Fair Value Measurement

6 Months Ended

Dec. 31, 2019

Note 9 - Fair Value Measurement

Fair value measurements

At December 31, 2019 and June 30, 2019 the estimated fair values of the liabilities measured on a recurring basis are as follows:


	Fair Value Measurements at
	December 31, 2019:
	(Level 1)		(Level 2)		(Level 3)

Derivative liability - warrants	$	—	$	—	$	1,371,157


	Fair Value Measurements at
	June 30, 2019:
	(Level 1)		(Level 2)		(Level 3)

Derivative liability - warrants	$	—	$	—	$	1,645,606

In a concurrent private placement on February 27, 2019, the purchasers received warrants (the "Warrants") to purchase up to 347,223 shares of common stock. The Warrants have an exercise price of $12.20 per share, shall be exercisable on the six month anniversary of issuance and will expire five (5) years thereafter. The Warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise.

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 contained in ASU 2017-11, adopted by the Company on January 1, 2019, stock warrants are to be accounted for as equity if the warrants contain full-ratchet anti-dilution provisions. The warrants issued on February 27, 2019, contained a full-ratchet anti-dilution feature but also contained other adjustment features which required that the warrants be 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 provisions.

The Warrants were valued as of December 31, 2019 and June 30, 2019 with the following assumptions:

The 5.5 year warrants issued on February 27, 2019 (expire February 27, 2024) included with an exercise price of $12.20 (subject to adjustments - full ratchet reset and fundamental transactions).

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 reset exercise price or 2 times the stock price.

The holder would exercise the warrant at maturity if the stock price was above the project reset prices.

The next capital raise is projected to occur during 2020 (annually 12 months from issuance) at prices approximating 100% of market triggering a reset event and exercise price adjustment.

The fundamental transaction projected with 0% probability increasing 1% per quarter to maximum of 10% and settlement based on the Black Scholes value.

The stock price would fluctuate with an annual volatility. The projected volatility curve was based on historical volatilities of the Company for the valuation period.


1 Year
12/31/19	84.3	%
6/30/19	76.1	%

The following tables present the activity for liabilities measured at estimated fair value using unobservable inputs for the six months ended December 31, 2019:

Fair Value Measurement


	Fair Value Measurement
	Using Significant
	Unobservable Inputs
		Derivative
		Liability-
		Warrant
Beginning balance at July 1, 2019	$	1,645,606
Additions during the year		—
Change in fair value		(274,449)
Transfer in and out of Level 3		—
Balance at December 31, 2019	$	1,371,157

- 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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