Derivative Obligation

Series A Warrants

Series A warrants to purchase

404,412

common shares were issued and vested during the year ended

June 30, 2016.

At the time of issuance, the Company determined that as such warrants can be settled for cash at the holders

’ option in a future fundamental transaction they constituted a derivative liability. The Company has estimated the fair value of the derivative liability, using a Binomial Lattice Valuation Model and the following assumptions:

	Series A
	September 30, 2017			June 30, 2017
Market price of common stock	$	3.56		$	3.17
Expected volatility		102	%		110	%
Contractual term (years)		3.4			3.7
Discount rate		1.7	%		1.66	%
Dividend rate		0	%		0	%
Exercise price	$	8.00		$	8.00

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

loss of

$13,000

and

$326,000

during the

three

months ended

September 30, 2017

and

2016,

respectively, 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 consolidated statements of operations and comprehensive loss.

he following table represents the Company’s fair value hierarchy for its financial liabilities measured at fair value on a recurring basis as of

September 30, 2017

and

June 30, 2017:

		Balance at September 30, 2017				Level 1				Level 2				Level 3
Derivative obligation		$	743,000			$	-			$	-			$	743,000

		Balance at June 30, 2017				Level 1				Level 2				Level 3
Derivative obligation		$	730,000			$	-			$	-			$	730,000

The following table reflects the change in fair value of the Company

’s derivative liabilities for the

three

months ended

September 30, 2017:

	Amount
Balance – July 1, 2017	$	730,000
Change in fair value of derivative obligation		13,000
Balance – September 30, 2017	$	743,000