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

Derivative Financial Instruments and Fair Value Measurements

v3.19.2
Derivative Financial Instruments and Fair Value Measurements
9 Months Ended 12 Months Ended
Mar. 31, 2019
Jun. 30, 2018
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 had $9,000 of convertible debt, which is treated as derivative instruments outstanding at March 31, 2019.

 

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 March 29, 2019, the last trading day of the quarter ended March 31, 2019, was $0.0107. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at March 31, 2019 are indicated in the table that follows. The expected term is equal to the remaining term of the warrants or convertible instruments and the risk free rate is based upon rates for treasury securities with the same term.

 

Convertible Debt

 

    Initial Valuations
(on new derivative
instruments 
entered into during
the nine months
ended
March 31, 2019)
    March 31, 2019  
Volatility     294.92 %     348.33% – 409.24
Expected Remaining Term (in years)     1       .36 - .66  
Risk Free Interest Rate     2.47 %     2.44% –2.56 %
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 March 31, 2019:

 

    Balance at 
March 31, 2019
   

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   $ 11,097     $     $     $ 11,097  
Total   $ 11,097     $     $     $ 11,097  

 

The following is a roll forward for the nine months ended March 31, 2019 of the fair value liability of price adjustable derivative instruments:

 

    Fair Value of  
    Liability for  
    Derivative  
    Instruments  
Balance at June 30, 2018   $ 371,532  
Reductions due to conversions     (1,388,764 )
Reductions due to repayment of debt     (936,650 )
Initial fair value of embedded conversion option derivative liability recorded as debt discount     50,000  
Initial fair value of embedded conversion option derivative liability recorded as expense     346,380  
Change in fair value included in statements of operations     1,568,599  
Balance at March 31, 2019   $ 11,097  

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