General form of registration statement for all companies including face-amount certificate companies

Derivative Liabilities

v3.8.0.1
Derivative Liabilities
3 Months Ended 12 Months Ended
Sep. 30, 2017
Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Derivative Liabilities

Note 8. Derivative Liabilities

 

Upon closing of the private placements on May 22, 2015 and June 9, 2015, the Company issued 298,551 and 26,099 warrants, respectively, to purchase the same number of shares of common stock with an exercise price of $1.50 and a five-year term to the placement agent. Upon closing of a private placement in April 2016, the Company issued 153,713 warrants to purchase the same number of shares of common stock with an exercise price of $1.60 and a five-year term to the placement agent. The Company identified certain put features embedded in the warrants that potentially could result in a net cash settlement, requiring the Company to classify the warrants as a derivative liability.

 

During the year ended June 30, 2017, the Company amended the warrant agreements to eliminate the derivative feature. Upon execution of the revised agreements, a total of 471,697 warrants with a fair value of $2,200,219 were reclassified from liability to equity.

 

As of September 30, 2017 and June 30, 2017, the derivative liabilities related to these warrants was $0.

 

During the three months ended September 30, 2017 and 2016, the Company marked the derivative feature of the warrants to fair value and recorded a loss of $0 and $157,216, respectively, relating to the change in fair value.

Note 8. Derivative Liabilities 

 

Upon closing of private placements on May 22, 2015 and June 9, 2015, the Company issued 298,551 and 26,099 warrants, respectively, to purchase the same number of shares of Common Stock with an exercise price of $1.50 and a five-year term to the placement agent. Upon closing of a private placement in April 2016, the Company issued 153,713 warrants to purchase the same number of shares of Common Stock with an exercise price of $1.60 and a five-year term to the placement agent. The Company identified certain put features embedded in the warrants that potentially could result in a net cash settlement, requiring the Company to classify the warrants as a derivative liability. 

 

During the year ended June 30, 2017, the Company amended the existing warrant agreements to eliminate the derivative feature. Upon execution of the revised agreements, a total of 471,697 warrants with a fair value of $2,200,219 were reclassified from liability to equity. 

 

Level 3 Financial Liabilities – Derivative warrant liabilities 

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of June 30, 2017: 

 

    Carrying     Fair Value Measurement Using  
    Value     Level 1     Level 2     Level 3     Total  
                                         
Derivative warrant liabilities   $       $     $     $     $  

  

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the condensed consolidated balance sheet as of June 30, 2016: 

 

    Carrying     Fair Value Measurement Using  
    Value     Level 1     Level 2     Level 3     Total  
                                         
Derivative warrant liabilities   $ 1,322,729     $     $     $ 1,322,729     $ 1,322,729  

  

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended June 30, 2017 and 2016: 

 

    Fair Value
Measurement
Using Level 3
Inputs
 
    Total  
Balance, July 1, 2015   $ 205,144  
Issuance of derivative warrants     165,719  
Change in fair value of derivative warrant liabilities     968,840  
Reclassification of Derivative liability to Additional Paid in Capital     (16,974 )
Balance, June 30, 2016   $ 1,322,729  
Change in fair value of derivative warrant liabilities     877,490  
Reclassification of Derivative liability to Additional Paid in Capital     (2,200,219 )
Balance, June 30, 2017   $  

   

The fair value of the derivative feature of the warrants on the issuance dates, at the balance sheet date and on the date of reclassification to equity were calculated using a binomial option model valued with the following weighted average assumptions:   

 

   

April 14, 

2016 

   

June 30, 

2016 

    January 19,
2017
 
Risk free interest rate     1.04 %     1.08 %     1.01 %
Dividend yield     0.00 %     0.00 %     0.00 %
Expected volatility     41 %     44 %     39 %
Remaining term (years)     4.15 - 4.19       5.0       3.89 - 4.79  

  

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.

 

Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.

 

Volatility: The Company calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price for a period consistent with the warrant’s expected term.

 

Remaining term: The Company’s remaining term is based on the remaining contractual maturity of the warrants. 

 

During the years ended June 30, 2017 and 2016, the Company marked the derivative feature of the warrants to fair value and recorded a loss of $877,490 and $968,840, respectively, relating to the change in fair value.