Fair Value Measurements

3 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

6. Fair Value Measurements

On September 22, 2020, concurrent with the closing of the Offering; the warrants related to derivative liabilities were automatically exercised in full and the convertible Debenture was paid off in cash expiring the conversion option. The fair value of the derivative liabilities - warrants and derivative liability - conversion option on convertible Debenture prior to redemption at September 22, 2020 was $13.1 million, and the change in the fair value of $8.3 million from June 30, 2020 was recorded in the accompanying condensed Statements of Operations. At September 22, 2020, the derivative liabilities, both the warrants and expired conversion option totaling $ 13.1 million were then recorded as additional paid in capital upon automatic exercise of the warrants and payoff of the Debenture.

At September 30, 2020 and June 30, 2020, the estimated fair value of derivative liabilities measured on a recurring basis are as follows:

	Fair Value Measurements at
		September 30, 2020
		Level 1		Level 2		Level 3		Total
Derivative liability - Warrants	$	—	$	—	$	—	$	—
Derivative liability -Conversion option on convertible debenture		—		—		—		—
Total derivatives	$	—	$	—	$	—	$	—

	Fair Value Measurements at
	June 30, 2020
	Level 1		Level 2		Level 3		Total
Derivative liability - Warrants	$	—	$	—	$	16,411,504	$	16,411,504
Derivative liability -Conversion option on convertible debenture		—		—		5,000,800		5,000,800
Total derivatives	$	—	$	—	$	21,412,304	$	21,412,304

The following table presents the activity for liabilities measured at fair value using unobservable inputs for the three months ended September 30, 2020: 

	Derivative liabilities - Warrants			Derivative liability - Conversion Option on Convertible Debenture
Beginning balance at July 1, 2020	$	16,411,504		$	5,000,800
Additions to level 3 liabilities		—			—
Change in in fair value of level 3 liability		(6,054,121	)		(2,225,798	)
Transfer in and/or out of Level 3		(10,357,383	)		(2,775,002	)
Balance at September 30, 2020	$	—		$	—

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 anti-dilution provisions or the adjustments to the strike price due to an occurrence of a future event; are accounted for as derivative financial instruments. The stock warrants issued September 24, 2019 were not considered indexed to the Company’s own stock because of the adjustment to strike price, an occurrence of a future event such as the Company’s pending capital raise. 

The warrants associated with the level 3 liability were issued on September 24, 2019 and were valued using the Black-Scholes-Merton model. The valuation at June 30, 2020 used the following assumptions: stock price of $14, exercise price of $4.00, term of 5 year expiring April 2025, volatility of 76.61%, dividend yield of 0%, and risk-free interest rate of 0.29%.

The valuation at September 22, 2020 of the warrants associated with equity financing prior to their automatic exercise in full used were the following assumptions: stock price of $9.55, exercise price of $4.00, term of 4 year expiring September 2024, volatility of 79.69%, dividend yield of 0%, and risk-free interest rate of 0.21%. (See note 5 “Related Party Transactions”)

Derivative liability – Conversion option in convertible debenture

The Company recognized a derivative liability for the conversion option of the $2 million 10% OID Convertible Delayed Draw Debenture; which may be convertible into shares of common stock at $4.00 per share prior to the completion of an offering or, subsequent to the closing of the offering, the lower of $4.00 or 80% of the offering price per unit to the public in such offering and are mandatorily redeemable upon such closing at 100% of the accrued principal amount and unpaid interest to the date of redemption. The valuation at June 30, 2020 used the following assumptions: stock price of $14, conversion price of $4.00, term of 0.25 year expiring September 2020, volatility of 62.47%, dividend yield of 0%, and risk-free interest rate of 0.16%.

The valuation at September 22, 2020 used the following assumptions: stock price of $9.55, conversion price of $4.00, term of 0.008 year expiring September 2020, volatility of 45.49%, dividend yield of 0%, and risk-free interest rate of 0.01%.

The related Debenture was paid off in cash on September 22, 2020, expiring the conversion option. (See note 5 “Related Party Transactions”)