Stock warrants

3 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Stock warrants

10. Stock warrants

In connection with the issuance of the promissory notes in 2012, the investors in the aggregate received two-year warrants to purchase up to a total of 50,000 shares of common stock at an exercise price of $0.50 per share, and two-year warrants purchasing up to a total of 81,250 shares of common stock at an exercise price of $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 Binomial 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 was amortized over the nine (9) month term of the respective convertible note as additional interest expense.

On various dates during June 2014 and December 2014 the Company and holders of certain convertible notes agreed to cancel warrants to purchase common shares in the Company and to extend the due dates on the Notes to July 1, 2016. $0.50 warrants and “Bonus Warrants” priced at $0.01, as defined in the original Convertible Note Purchase Agreements we cancelled pertaining to the Note and warrants acquired on the following dates for the following Convertible Notes and amounts. These warrants were expired on July 1, 2016.

On May 17, 2017, the Company entered a promissory note with an investor for a total amount of $1,375,000 (after $10,000 legal and due diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. In connection with the note, the investor will also receive warrants and is calculated based on 15% of the maturity amount. The warrants have a life of four years with an exercise price of $0.15 per share and have cashless exercise option. The fair value of the warrants at the grant date was $40,400. As of September 30, 2018 and June 30, 2018, the fair value of the warrant liability was $17,675 and $40,400, respectively. The Binomial Option Price Model with the following assumption inputs:

Warrants liability	September 30, 2018
Annual dividend yield		—
Expected life (years)		0.5
Risk-free interest rate		2.36	%
Expected volatility		117	%
Warrants issued in May 2017		June 30, 2018
Annual dividend yield		—
Expected life (years)		0.5
Risk-free interest rate		2.06	%
Expected volatility		151	%

Below is the movement of warrants for the period ending September 30, 2018:

	Number of  Shares		Weighted Average  Exercise Price		Weighted Average Remaining contractual life
Outstanding at June 30, 2016		131,250	$	0.20
Granted		131,250		0.20		4
Exercised		505,000	$	0.15		3.86
Outstanding at June 30, 2017		505,000		0.20
Exercised		—		—
Granted		—	$	—
Outstanding at June 30, 2018		505,000	$	0.15		0.5
Granted		—		—
Exercised		—		—
Outstanding at September 30, 2018		505,000	$	0.15		0.5

Note payable due to bank

During October 2011, we entered into a revolving demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing limit of $150,000. The line of credit bears a variable interest rate of one quarter percent (0.25%) above the prime rate (3.25% as of December 31, 2013). In the event the deposit account is not established or minimum balance maintained, HSBC can charge a higher rate of interest of up to 4.0% above prime rate. As of September 30, 2018 and June 30, 2018, the loan principal balance was $25,982. As of September 30, 2018, the note is in default.

Note payable due to related party

On January 23, 2013, the Company entered into a promissory note with its former employee of the Company who owns less than 5% of the Company’s stock. The original principal amount was $40,000 and the note bore no interest. The note was payable upon demand. As of September 30, 2018 and June 30, 2018, this note had a balance of $18,000.

On January 14, 2015, the Company entered into a promissory note with Richard Ko (an employee of the Company, who owns less than 5% of the Company’s stock). The principle amount was $30,000 and the note bore no interest. The note had a term of one (1) year and was due on January 14, 2016, and became payable upon demand after January 14, 2016. As of September 30, 2018 and June 30, 2018, this note had a balance of $5,000 and $20,000, respectively.

As of September 30, 2018 and June 30, 2018, the Company has an outstanding balance of notes payable due to related parties of $23,000, respectively.