Transition report pursuant to Rule 13a-10 or 15d-10

Derivative Liabilities

v3.5.0.2
Derivative Liabilities
 12 Months Ended
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liabilities

Note 8. Derivative Liabilities

 

Upon closing of the private placement transactions on May 22, 2015 and June 9, 2015, the Company issued 298,551 and 26,099 warrants, respectively, to purchase Common Stock with an exercise price of $1.50 and a five-year term to the placement agent. Upon closing of the April 2016 Offering, the Company issued 153,713 warrants to purchase Common Stock with an exercise price of $1.60 and a five-year term to the placement agent shares of Common Stock. 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.

  

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, 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  

 

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, 2015:

 

    Carrying     Fair Value Measurement Using  
    Value     Level 1     Level 2     Level 3     Total  
                                         
Derivative warrant liabilities   $ 205,144     $ —     $ —     $ 205,144     $ 205,144  

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of March 31, 2016:

 

    Carrying     Fair Value Measurement Using  
    Value     Level 1     Level 2     Level 3     Total  
                                         
Derivative warrant liabilities   $ 313,709     $ —     $ —     $ 313,709     $ 313,709  

 

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 period April 1, 2015 ended June 30, 2016:

 

    Fair Value
Measurement
Using Level 3
Inputs		  
    Total  
Balance, April 1, 2015   $ —  
Issuance of derivative warrant liabilities     206,715  
Change in fair value of derivative warrants     (1,571 )
Balance, June 30, 2015     205,144  
Change in fair value of derivative warrants     108,565  
Balance, March 31, 2016     313,709  
Issuance of derivative warrants     165,719  
Transfer from liability to equity classification due to excercise     (16,974 )
Change in fair value of derivative warrant liabilities     860,275  
Balance, June 30, 2016   $ 1,322,729  

  

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

 

    May 22,
2015		     June 9,
2015		     June 30,
2015		     March 31,
2016		     April 14,
2016		     June 30,
2016		  
Risk free interest rate     1.57 %     1.74 %     1.63 %     1.04 %     1.08 %     1.01 %
Dividend yield     0.00 %     0.00 %     0.00 %     0.00 %     0.00 %     0.00 %
Expected volatility     47 %     47 %     47 %     41 %     44 %     39 %
Remaining term (years)     5.0       5.0       4.89 – 4.94       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 warrants’ expected term.

 

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

 

During the three months ended June 30, 2016, the Company marked the derivative feature of the warrants to fair value and recorded a loss of $860,275, relating to the change in fair value.

 

During the years ended June 30, 2016, June 30, 2015 and March 31, 2016, the Company marked the derivative feature of the warrants to fair value and recorded a gain (loss) of $(968,840), $1,571 and $(106,994), respectively, relating to the change in fair value.