General form of registration statement for all companies including face-amount certificate companies

Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments and Fair Value Measurements

12 Months Ended

Jun. 30, 2018

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 had 12,000 warrants and $429,000 of convertible debt, which are treated as derivative instruments outstanding at June 30, 2018.

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, 2018 and 2017 was $0.06 and $0.97, respectively. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at June 30, 2018 and 2017, are indicated in the table that follows. 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


	June 30, 2017			June 30, 2018
Volatility		137	%		110	%
Expected remaining term		1.25			.25
Risk-free interest rate		1.24	%		1.93	%
Expected dividend yield		None			None

Convertible Debt

	Initial Valuations		June 30, 2017			June 30, 2018
Volatility	139 - 198	%		66-175	%		191 - 221	%
Expected remaining term	1.00 – 2.00			.21 - 1.63			.56 - 1.1
Risk-free interest rate	1.33 – 2.31	%		1.03 - 1.24	%		2.11 - 2.33	%
Expected dividend yield	None			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 June 30, 2018:

	Balance at June 30, 2018		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
				(Level 1)	(Level 2)		(Level 3)
Embedded conversion option liabilities	$	371,532	$	—	$	—	$	371,532
Total	$	371,532	$	—	$	—	$	371,532

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017:

	Balance at June 30, 2017		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Embedded conversion option liabilities	$	877,403	$	—	$	—	$	877,403
Fair value of liability for warrant derivative instruments	$	3,769	$	—	$	—	$	3,769
Total	$	881,172	$	—	$	—	$	881,172

The following is a roll forward for the years ended June 30, 2018 and 2017 of the fair value liability of price adjustable derivative instruments:

	Fair Value of
	Liability for
	Derivative
	Instruments
Balance at June 30, 2016	$	1,050,182
Effects of foreign currency exchange rate changes		1,143
Initial fair value of embedded conversion option derivative liability recorded as debt discount		650,000
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option		214,758
Change in fair value included in statements of operations		(1,034,911	)
Balance at June 30, 2017		881,172
Effects of foreign currency exchange rate changes		38
Reductions due to conversions		(861,695	)
Reductions due to repayment of debt		(199,339	)
Initial fair value of embedded conversion option derivative liability recorded as debt discount		543,744
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option		313,694
Change in fair value included in statements of operations		(306,082	)
Balance at June 30, 2018	$	371,532