Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments and Fair Value Measurements

9 Months Ended

Mar. 31, 2017

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 has 12,000 warrants and $1,576,294 of convertible debt, which are treated as derivative instruments outstanding at March 31, 2017.

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 31, 2017 was $2.28. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at March 31, 2017, are indicated in the table that follows. The volatility was based on historical volatility at March 31, 2017, 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

	March 31, 2017
Volatility		137.6	%
Expected remaining term (in years)		1.5
Risk-free interest rate		1.27	%
Expected dividend yield		None

Convertible Debt

	Initial Valuations (on new derivative instruments entered into during the nine months ended March 31, 2017)			March 31, 2017
Volatility		219.33	%		117.47% – 144.2	%
Expected Remaining Term (in years)		2.00			.45 - 1.88
Risk Free Interest Rate		1.22	%		1.03% - 1.27	%
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, 2017:

			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	March 31, 2017		Identical Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
Embedded conversion option liabilities	$	1,081,387	$	—	$	—	$	1,081,387
Fair value of liability for warrant derivative instruments	$	16,200	$	—	$	—	$	16,200
Total	$	1,097,587	$	—	$	—	$	1,097,587

The following is a roll forward for the nine months ended March 31, 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		1,343
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		(818,696	)
Balance at March 31, 2017	$	1,097,587