Derivative Obligations

Series A and Series B Warrants

Series A and Series B warrants to purchase 8,088,235 and 4,448,529 common shares, respectively, were issued and vested during the six months ended December 31, 2015 (see Note 3). At the time of issuance, the Company determined that as the warrants can be settled for cash at the holders’ option in a future fundamental transaction they constituted a derivative liability. The Company estimated the fair value of the derivative liability aggregating approximately $4,282, using a Binomial Lattice Valuation Model and the following assumptions:

	Series A						Series B
	August 31, 2015			December 31, 2015			August 31, 2015			December 31, 2015
Market price of common stock	$	0.68		$	0.18		$	0.68		$	0.18
Expected volatility		72	%		80	%		62	%		92	%
Contractual term (years)		5.5			5.2			1.5			1.2
Discount rate		1.54	%		1.8	%		0.57	%		0.65	%
Dividend rate		0	%		0	%		0	%		0	%
Exercise price	$	0.68		$	0.68		$	0.68		$	0.68

Expected volatilities are based on the historical volatility of the Company’s common stock. Contractual term is based on remaining term of the respective warrants. The discount rate represents the yield on U.S. Treasury bonds with a maturity equal to the contractual term.

The Company recorded a gain of approximately $2,180 and $3,606 during the three and six months ended December 31, 2015, representing the net change in the fair value of the derivative liability, which is presented as fair value change of derivative instruments, in the accompanying condensed consolidated statements of operations and comprehensive loss.

During the three months ended December 31, 2015, 503,696 Series B warrants were exercised on a cashless basis and the holders of the warrants received 2,134,203 shares of common stock. These warrants had an aggregate exercise date fair value of $33. The Company recorded a gain on the fair value change of derivative instruments for these warrants of $16 during the three months ended December 31, 2015. The Company recomputed the fair value of these warrants using the Binomial option pricing model (Level 3 inputs) using the following weighted average assumptions: expected volatility of 88%, discount rate of 0.57%, contractual term of 1.2 years and dividend rate of 0%. The Company recorded a loss on cashless exercise of warrants of $564, based on the fair market value of the Company’s common stock at the time of exercise, during the three months ended December 31, 2015.

In accordance with U.S. GAAP, the following table represents the Company’s fair value hierarchy for its financial liabilities measured at fair value on a recurring basis as of December 31, 2015:

	Balance at December 31, 2015		Level 1		Level 2		Level 3

Derivative obligation	$	643	$	-	$	-	$	643

The following table reflects the change in fair value of the Company’s derivative liabilities for the six months ended December 31, 2015:

	Amount
Balance - July 1, 2015	$	--
Addition of derivative obligation at fair value on date of issuance		4,282
Reclassification of derivative obligation for exercised warrants		(33	)
Change in fair value of derivative obligation		(3,606	)
Balance – December 31, 2015	$	643