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Fair Value Measurements
 3 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurements

8.Fair Value Measurements

 

At September 30, 2022 and June 30, 2022, the estimated fair value of derivative liabilities measured on a recurring basis are as follows:

 

                 
   Fair Value Measurements at 
   September 30, 2022 
   Level 1   Level 2   Level 3   Total 
                 
Derivative liability - Warrants  $-   $-   $442,592   $442,592 
Derivative liability - Conversion option on notes payable   -    -    506,511    506,511 
Total derivatives  $-   $-   $949,103   $949,103 

 

   Fair Value Measurements at 
   June 30, 2022 
   Level 1   Level 2   Level 3   Total 
                 
Derivative liability - Warrants  $-   $-   $194,531   $194,531 
Derivative liability - Conversion option on note payable   -    -    188,030    188,030 
Total derivatives  $-   $-   $382,561   $382,561 

 

The following table presents the activity for liabilities measured at fair value using unobservable inputs for the three months ended September 30, 2022 and 2021:

 

         
   Derivative liabilities - Warrants   Derivative liability - Conversion Option on Convertible Debenture 
         
Balance at July 1, 2022  $194,531   $188,030 
Additions to level 3 liabilities   -    - 
Change in in fair value of level 3 liability   248,061    318,481 
Transfer in and/or out of Level 3   -    - 
Balance at September 30, 2022  $442,592   $506,511 

 

   Derivative liabilities - Warrants     Derivative liability - Conversion Option on Convertible Debenture  
           
Balance at July 1, 2021  $         -   $        - 
Additions to level 3 liabilities   -    - 
Change in fair value of level 3 liability   -    - 
Transfer in and/or out of Level 3   -    - 
Balance at September 30, 2021  $-   $- 

 

The fair values of derivative liabilities for the warrants and conversion option at September 30, 2022 in the accompanying balance sheet, were approximately $443,000 and approximately $507,000, respectively. The total change in the fair value of the derivative liabilities totaled approximately $567,000 for the three months ended September 30, 2022, and accordingly, was recorded in the accompanying statement of operations. The assumptions used in the Black Scholes model to value the derivative liabilities at September 30, 2022 included the closing stock price of $2.49 per share, and for the warrants the exercise price of $5.82, 5-year term, risk free rate of 4.06% and volatility of 79.9%. and for the embedded derivative liability of the conversion option, the conversion price of $6.98; 3-year term, risk free rate of 4.3% and volatility of 83.9%.

 

Derivative liability – Warrants

 

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 that are precluded from being indexed to the Company’s own stock because of full-rachet and anti-dilution provisions or adjustments to the strike price due to an occurrence of a future event; are accounted as derivative financial instruments. The warrants issued on November 30, 2021 in connection with the Avenue loan financing were not considered to be indexed to the Company’s own stock, and accordingly, were recorded as a derivative liability at fair value in the accompany balance sheet at September 30, 2022.

 

The Black Scholes model was used to calculate the fair value of the warrant derivative to bifurcate the warrant derivative amount from the Avenue loan amount funded. The warrants are recorded at their fair values at the date of issuance and remeasured at September 30, 2022. The assumptions used for the fair value calculation at November 30, 2021 follows: the closing stock price of $6.44 per share; the exercise price of $5.82; 5 year term; a risk free rate of 1.14% and volatility of 74.4%.

 

Embedded derivative liability – Conversion Option

 

The embedded derivative represents the optional conversion feature of up to $5.0 million of the outstanding Avenue note amounts meets the definition of a derivative and requires bifurcation from the loan amount.

 

The Black Scholes model was used to calculate the fair value of the embedded derivative to bifurcate the embedded derivative amount representing the conversion option from the Avenue loan amount funded. The assumption used for the fair value calculation at November 30, 2021 follows: the closing stock price of $6.44 per share; the conversion price of $6.98; 3 year term; risk free rate of 0.81% and volatility of 76.85%.