Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments and Fair Value Measurements

v3.8.0.1
Derivative Financial Instruments and Fair Value Measurements
3 Months Ended
Sep. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Fair Value Measurements

NOTE 10 - 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 $1,392,771 of convertible debt, which are treated as derivative instruments outstanding at September 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 September 30, 2017 was $0.32. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at September 30, 2017 are indicated in the table that follows. The volatility was based on historical volatility at September 30, 2017, 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

 

    September 30, 2017  
Volatility     121.55 %
Expected remaining term (in years)     1.0  
Risk-free interest rate     1.31 %
Expected dividend yield     None  

 

Convertible Debt

 

    Initial Valuations
(on new derivative
instruments
entered into during the
three months ended
September 30, 2017)
    September 30, 2017  
Volatility     197.41 %     61.48% – 189.28 %
Expected Remaining Term (in years)     2.00       .21 - 1.86  
Risk Free Interest Rate     1.33 %     1.06% - 1.54 %
Expected dividend yield     None       None  

 

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 September 30, 2017:

 

          Quoted Prices     Significant        
          in Active     Other     Significant  
    Balance at     Markets for     Observable     Unobservable  
    September 30, 2017     Identical Assets     Inputs     Inputs  
          (Level 1)     (Level 2)     (Level 3)  
Embedded conversion option liabilities   $ 1,160,865     $     $     $ 1,160,865  
Fair value of liability for warrant derivative instruments   $ 142     $     $     $ 142  
Total   $ 1,161,007     $     $     $ 1,161,007  

 

The following is a roll forward for the three months ended September 30, 2017 of the fair value liability of price adjustable derivative instruments:

 

    Fair Value of  
    Liability for  
    Derivative  
    Instruments  
Balance at June 30, 2017   $ 881,172  
Effects of foreign currency exchange rate changes     109  
Initial fair value of embedded conversion option derivative liability recorded as debt discount     310,000  
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option     268,212  
Change in fair value included in statements of operations     (298,486 )
Balance at September 30, 2017   $ 1,161,007