Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS

v3.3.0.814
DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS
 3 Months Ended
Sep. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS
 
Derivative Financial Instruments:
 
The Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), 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 3,000,000 warrants and $555,000 of convertible debt with repricing options and $87,500 of convertible debt with variable conversion pricing outstanding at September 30, 2015.
 
The Company calculates the estimated fair values of the liabilities for derivative instruments using the Black Scholes (“BSM”) option pricing model. The closing price of the Company’s common stock at September 30, 2015 was $0.0289. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at September 30, 2015, are indicated in the table that follows. The volatility for initial valuation was based on comparative company’s methods since the Company’s stock is very thinly traded and historical volatility at September 30, 2015, 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
 
 
 
September 30,
 
 
 
2015
 
Volatility
 
 
216
%
Expected remaining term
 
 
3
 
Risk-free interest rate
 
 
1.37
%
Expected dividend yield
 
 
none
 
 
Convertible Debt
 
 
 
Initial Valuations
 
 
 
 
 
(on new
 
 
 
 
 
derivative
 
 
 
 
 
instruments
 
 
 
 
 
entered during
 
 
 
 
 
the three months
 
 
 
 
 
ended September
 
September 30,
 
 
 
30, 2015)
 
2015
 
Volatility
 
 
408
%
 
414
%
Expected Remaining Term
 
 
0.83
 
 
0.51 - 1.45
 
Risk Free Interest Rate
 
 
0.7
%
 
0.6
%
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 BSM option pricing model. The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015:
 
 
 
Balance at
 
Quoted Prices
 
Significant
 
 
 
 
 
September
 
in Active
 
Other
 
Significant
 
 
 
30,
 
Markets for
 
Observable
 
Unobservable
 
 
 
2015
 
Identical Assets
 
Inputs
 
Inputs
 
 
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
Embedded conversion option liabilities
 
$
350,063
 
$
—
 
$
—
 
$
350,063
 
Fair value of liability for warrant derivative instruments
 
$
86,662
 
$
—
 
$
—
 
$
86,662
 
Total
 
$
436,725
 
$
—
 
$
—
 
$
436,725
 
 
The following is a roll forward for the three months ended September 30, 2015 of the fair value liability of price adjustable derivative instruments:
 
 
 
Fair Value of
 
 
 
Liability for
 
 
 
Derivative
 
 
 
Instruments
 
 
 
 
 
Balance at June 30, 2015
 
$
1,049,929
 
Effects of foreign currency exchange rate changes
 
 
(17,351)
 
Initial fair value of embedded conversion option derivative liability recorded as debt discount
 
 
200,000
 
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of ECO
 
 
4,610
 
Change in fair value included in statements of operations
 
 
(800,463)
 
Balance at September 30, 2015
 
$
436,725