Fair Value Measurements

9 Months Ended

Mar. 31, 2018

10.

Fair Value Measurements

The following tables summarize the Company’s assets and liabilities carried at fair value measured on a recurring basis at March 31, 2018 and June 30, 2017 by valuation hierarchy (in thousands):


	March 31, 2018
			Quoted prices in		Significant other		Significant
	Total carrying		active markets		observable inputs		unobservable inputs
	value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	6,800	$	6,800	$	—	$	—

	$	6,800	$	6,800	$	—	$	—

Liabilities:
Derivative liabilities	$	6,957	$	—	$	—	$	6,957

	$	6,957	$	—	$	—	$	6,957


	June 30, 2017
			Quoted prices in		Significant other		Significant
	Total carrying		active markets		observable inputs		unobservable inputs
	value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	13,521	$	13,521	$	—	$	—

	$	13,521	$	13,521	$	—	$	—

Financial instruments that potentially subject the Company to concentrations of credit risk have historically consisted principally of cash and cash equivalents. At March 31, 2018 and June 30, 2017, substantially all of the Company’s interest-bearing cash equivalent balances were concentrated in one U.S. Government money market fund that has investments consisting primarily of U.S. Government Agency debt, U.S. Treasury Repurchase Agreements and U.S. Government Agency Repurchase Agreements. These deposits may be redeemed upon demand and, therefore, generally have minimal risk. The Company’s cash equivalents are classified within Level 1 on the basis of valuations using quoted market prices.

The Second Tranche Transaction was determined to be liability classified (see Note 9), which requires that the liability be measured at fair value each period with changes in fair value being recorded as component of net income (loss) in the statement of operations. This valuation was determined to be a level 3 valuation because it includes unobservable inputs. The Second Tranche Transaction liability was valued using a Monte Carlo simulation valuation model. This model incorporated several inputs, including the Company’s common stock price on the date of valuation, the historical volatility of the price of the Company’s common stock, the risk-free interest rate and management’s assessment of the probability and timing of the issuance of the units occurring. A significant fluctuation in the Company’s stock price or the Company’s estimate of the number of units to be issued could result in a material increase or decrease in the fair value of the Second Tranche liability. Significant assumptions used to value this liability are as follows:


	March 28, 2018 (Date of Issuance)	March 31, 2018
Volatility	54.20%	52.50%
Risk free interest rate	1.70%	1.70%
Estimated date of stockholder approval	June 2018	June 2018
Estimated number of units issuable	26,900,000	25,300,000
Valuation date stock price	$1.07	$1.22

The Additional Advance Warrants were determined to be liability classified (see Note 8), which requires that the liability be measured at fair value each period with changes in fair value being recorded as a component of net income (loss) in the condensed consolidated statement of comprehensive income (loss). This valuation was determined to be a level 3 valuation because it includes unobservable inputs. The Additional Advance Warrant liability was valued using a Monte Carlo simulation valuation model. This model incorporated several inputs including the Company’s common stock price on the date of valuation, the historical volatility of the price of the Company’s common stock, the risk-free interest rate and management’s assessments of the probability of the Additional Advance being drawn upon. Significant assumptions used to value this liability are as follows:


	March 28, 2018 (Date of Issuance)			March 31, 2018
Volatility		55.20	%		55.20	%
Risk free interest rate		1.70	%		1.70	%
Term (in years)		7			7
Dividend rate		0	%		0	%
Valuation date stock price	$	1.07		$	1.22
Probability of issuance		80	%		80	%

The following table sets forth a summary of changes in the fair value of the Company’s derivative liability for which fair value is determined by Level 3 inputs (in thousands):


Balance at June 30, 2017	$	—
Initial fair value of warrant liability		4,632
Change in fair value		2,325

Balance at March 31, 2018	$	6,957

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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