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Derivative Financial Instruments (Warrant Liability)
 3 Months Ended
Sep. 30, 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 up to 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 (the “June 2012 Warrants”). The June 2012 Warrants are exercisable for a period of five years beginning 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 that 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.

 

The fair value of the outstanding June 2012 Warrants was re-measured on September 30, 2016 to reflect their fair market value at the end of the current reporting period. The June 2012 Warrants will be re-measured at each subsequent financial reporting period until the warrants are either fully exercised or expire. The change in fair value of the June 2012 Warrants is recorded in the statement of comprehensive income and is estimated using the Lattice option-pricing model using the following assumptions:

 

Inputs into Lattice model for warrants:  Exercise
8/17/2016		   Exercise
9/15/2016		   9/30/2016 
Equivalent volatility   75.80%   62.50%   61.20%
Equivalent interest rate   0.62%   0.66%   0.63%
Floor  $1.1500   $1.1500   $1.1500 
Greater of estimated stock price or floor  $1.1500   $1.1500   $1.1500 
Probability price < strike price   37.60%   43.20%   42.90%
Fair value of call  $0.9200   $0.9300   $0.7300 
Probability of fundamental transaction occuring   5%   5%   5%

 

The warrant liabilities are considered recurring Level 3 financial instruments, with a fair value of approximately $621,000 and $717,000 at September 30, 2016 and June 30, 2016, respectively.

 

The following table summarizes the activity of Level 3 instruments measured on a recurring basis for the three months ended September 30, 2016:

 

   September 30, 2016
Warrant Liability		 
Fair value, June 30, 2016  $717,393 
Exercise of common stock warrants   (52,424)
Change in fair value of warrant liability   (43,500)
Fair value, June 30, 2016  $621,469