Quarterly report pursuant to Section 13 or 15(d)

Derivative Liabilities

v3.19.3
Derivative Liabilities
3 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITIES

NOTE 7 - DERIVATIVE LIABILITIES

 

ASC Topic No. 815 - Derivatives and Hedging provides guidance on determining what types of instruments or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can affect the accounting for warrants and convertible preferred instruments issued by the Company.

 

At September 30, 2018, the Company had warrants resulting from equity offerings in May 2014 and June 2014 that do not have fixed settlement provisions because their exercise prices may be lowered if the Company issues securities at lower prices in the future, the Company concluded that the instruments were not indexed to the Company's stock.

 

Until September 30, 2018, the Company followed ASC Topic No. 815 and treated the warrants as derivative liabilities. In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at September 30, 2018.

 

As noted in Note 2, the Company elected to early adopt ASU 2017-11 and reversed the derivative liability into equity. The warrants balance of $59,397 was reversed to equity effective July 1, 2018.

 

Until October 18, 2018, the Company had promissory notes with a redemption feature which is not clearly and closely related to the host instrument and therefore is considered an embedded derivative which was bifurcated and recorded as a derivative liability. In determining the fair value of the derivative liabilities, the Company used the Monte-Carlo pricing model. The assumptions used in the valuation model considers the probability of redemption, the length of time to maturity and value of the redemption feature.

 

On October 12 and 18, 2018, the Company conducted closing on its private placement of securities. As a result of these closings, the outstanding promissory notes converted into common stock. The redemption feature associated with the promissory notes was valued on October 18, 2018 using the Black-Scholes model. The change in the value of the derivative liabilities between July 1, 2018 and the October 18, 2018 was recorded in income. The notes were converted to common stock on October 18, 2018.

 

The Company had no financial liabilities accounted for at fair value on a recurring basis as of September 30, 2019 and June 30, 2019.

 

The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as level 3 in the fair value hierarchy for the three months ended September 30, 2019 and 2018:

 

    Significant Unobservable
Inputs (Level 3)
 
    September 30,     September 30,  
    2019     2018  
Beginning balance   $ -     $ 4,194,634  
Fair value of derivative liabilities for redemption feature of promissory notes payable     -       289,670  
Change in fair value of derivative liabilities – warrants     -       28,871  
Ending balance   $ -     $ 4,513,175