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Derivative Financial Instruments (Warrant Liability)
 9 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments (Warrant Liability)

8. Derivative Financial Instruments (Warrant Liability)

 

On June 11, 2012, we executed a Securities Purchase Agreement with respect to a private placement of an aggregate of 1,943,852 shares of our Class A common stock at $1.02 per share and warrants to purchase 1,457,892 shares of our Class A common stock at an initial exercise price of $1.32 per share, which was subsequently reduced to $1.26 (“June 2012 Warrants”). The June 2012 Warrants are exercisable for a period of five years, which began on December 11, 2012. We accounted for the June 2012 Warrants issued to investors in accordance with ASC 815-10. ASC 815-10 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative under ASC 815-10, including any freestanding financial instrument that is potentially settled in an entity’s own stock.

 

Due to certain adjustments that may be made to the exercise price of the June 2012 Warrants if we issue or sell shares of our Class A common stock at a price which is less than the then-current warrant exercise price, the June 2012 Warrants have been classified as a liability, as opposed to equity, in accordance with ASC 815-10 as it was determined that the June 2012 Warrants were not indexed to our Class A common stock.

 

Certain of the June 2012 Warrants were exercised during the third quarter of fiscal 2016, resulting in a re-measurement of their fair value, and recognition of the fair value change, at the date of exercise. The remaining June 2012 Warrants outstanding will continue to be re-measured at each subsequent financial reporting period until the warrants are exercised or expire. The change in fair value of the June 2012 Warrants was recorded in the consolidated statement of comprehensive income (loss) and was estimated during the quarter using the following assumptions under a Lattice option-pricing model:

 

   Exercise  Exercise  Exercise  Exercise   
Inputs into Lattice model for warrants:  1/5/16  1/8/16  1/14/16  1/25/16  3/31/16
Equivalent volatility   82.23%   81.02%   79.81%   78.01%   75.85%
Equivalent interest rate   0.91%   0.83%   0.78%   0.73%   0.62%
Floor  $1.1500   $1.1500   $1.1500   $1.1500   $1.1500 
Greater of estimated stock price or floor  $1.1500   $1.1500   $1.1500   $1.1500   $1.1500 
Probability price < strike price   55.70%   55.70%   55.60%   55.50%   54.10%
Fair value of call  $1.9400   $1.5500   $1.8100   $1.8900   $0.7600 
Probability of fundamental transaction occuring   5%   5%   5%   5%   5%

 

All warrants issued by us, other than the above noted June 2012 Warrants, are classified as equity.

 

The warrant liabilities are considered recurring Level 3 financial instruments, with a fair value of approximately $690,000 and $1.20 million at March 31, 2016 and June 30, 2015, respectively.

The following table summarizes the activity of Level 3 instruments measured on a recurring basis for the nine months ended March 31, 2016:

 

   March 31, 2016
   Warrant Liability
Fair value, June 30, 2015  $1,195,470 
Exercise of common stock warrants   (530,531)
Change in fair value of warrant liability   25,211 
Fair value, March 31, 2016  $690,150