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Derivative Financial Instruments and Fair Value Measurements

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