XML 27 R16.htm IDEA: XBRL DOCUMENT v3.6.0.2
Fair Value Measurement
 6 Months Ended
Dec. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
Note 10 - Fair Value Measurement
 
Fair value measurements 
 
At December 31, 2016 and June 30, 2016, the fair value of derivative liabilities is estimated using a lattice model that is based on the individual characteristics of our warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread. The derivative liabilities are the only Level 3 fair value measures. 
 
At December 31, 2016 and June 30, 2016 the estimated fair values of the liabilities measured on a recurring basis are as follows:
 
 
 
Fair Value Measurements at
 
 
 
December 31, 2016:
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
Derivative liability – Series B debentures
 
$
-
 
 
 
-
 
 
$
28,284
 
Derivative liability – Series C debentures
 
 
-
 
 
 
-
 
 
 
104,957
 
Derivative liability – warrants
 
 
-
 
 
 
-
 
 
 
2,189,582
 
Total derivatives
 
$
-
 
 
$
-
 
 
$
2,322,823
 
 
 
 
Fair Value Measurements at
 
 
 
June 30, 2016:
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
Derivative liability – Series B debentures
 
$
-
 
 
 
-
 
 
$
203,030
 
Derivative liability – Series C debentures
 
 
-
 
 
 
-
 
 
 
343,673
 
Derivative liability – warrants
 
 
-
 
 
 
-
 
 
 
3,197,182
 
Total derivatives
 
$
-
 
 
$
-
 
 
$
3,743,885
 
 
In conjunction with the Company’s registered direct offerings of Units, consisting of the Company’s common stock and warrants, on September 12, 2013 and January 24, 2014 the Company issued 2,945,428, and 2,479,935 warrants, respectively, and, of which, 2,810,071 and 2,479,935, respectively, are outstanding at December 31, 2016. Additionally, the Company issued 58,910 and 76,306 warrants, respectively, to the placement agents which are also outstanding at December 31, 2016, for a total number of 5,425,222 warrants outstanding and issued pursuant to the aforesaid registered direct offerings.
 
The Company accounts for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements. Under applicable accounting guidance, stock warrants must be accounted for as derivative financial instruments if the warrants contain full-ratchet anti-dilution provisions, which preclude the warrants from being considered indexed to its own stock. The warrants described above contained a full-ratchet anti-dilution feature and are thus classified as a derivative liability.
 
The Company used a lattice model to calculate the fair value of the derivative warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full reset features.
  
The Warrants were valued as of December 31, 2016 and June 30, 2016 with the following assumptions:
 
-
The 5 year warrants issued on 9/12/13 and 1/24/14 included Investor and Placement Agent Warrants with an exercise price of $5.25 and $6.05 (subject to adjustments-full ratchet reset).
 
-
The stock price would fluctuate with the Company projected volatility.
 
-
The Holder would exercise the warrant as they become exercisable (effective registration at issuance) at target prices of the higher of 2 times the projected exercise/reset price or 2 times the stock price.
 
-
The next capital raise would fluctuate with an annual volatility. The projected volatility curve was based on historical volatilities of the Company for the valuation periods. The projected annual volatility for the valuation dates are:
 
1 Year
 
 
 
12/31/16
 
79
%
6/30/16
 
83
%
 
The primary factors driving the economic value of options are stock price; stock volatility; reset events and exercise behavior. Projections of these variables over the remaining term of the warrant are either derived or based on industry averages. Based on the above, a probability was assigned to each scenario for each future period, and the appropriate derivative value was determined for each scenario. The option value was then probability weighted and discounted to the present.
 
The following tables present the activity for liabilities measured at estimated fair value using unobservable inputs for the three months ended December 31, 2016:
 
 
 
Fair Value Measurement
 
 
 
Using Significant
 
 
 
Unobservable Inputs
 
 
 
Derivative
 
 
Derivative
 
 
Derivative
 
 
 
liability –
 
 
liability –
 
 
liability –
 
 
 
Series B
 
 
Series C
 
 
warrant
 
 
 
 
 
 
 
 
 
 
 
Beginning balance at July 1, 2016
 
$
203,030
 
 
$
343,673
 
 
$
3,197,182
 
Additions during the year
 
 
-
 
 
 
-
 
 
 
-
 
Change in fair value
 
 
(174,746)
 
 
 
(238,716)
 
 
 
(1,007,600)
 
Transfer in and/or out of Level 3
 
 
-
 
 
 
-
 
 
 
-
 
Balance at December 31, 2016
 
$
28,284
 
 
$
104,957
 
 
$
2,189,582