Derivative Liability |
6 Months Ended | ||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||
| Note 4 - Derivative Liability | The Company computes the fair value of the derivative liability arising from the over-commitment of shares at each reporting period with the change in the fair value recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under the Company’s control. Therefore, the resulting effect on net loss is subject to significant fluctuation and will continue to be so until the Company’s outstanding warrants are converted into common stock, or paid in full of cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.
Since the number of shares issuable under the convertible related party notes payable is undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised warrants, the derivatives must be valued using the Black Scholes option pricing model and a liability is recorded as though the obligations would be settled using some means other than stock. The inputs used in the calculation include the stock price at period end, the exercise price, the risk free rate corresponding to the years left to maturity, the volatility and the variance of the stock price. For the six months ended December 31, 2018, the Company determined that it was over-committed to the number of shares issuable on the exercise of outstanding debentures, stock options and warrants for approximately 237,624 shares. The derivative liability balance decreased from $84,821 as of June 30, 2018 to $8,011 as of December 31, 2018 resulting in the recognition of non-cash income of $76,810 during the six months ended December 31, 2018.
The Black-Scholes option pricing model used the following assumptions:
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