Derivative Financial Instruments (Warrant Liability)

3 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments (Warrant Liability)

10. Derivative Financial Instruments (Warrant Liability)

On June 11, 2012, we executed a Securities Purchase Agreement with respect to a private placement of an aggregate of 1,943,852 shares of our Class A common stock at $1.02 per share and warrants to purchase up to 1,457,892 shares of our Class A common stock at an initial exercise price of $1.32 per share, which was subsequently reduced to $1.26 and then to $1.22 on December 21, 2016 as a result of our public offering (the “June 2012 Warrants”). The June 2012 Warrants are exercisable for a period of five years beginning on December 11, 2012. We accounted for the June 2012 Warrants issued to investors in accordance with ASC 815-10. ASC 815-10 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative under ASC 815-10, including any freestanding financial instrument that is potentially settled in an entity’s own stock. 

Due to certain adjustments that may be made to the exercise price of the June 2012 Warrants if we issue or sell shares of our Class A common stock at a price that is less than the then-current warrant exercise price, the June 2012 Warrants have been classified as a liability, as opposed to equity, in accordance with ASC 815-10 as it was determined that the June 2012 Warrants were not indexed to our Class A common stock.

The fair value of the outstanding June 2012 Warrants was re-measured on September 30, 2017 to reflect their fair market value at the end of the current reporting period. As of September 30, 2017, there were 304,195 shares of Class A common stock underlying our outstanding June 2012 Warrants. The June 2012 Warrants will be re-measured at each subsequent financial reporting period until the warrants are either fully exercised or expire. There are also 172,279 shares of Class A common stock underlying the outstanding June 2012 Warrants which were issued to investment bankers, that do not require fair value re-measurement as they contain different provisions. The change in fair value of the June 2012 Warrants is recorded in the statement of comprehensive income and is estimated using the Lattice option-pricing model using the following assumptions as of the end of the respective periods:

	September 30,			June 30,
Inputs into Lattice model for warrants:	2017			2017
Equivalent volatility		21.06	%		63.13	%
Equivalent interest rate		1.03	%		1.13	%
Floor	$	1.15		$	1.15
Stock price	$	2.56		$	2.70
Probability price < strike price		0.00	%		4.70	%
Fair value of call	$	1.34		$	1.49
Probability of fundamental transaction occuring		0	%		0	%

The warrant liabilities are considered recurring Level 3 financial instruments, with a fair value of approximately $407,600 and $490,500 at September, 2017 and June 30, 2017, respectively. During the three months ended September 30, 2017, warrants for 25,000 shares were exercised.

The following table summarizes the activity of Level 3 instruments measured on a recurring basis for the three months ended September 30, 2017:

	Warrant Liability
Fair value, June 30, 2017	$	490,500
Exercise of common stock warrants		(34,500	)
Change in fair value of warrant liability		(48,380	)
Fair value, September 30, 2017	$	407,620