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Derivative Liabilities
 6 Months Ended
Dec. 31, 2013
Derivative Liabilities  
Derivative Liabilities

9. Derivative Liabilities

 

Between August 17, 2012 and March 31, 2013, our Company issued a total of $525,000 in convertible promissory notes to eleven accredited investors, one of which is a member of our Board and another was a former member of our Board. The convertible promissory notes must be repaid by our Company within six months from the date of issuance; accrue interest at the rate of 14%; and are subject to conversion at the election of the investors at such time as our Company has raised a minimum of $500,000 in a subsequent equity financing. The conversion price will be the lower of 80% of the per share purchase price paid for by the new investors in the subsequent financing, or $0.50 per share. Unless these promissory notes are converted or repaid earlier, our Company must pay the note-holders the amount of the then accrued interest on the three, six, and nine month anniversaries of the issue date. As of June 30, 2013, the Company extended the maturity date of the notes to one year from the date of issuance.

 

In connection with the issuance of the promissory notes, the investors in the aggregate received two-year warrants to purchase up to a total of 78,750 shares of common stock at $0.50 per share, and two-year warrants to purchase up to a total of 131,250 shares of common stock at $0.01 per share. For purposes of accounting for the detachable warrants issued in connection with the convertible notes, the fair value of the warrants was estimated using the Black-Scholes-Merton option pricing formula. The value of all warrants granted at the date of issuance totaled $508,413 and was recorded as a discount to the notes payable. The amount will be amortized over the nine-month term of the respective convertible note as additional interest expense. The Company recognized the conversion feature, the $0.01 warrant to purchase common stock and $0.50 warrant to purchase common stock were derivative liabilities.

 

As of December 31, 2013, the derivative liabilities were valued using the weighted-average Black-Scholes-Merton option pricing model using the assumptions detailed below. The Company recorded $154,452 income from changes in derivative liability during the six months ended September 30, 2013. The results of year--end valuation were summarized as follows:

 

Grant Date   Derivative Liabilities   Dividend Yield Term   Expected Volatility   Risk Free Rate   Expected   Fair Value as of 12/31/13
8/17/2012   Conversion Feature   0%   172%   0.19%   0.13   3,000
    $0.01 Warrant   0%   172%   0.19%   0.63   2,000
    $0.50 Warrant   0%   172%   0.19%   0.63   0
8/24/2012   Conversion Feature   0%   163%   0.19%   0.15   3,000
    $0.01 Warrant   0%   163%   0.19%   0.65   2,000
    $0.50 Warrant   0%   163%   0.00%   0.65   0
9/9/2012   Conversion Feature   0%   152%   0.19%   0.19   4,000
    $0.01 Warrant   0%   152%   0.19%   0.69   6,000
    $0.50 Warrant   0%   152%   0.00%   0.69   1,000
9/13/2012   Conversion Feature   0%   152%   0.19%   0.20   7,000
    $0.01 Warrant   0%   152%   0.19%   0.63   4,000
    $0.50 Warrant   0%   152%   0.19%   0.63   1,000
9/18/2012   Conversion Feature   0%   150%   0.19%   0.21   3,000
    $0.01 Warrant   0%   150%   0.19%   0.72   2,000
    $0.50 Warrant   0%   150%   0.00%   0.72   0
9/18/2012   Conversion Feature   0%   150%   0.19%   0.21   3,000
    $0.01 Warrant   0%   150%   0.19%   0.72   2,000
    $0.50 Warrant   0%   150%   0.00%   0.72   0
9/18/2012   Conversion Feature   0%   150%   0.19%   0.21   3,000
    $0.01 Warrant   0%   150%   0.19%   0.72   2,000
    $0.50 Warrant   0%   150%   0.19%   0.72   0
9/27/2012   Conversion Feature   0%   144%   0.19%   0.24   3,000
    $0.01 Warrant   0%   144%   0.19%   0.74   3,000
    $0.50 Warrant   0%   144%   0.00%   0.74   1,000
10/5/2012   Conversion Feature   0%   144%   0.19%   0.26   1,000
    $0.01 Warrant   0%   144%   0.19%   0.76   1,000
    $0.50 Warrant   0%   144%   0.00%   0.76   0
10/25/2012   Conversion Feature   0%   118%   0.19%   0.32   3,000
    $0.01 Warrant   0%   118%   0.19%   0.82   4,000
    $0.50 Warrant   0%   118%   0.19%   0.82   1,000
10/31/2012   Conversion Feature   0%   174%   0.19%   0.84   10,000
    $0.01 Warrant   0%   174%   0.19%   0.83   5,000
    $0.50 Warrant   0%   174%   0.00%   0.83   2,000
11/27/2012   Conversion Feature   0%   118%   0.19%   2.50   11,000
    $0.01 Warrant   0%   174%   0.19%   2.50   5,000
    $0.50 Warrant   0%   174%   0.00%   2.50   2,000
12/21/2012   Conversion Feature   0%   114%   0.19%   0.40   14,000
    $0.01 Warrant   0%   114%   0.19%   0.91   7,000
    $0.50 Warrant   0%   114%   0.00%   0.91   1,000
1/31/2013   Conversion Feature   0%   100%   0.19%   0.47   14,000
    $0.01 Warrant   0%   100%   0.19%   0.97   18,000
    $0.50 Warrant   0%   100%   0.19%   0.97   5,000
8/24/2012   $0.50 Warrant   0%   85%   0.00%   2.65   13,000
                    Total fair value   $172,000

 

 

As of June 30, 2013, the derivative liabilities were valued using the weighted-average Black-Scholes-Merton option pricing model using the assumptions detailed below. The results of year--end valuation were summarized as follows:

 

Grant Date   Derivative
Liabilities		   Dividend Yield   Expected Volatility   Risk Free Rate   Expected
Term		   Fair Value as of  06/30/13
8/17/2012   Conversion Feature   0%   88%   0.15%   0.88   $12,500
    $0.01 Warrant   0%   232%   0.15%   1.13   2,313
    $0.50 Warrant   0%   232%   0.15%   1.13   1,088
8/24/2012   Conversion Feature   0%   65%   0.15%   0.65   7,000
    $0.01 Warrant   0%   251%   0.15%   1.15   2,313
    $0.50 Warrant   0%   251%   0.15%   1.15   1,125
9/9/2012   Conversion Feature   0%   94%   0.15%   0.94   20,000
    $0.01 Warrant   0%   248%   0.15%   1.19   3,700
    $0.50 Warrant   0%   248%   0.15%   1.19   1,800
9/13/2012   Conversion Feature   0%   71%   0.15%   0.71   16,000
    $0.01 Warrant   0%   232%   0.15%   1.13   4,625
    $0.50 Warrant   0%   232%   0.15%   1.13   2,175
9/18/2012   Conversion Feature   0%   97%   0.15%   0.97   13,000
    $0.01 Warrant   0%   245%   0.15%   1.22   2,313
    $0.50 Warrant   0%   245%   0.15%   1.22   1,125
9/18/2012   Conversion Feature   0%   97%   0.15%   0.97   13,000
    $0.01 Warrant   0%   245%   0.15%   1.22   2,313
    $0.50 Warrant   0%   245%   0.15%   1.22   1,125
9/18/2012   Conversion Feature   0%   97%   0.15%   0.97   13,000
    $0.01 Warrant   0%   245%   0.15%   1.22   2,313
    $0.50 Warrant   0%   245%   0.15%   1.22   1,125
9/27/2012   Conversion Feature   0%   121%   0.15%   1.21   15,000
    $0.01 Warrant   0%   244%   0.15%   1.24   2,313
    $0.50 Warrant   0%   244%   0.15%   1.24   1,125
10/5/2012   Conversion Feature   0%   85%   0.15%   0.85   4,600
    $0.01 Warrant   0%   243%   0.15%   1.27   925
    $0.50 Warrant   0%   243%   0.15%   1.27   465
10/25/2012   Conversion Feature   0%   90%   0.15%   0.90   12,500
    $0.01 Warrant   0%   245%   0.15%   1.32   2,313
    $0.50 Warrant   0%   245%   0.15%   1.32   1,163
10/31/2012   Conversion Feature   0%   84%   0.15%   0.84   11,500
    $0.01 Warrant   0%   244%   0.15%   1.34   2,313
    $0.50 Warrant   0%   244%   0.15%   1.34   1,163
11/27/2012   Conversion Feature   0%   91%   0.15%   0.91   50,000
    $0.01 Warrant   0%   240%   0.15%   1.41   9,250
    $0.50 Warrant   0%   240%   0.15%   1.41   4,650
12/21/2012   Conversion Feature   0%   98%   0.15%   0.98   52,000
    $0.01 Warrant   0%   237%   0.15%   1.48   9,250
    $0.50 Warrant   0%   237%   0.15%   1.48   4,650
1/31/2013   Conversion Feature   0%   108%   0.15%   1.08   14,000
    $0.01 Warrant   0%   224%   0.15%   1.08   2,313
    $0.50 Warrant   0%   224%   0.15%   1.08   1,013
                     Total fair value   $326,452