Derivative Financial Instruments and Fair Value Measurements |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments and Fair Value Measurements |
NOTE 12 - DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS
Derivative Financial Instruments:
The Company applies the provisions of ASC 815-40, Contracts in Entity’s Own Equity, under which convertible instruments and warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative accounting treatment. As a result, warrants and embedded conversion options in convertible debt are recorded as a liability and are revalued at fair value at each reporting date. If the fair value of the warrants exceeds the face value of the related debt, the excess is recorded as change in fair value in operations on the issuance date. The Company has 12,000 warrants and $1,385,271 of convertible debt, which are treated as derivative instruments outstanding at June 30, 2017.
The Company calculates the estimated fair values of the liabilities for derivative instruments using the Binomial Trees Method. The closing price of the Company’s common stock at June 30, 2017 and 2016 was $0.97 and $4.68. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at June 30, 2017 and 2016, are indicated in the table that follows. The volatility for the September 30, 2013 initial valuation was based on comparative companies’ methods since the Company’s stock was very thinly traded and based historical volatility for subsequent revaluations. The expected term is equal to the remaining term of the warrants and the risk free rate is based upon rates for treasury securities with the same term.
Warrants
Convertible Debt
Fair Value Measurements:
The Company measures and reports at fair value the liability for derivative instruments. The fair value liabilities for price adjustable warrants and embedded conversion options have been recorded as determined utilizing the Binomial Trees model. The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017:
The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2016:
The following is a roll forward for the years ended June 30, 2017 and 2016 of the fair value liability of price adjustable derivative instruments:
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