Note 9 - Convertible Debentures |
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Debt Disclosure [Text Block] |
NOTE
9 - CONVERTIBLE DEBENTURES During the year ended June 30, 2017, the Company had the following convertible debenture agreements, summarized as follows:(a) Power Up Lending Group, Ltd.:
The convertible debentures accrue interest of 12% per annum and can be converted into common stock at the option of the holder at any time after 180 days following the date of issuance. The debenture has a conversion price equal to 63% of the market price. Market price is defined as the average of the lowest three trading prices for the Company’s common stock during the ten -day trading period ending one trading day prior to the date of conversion notice with a limitation of 4.99% of the issued and outstanding common stock at the time of conversion. Any amount of principal that is not paid when due bears interest at a rate of 22% per annum.The convertible debentures may be repaid by the Company as follows:
The embedded conversion feature of the convertible debentures were treated as derivative liabilities measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a reduction to the debt. At inception of the loans, the total net proceeds allocated to the derivative liability components were $22,384 with the residual net proceeds of $67,616 allocated to the debt components at inception.On August 9, 2017, the Company paid cash of $85,979 to settle the February 9, 2017 convertible debt agreement with Power Up Lending Group, Ltd. The Company recognized a gain on extinguishment of $73,450 as a result of the settlement.(b) L2 Capital Inc.:
The convertible debentures can be converted into common stock at the option of the holder at any time after 180 days following the date of issuance. The debenture has a conversion price equal to 65% of the market price. Market price is defined as the average of the lowest two trading prices for the Company’s common stock during the twenty-one -day trading period ending one trading day prior to the date of conversion notice with a limitation of 9.99% of the issued and outstanding common stock at the time of conversion. Any amount of principal that is not paid when due bears interest at the lessor of (i) 24% per annum or (ii) the maximum allowed by law.
The convertible debenture associated with the equity purchase agreement accrues interest of 8% per annum and can be converted into common stock at the option of the holder at any time after 180 days following the date of issuance. The debenture has a conversion price equal to 67.5% of the market price. Market price is defined as the average of the lowest two trading prices for the Company’s common stock during the twenty -day trading period ending one trading day prior to the date of conversion notice with a limitation of 9.99% of the issued and outstanding common stock at the time of conversion. Any amount of principal that is not paid when due bears interest at the lessor of (i) 24% per annum or (ii) the maximum allowed by law.If the Company enters into a convertible debt agreement with a conversion rate greater than the conversion price of the convertible debt above, then the conversion price shall be automatically adjusted to equal the most beneficial conversion rate. The convertible debentures may be repaid by the Company as follows:
The embedded conversion feature of the convertible debentures were treated as derivative liabilities measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a reduction to the debt. The embedded conversion feature of the equity purchase agreement commission convertible debenture was treated as a derivative liability measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a deferred debt discount asset to be amortized using the effective interest method to its maturity value. At inception of the convertible debt, the total net proceeds allocated to the derivative liability components were $576,901 with the residual net proceeds of $97,859 allocated to the debt components at inception.(c) SBI Investments LLC
The convertible debentures can be converted into common stock at the option of the holder at any time after 180 days following the date of issuance. The debenture has a conversion price equal to 65% of the market price. Market price is defined as the average of the lowest two trading prices for the Company’s common stock during the twenty-one -day trading period ending one trading day prior to the date of conversion notice with a limitation of 9.99% of the issued and outstanding common stock at the time of conversion. Any amount of principal that is not paid when due bears interest at the lessor of (i) 24% per annum or (ii) the maximum allowed by law.
The convertible debenture associated with the equity purchase agreement accrues interest of 8% per annum and can be converted into common stock at the option of the holder at any time after 180 days following the date of issuance. The debenture has a conversion price equal to 67.5% of the market price. Market price is defined as the average of the lowest two trading prices for the Company’s common stock during the twenty -day trading period ending one trading day prior to the date of conversion notice with a limitation of 9.99% of the issued and outstanding common stock at the time of conversion. Any amount of principal that is not paid when due bears interest at the lessor of (i) 24% per annum or (ii) the maximum allowed by law.In the Company enters into a convertible debt agreement with a conversion rate greater than the conversion price of the convertible debt above, then the conversion price shall be automatically adjusted to equal the most beneficial conversion rate. The convertible debentures may be repaid by the Company as follows:
The embedded conversion feature of the convertible debentures were treated as derivative liabilities measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a reduction to the debt. The embedded conversion feature of the equity purchase agreement commission convertible debenture was treated as a derivative liability measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a deferred debt discount asset to be amortized using the effective interest method to its maturity value. At inception of the convertible debt, the total net proceeds allocated to the derivative liability components were $574,840 with the residual net proceeds of $99,920 allocated to the debt components at inception.Summary of convertible debt transactions As of September 30, 2017, the total amortized value of the outstanding convertible debentures were $413,806 ( June 30, 2017 -
$162,821 ), the total amortized value of the deferred finance cost was $183,613 ( June 30, 2017 -
$201,432 ), the total fair value of the outstanding derivative liabilities were $1,099,514 ( June 30, 2017 -
$988,463 ).During the three months ended September 30, 2017, a fair value loss on derivative liabilities of $545,362 (2016 fair value gain - $29,238 ) was recognized. As of September 30, 2017,
$502,959 of the fair value loss relates to the conversion features associated with the outstanding debentures with the remaining fair value loss of $42,403 relating to the conversion feature associated with the debenture that was settled and extinguished.As of September 30, 2017,
37,208,555 ( June 30, 2017 –
55,374,342 ) common shares of the Company would be required to settle the remaining convertible debentures at a weighted average conversion price of $0.02 ( June 30, 2017 -
$0.01 ) per common share.As of September 30, 2017, the face value of convertible debentures is $725,567 ( June 30, 2017 -
$1, 439,520 ), which includes accrued interest of $41,018 ( June 30, 2017 -
$22,392 ).During the three months ended September 30, 2017, debt discount amortization of $496,685 (2016 - $24,605 ) and deferred finance costs amortization of $17,819 (2016 - $nil ) was recorded as interest expense.The fair value of the derivative financial liabilities are calculated using the Black Sholes option pricing model. The following assumptions were used in determining the fair value of the derivative liabilities at inception during the year ended:
The following assumptions were used in determining the fair value of the derivative financial liabilities as of:
The following table summarizes the changes in the derivative liabilities:
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