Annual report pursuant to Section 13 and 15(d)

Derivative Financial Instruments and Fair Value Measurements

v3.20.2
Derivative Financial Instruments and Fair Value Measurements
12 Months Ended
Jun. 30, 2020
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 derivative expense in operations on the issuance date. The Company had $126,500 (3 notes) and $142,000 (2 notes) of convertible debt, which have embedded conversion options bifurcated and is treated as derivative instruments outstanding at June 30, 2020 and 2019 respectively.

 

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, 2020, the last trading day of the fiscal year ended June 30, 2020, was $0.0039. Volatility, expected remaining term and risk-free interest rates used to estimate the fair value of derivative liabilities at June 30, 2020 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
 
     June 30, 2020        June 30, 2019    
Volatility      227- 279 %     264 %     355 %
Expected remaining term     1.00         0.01 – 0.70           0.11 - 0.90    
Risk-free interest rate      1.53 – 1.59 %       0.13 – 0.18 %       1.92 - 2.15 %
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 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, 2020:

 

   

Balance at

June 30, 2020

   

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   $ 177,009     $      —     $         —     $ 177,009  
Total   $ 177,009     $     $     $ 177,009  

  

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2019:

 

   

Balance at

June 30, 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   $ 698,264     $     $     $ 698,264  
Total   $ 698,264     $     $     $ 698,264  

 

The following is a roll forward for the years ended June 30, 2020 and 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  
Effects of foreign currency exchange rate changes     -  
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     180,000  
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option     382,944  
Change in fair value included in statements of operations     2,089,202  
Balance at June 30, 2019     698,264  
Reductions due to conversions     (362,962 )
Initial fair value of embedded conversion option derivative liability recorded as debt discount     227,000  
Initial fair value of embedded conversion option derivative liability recorded as derivative expense     351,461  
Change in fair value included in derivative expense (income) in the statement of operations     (736,754 )
Balance at June 30, 2020   $ 177,009