Fair Value Measurements

6 Months Ended

Dec. 31, 2018

13. Fair Value Measurements

The following tables summarize the Company’s assets and liabilities carried at fair value measured on a recurring basis at December 31, 2018, June 30, 2018 and 2017 by valuation hierarchy (in thousands):

	December 31, 2018
Description	Total Carrying Value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:
Cash equivalents	$	43,194	$	43,194	$	—	$	—
	$	43,194	$	43,194	$	—	$	—

	June 30, 2018
Description	Total Carrying Value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:
Cash equivalents	$	28,826	$	28,826	$	—	$	—
	$	28,826	$	28,826	$	—	$	—
Liabilities:
Derivative liabilities	$	19,780	$	—	$	—	$	19,780
	$	19,780	$	—	$	—	$	19,780

	June 30, 2017
Description	Total Carrying Value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:
Cash equivalents	$	13,521	$	13,521	$	—	$	—
	$	13,521	$	13,521	$	—	$	—

Financial instruments that potentially subject the Company to concentrations of credit risk have historically consisted principally of cash and cash equivalents. At December 31, 2018, June 30, 2018 and June 30, 2017, substantially all of the Company’s interest-bearing cash equivalent balances were concentrated in one U.S. Government money market fund that has investments consisting primarily of U.S. Government Agency debt, U.S. Treasury

debt, U.S. Treasury

Repurchase

Agreements and U.S. Government Agency Repurchase Agreements. These deposits may be redeemed upon demand and, therefore, generally have minimal risk. The Company’s cash equivalents are classified within Level 1 on the basis of valuations using quoted market prices.

The Second Tranche Transaction was determined to be liability classified (see Note 11), which required that the liability be measured at fair value each period with changes in fair value recorded as a component of non-operating expense in the consolidated statement of comprehensive loss. This valuation was determined to be a level 3 valuation because it includes unobservable inputs. The Second Tranche Transaction liability was valued using a Monte Carlo simulation valuation model. This model incorporated several inputs, including the Common Stock price on the date of valuation, the historical volatility of the price of Common Stock, the risk-free interest rate and management’s assessment of the probability and timing of the issuance of the Units occurring. A significant fluctuation in the Company’s stock price or the Company’s estimate of the number of Units to be issued could result in a material increase or decrease in the fair value of the Second

Tranche Transaction liability. The Second Tranche Transaction liability

was settled upon the closing of the Second Tranche Transaction in June 2018. The Company remeasured the Second Tranche Transaction liability to fair value immediately prior to settlement. This valuation at settlement was calculated as the excess of the sum of (i) the fair value of the Second Tranche Warrants and (ii) the fair value of the shares of Common Stock issued to settle the liability over the cash proceeds received by the Company for the Units.

Significant assumptions used to value this liability were as follows:

	March 28, 2018 (Date of Issuance)			June 25, 2018 (Date of Settlement)
Volatility		54.20	%		N/A
Risk free interest rate		1.70	%		N/A
Estimated date of stockholder approval		June 2018			N/A
Estimated number of units issuable		26,900,000			20,184,224
Valuation date stock price	$	1.07		$	1.93

The Additional Advance Warrants were initially determined to be liability classified (see Note 10), which required that the liability be measured at fair value each period with changes in fair value being recorded as a component of non-operating expense in the consolidated statement of comprehensive loss. This valuation was determined to be a level 3 valuation because it includes unobservable inputs. The Additional Advance Warrant liability was valued using a Monte Carlo simulation valuation model. This model incorporated several inputs including the Common Stock price on the date of valuation, the historical volatility of the price of the Common Stock, the risk-free interest rate and management’s assessments of the probability of the Additional Advance being drawn upon. Upon the closing of the Second Tranche Transaction in June 2018, the Additional Advance Warrants no longer met the criteria to be classified as a liability. The Company remeasured the Additional Advance Warrants immediately prior to the close of the Second Tranche Transaction and reclassified the liability balance to equity.

Significant assumptions used to value this liability were as follows:

	March 28, 2018 (Date of Issuance)			June 25, 2018 (Date of Reclassification to Equity)
Volatility		55.20	%		55.10	%
Risk free interest rate		1.70	%		2.80	%
Term (in years)		7			7
Dividend rate		0	%		0	%
Valuation date stock price	$	1.07		$	1.93
Probability of issuance		80	%		100	%

Upon the closing of the Second Tranche Transaction, the Company issued the Second Tranche Warrants, which were determined to be liability classified, which requires that the liability be measured at fair value each period with changes in fair value being recorded as a component of non-operating expense in the consolidated statement of comprehensive loss. This valuation was determined to be a level 3 valuation because it included unobservable inputs. The Second Tranche Warrants were valued using a Monte Carlo simulation valuation model. This model incorporated several inputs, including the Common Stock price on the date of valuation, the historical volatility of the price of the Common Stock and the risk-free interest rate.

Significant assumptions used to value this liability were as follows:

	June 25, 2018 (Date of issuance)			June 30, 2018
Volatility		81.00	%		85.40	%
Risk free interest rate		2.10	%		2.10	%
Term (in years)		0.5			0.5
Dividend rate		0	%		0	%
Valuation date stock price	$	2.00		$	2.08
Probability of issuance		100	%		100	%

The Second Tranche Investors delivered exercise notices covering all of the Second Tranche Warrants during the period from September 25—28, 2018 (see Note 11). The Company revalued the Second Tranche Warrants liability immediately prior to the exercise by the Second Tranche Investors, measured as the excess of the closing share price on the exercise date over the actual warrant exercise price of $1.43 per share times the number of shares purchased. The resulting liability balance was then reclassified to equity.

The following table sets forth a summary of changes in the fair value of the Company’s derivative liabilities for which fair value is determined by Level 3 inputs for the year ended June 30, 2018 and for the six months ended December 31, 2018 (in thousands):

	Second Tranche Transaction Liability			Additional Advance Warrant Liability			Second Tranche Warrants Liability			Total
Balance at July 1, 2017	$	—		$	—		$	—		$	—
Initial fair value of derivative liability		4,734			69			18,165			22,968
Change in fair value		24,319			18			1,615			25,952
Reclassification to equity		—			(87	)		—			(87	)
Settlement		(29,053	)		—			—			(29,053	)
Balance at June 30, 2018		—			—			19,780			19,780
Change in fair value		—			—			18,886			18,886
Reclassification to equity		—			—			(38,666	)		(38,666	)
Balance at December 31, 2018	$	—		$	—		$	—		$	—

Also included in the change in fair value for the year ended June 30, 2018 was $326,000 of transaction costs that were expensed in connection with the issuance of the derivative liabilities.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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