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Derivative Financial Instruments (Warrant Liability)
 12 Months Ended
Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments (Warrant Liability)

17.       Derivative Financial Instruments (Warrant Liability)

 

On June 11, 2012, the Company executed a Securities Purchase Agreement with respect to a private placement of an aggregate of 1,943,852 shares of its Class A common stock at $1.02 per share and warrants to purchase up to 1,457,892 shares of its Class A common stock at an initial exercise price of $1.32 per share, which was subsequently reduced to $1.26, and then to $1.22 on December 21, 2016 as a result of our public offering (the “June 2012 Warrants”). The June 2012 Warrants are exercisable for a period of five years beginning on December 11, 2012. The Company 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 the Company issues or sell shares of its 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 the Company’s Class A common stock.

 

The fair value of the outstanding June 2012 Warrants was re-measured on June 30, 2016 and 2017 to reflect their fair market value at the end of the current reporting period. As of June 30, 2017, there were 329,195 shares of Class A common stock underlying our outstanding June 2012 Warrants that were issued to investors. These warrants will be re-measured at each subsequent financial reporting period until the warrants are either fully exercised or expire. There are also 172,279 shares of Class A common stock underlying the outstanding June 2012 Warrants which were issued to investment bankers, that do not require fair value re-measurement as they contain different provisions. 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:

 

   As of June 30,
Inputs into Lattice model for warrants:  2017  2016
Equivalent volatility   63.13%   75.50%
Equivalent interest rate   1.13%   0.50%
Floor  $1.15   $1.15 
Stock price  $2.70   $1.15 
Probability price < strike price   4.70%   55.90%
Fair value of call  $1.49   $0.79 
Probability of fundamental transaction occuring   0%   5%

 

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

 

The warrant liabilities are considered a recurring Level 3 fair value measurement, with a fair value of approximately $490,500 and $717,000 at June 30, 2017 and 2016, respectively.

 

The following table summarizes the activity of Level 3 financial instruments measured on a recurring basis for the years ended June 30, 2017 and 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   52,454 
Fair value, June 30, 2016  $717,393 
Exercise of common stock warrants   (694,436)
Change in fair value of warrant liability   467,543 
Fair value, June 30, 2017  $490,500