FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with the fair value hierarchy described in Note 1, the following table shows the fair value of the Company’s financial instrument that is required to be measured at fair value as of March 31, 2016 and June 30, 2015:

($ in thousands)
March 31, 2016 (unaudited)	Level 1		Level 2		Level 3		Total
Common stock warrant liability, 3.4 million warrants exercisable at $2.6058 from September 18, 2011 through September 18, 2016	$	-	$	-	$	5,964	$	5,964

June 30, 2015	Level 1		Level 2		Level 3		Total
Common stock warrant liability, 3.9 million warrants exercisable at $2.6058 from September 18, 2011 through September 18, 2016	$	-	$	-	$	978	$	978

As of March 31, 2016 and June 30, 2015, the Company held no Level 1 or Level 2 financial instruments.

As of March 31, 2016 and June 30, 2015, the fair values of the Company’s Level 3 financial instrument totaled $5.964 million and $978 thousand for 3.4 million and 3.9 million warrants, respectively. The Level 3 financial instrument consists of common stock warrants issued by the Company in March 2011, which include features requiring liability treatment of the warrants. The fair value of warrants issued in March 2011 to purchase shares of the Company’s common stock is based on valuations performed by an independent third party valuation firm. The fair value was determined using proprietary valuation models using the quality of the underlying securities of the warrants, restrictions on the warrants and security underlying the warrants, time restrictions and precedent sale transactions completed in the secondary market or in other private transactions. There were no transfers of assets or liabilities between level 1, level 2, or level 3 during the three and nine months ended March 31, 2016 and 2015.

The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the three and nine months ended March 31, 2016 and 2015.

	Three months ended
($ in thousands)	March 31,
	2016			2015
Beginning balance	$	(1,865	)	$	(140	)
Increase due to change in fair value of warrant liabilities		(4,805	)		(1,101	)
Reduction due to warrant exercises		706			-
Ending balance	$	(5,964	)	$	(1,241	)

	Nine months ended
($ in thousands)	March 31,
	2016			2015
Beginning balance	$	(978	)	$	(585	)
Increase due to change in fair value of warrant liabilities		(5,692	)		(656	)
Reduction due to warrant exercises		706			-
Ending balance	$	(5,964	)	$	(1,241	)

During the third quarter of 2016, 500,000 warrants were exercised. In order to estimate the fair value effect, the fair values per warrant as determined by the independent third party as of December 31, 2015 and March 31, 2016 were used as reference points. The fair value on the day of exercise of each tranche of warrants is calculated between these two reference points based on the change in the closing USAT stock price from December 31, 2015 to the day of exercise.