Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments and Fair Value Measurements

v3.10.0.1
Derivative Financial Instruments and Fair Value Measurements
6 Months Ended
Dec. 31, 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 $62,000 of convertible debt, which is treated as derivative instruments outstanding at December 31, 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 December 31, 2018, the last trading day of the quarter, was $0.0193. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at December 31, 2018 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 six months ended

December 31, 2018)

    December 31, 2018  
Volatility     294.92 %     393.04% – 409.24 %
Expected Remaining Term (in years)     1       .61 - .66  
Risk Free Interest Rate     2.47 %     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 December 31, 2018:

 

    Balance at
December 31, 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   $ 66,490     $     $     $ 66,490  
Total   $ 66,490     $     $     $ 66,490  

 

The following is a roll forward for the six months ended December 31, 2018 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     (897,924 )
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 change in fair value of embedded conversion option     346,380  
Change in fair value included in statements of operations     1,585,266  
Balance at December 31, 2018   $ 66,490