Fair Value of Financial Instruments

6 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-04 “Fair Value Measurement” as it relates to financial assets and financial liabilities, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements.

This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Hierarchical levels, as defined in this guidance and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Valuations based on unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

As of December 31, 2019 and June 30, 2019, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates book value due to the short maturity of these instruments. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of its debt obligations approximates fair value. As of December 31, 2019 and June 30, 2019, the Company held no investments. The Company hired an independent resource to value its derivative liability as follows (unaudited):

Fair Value Table

	Balance at December 31, 2019		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)


Derivative Liability	$	106,410	$	-	$	-	$	106,410
Liability for insufficient shares		-		2,145,199		-		2,145,199

	$	106,410	$	2,145,199	$	-	$	2,251,609

	Balance at June 30, 2019		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Derivative Liability	$	45,692	$	-	$	-	$	45,692
	$	45,692	$	-	$	-	$	45,692

Level Three Roll-forward

	Derivative Liability			Total

Balance June 30, 2019	$	45,692		$	45,692
Addition of derivative liabilities		158,202			158,202
Settlement of derivative liabilities		(45,692	)		(45,692	)
Change in fair value		(51,792	)		(51,792	)
Balance December 31, 2019	$	106,410		$	106,410

QUANTUM MATERIALS CORP. 10-Q