0-, respectively, was expensed in the statement of operation as amortization of debt discount related to above notes and shown as interest expenses, respectively.

 

The following table represents the Company’s derivative liability activity for the period ended:

 

Balance at June 30, 2016   $ 188,128  
Derivative liability reclass into additional paid in capital upon notes conversion     (125,710 )
Initial measurement at issuance date of the notes     409,240  
Change in fair value of derivative at period end     (43,834 )
Balance March 31, 2017   $ 427,824