Derivative Obligations

Series A and Series B Warrants

Series A warrants and Series B warrants to purchase 404,412 and 222,427 common shares, respectively, were issued and vested during the year ended June 30, 2016 (see Note 5). 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 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			June 30, 2016			August 31, 2015			February 16, 2016
Market price of common stock	$	13.60		$	2.93		$	13.60		$	4.00
Expected volatility		72	%		99	%		62	%		137	%
Contractual term (years)		5.5			4.7			1.5			1
Discount rate		1.54	%		1.01	%		0.57	%		0.5	%
Dividend rate		0	%		0	%		0	%		0	%
Exercise price	$	13.60		$	8.00		$	13.60		$	13.60

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 $3,395 during the year ended June 30, 2016, 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.

On February 16, 2016, the holders of the Series B warrants exercised 26,528 warrants on a cashless basis and received 125,000 shares of common stock. These warrants had an aggregate exercise date fair value of $25. The Company recomputed the fair value of these warrants using the Binomial option pricing model with the assumptions noted above for February 16, 2016. During the year ended June 30, 2016, an additional 25,185 Series B warrants were exercised on a cashless basis and the holders of the warrants received 106,711 shares of common stock. These warrants had an aggregate exercise date fair value of $33. 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 $1,039 for the year ended June 30, 2016, based on the difference between the fair market value of the Company’s common stock at the time of exercise and the fair value of the warrants exercised.

In conjunction with the Consent, Repayment and Release Agreement, the Series A exercise price was changed from $13.60 to $8.00 and the remaining Series B warrants were cancelled (see Note 5).

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 June 30, 2016:

	Balance at June 30, 2016		Level 1		Level 2		Level 3

Derivative obligation	$	670	$	-	$	-	$	670

The following table reflects the change in fair value of the Company’s derivative liabilities for the year ended June 30, 2016:

	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		(58	)
Extinguishment of derivative obligation		(159	)
Change in fair value of derivative obligation		(3,395	)
Balance – June 30, 2016	$	670