Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments and Fair Value Measurements
6 Months Ended
Dec. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
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 $860,181 of convertible debt, which are treated as derivative instruments outstanding at December 31, 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 December 31, 2017 was $0.14. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at December 31, 2017 are indicated in the table that follows. The volatility was based on historical volatility at December 31, 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.




    December 31, 2017  
Volatility     217.69 %
Expected remaining term (in years)     .75  
Risk-free interest rate     1.71 %
Expected dividend yield     None  


Convertible Debt


    Initial Valuations
(on new derivative
entered into during the
three months ended
December 31, 2017)
    December 31, 2017  
Volatility     n/a       172.75% – 199.23 %
Expected Remaining Term (in years)     n/a       .21 - 1.86  
Risk Free Interest Rate     n/a       1.28% - 1.87 %
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 December 31 2017:


          Quoted Prices     Significant        
          in Active     Other     Significant  
    Balance at     Markets for     Observable     Unobservable  
    December 31, 2017     Identical Assets     Inputs     Inputs  
          (Level 1)     (Level 2)     (Level 3)  
Embedded conversion option liabilities   $ 1,001,715     $     $     $ 1,001,715  
Fair value of liability for warrant derivative instruments   $ 143     $     $     $ 143  
Total   $ 1,001,858     $     $     $ 1,001,858  


The following is a roll forward for the six months ended December 31, 2017 of the fair value liability of price adjustable derivative instruments:


    Fair Value of  
    Liability for  
Balance at June 30, 2017   $ 881,172  
Effects of foreign currency exchange rate changes     60  
Reductions due to conversions     (419,145)  
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     (38,441 )
Balance at December 31, 2017   $ 1,001,858