Derivative Obligations

Series A Warrants

Series A warrants to purchase

404,41

common shares were issued and vested during the year ended

June 30, 2016.

At the time of issuance, the Company determined that because 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
	December 31, 2017			June 30, 2017			June 30, 2016
Market price of common stock	$	3.00		$	3.17		$	2.93
Expected volatility		107	%		110	%		99	%
Contractual term (years)		3.2			3.7			4.7
Discount rate		1.99	%		1.66	%		1.01	%
Dividend rate		0	%		0	%		0	%
Exercise price	$	8.00		$	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 gain(loss) of

$133,000

during the

six

months ended

December 31, 2017

and (

$60,000

) and

$3,395,000

during the years ended

June 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.

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, 2017,

June 30, 2017

and

2016:

	Derivative Obligation
	December 31, 2017		June 30, 2017		June 30, 2016
Balance	$	597,000	$	730,000	$	670,000
Level 1	$	-	$	-	$	-
Level 2	$	-	$	-	$	-
Level 3	$	597,000	$	730,000	$	670,000

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

’s derivative liabilities for the

six

months ended

December 31, 2017:

	Amount
Balance – July 1, 2015	$	-
Addition of derivative obligation at fair value on date of issuance		4,282,000
Reclassification of derivative obligation for exercised warrants		(58,000	)
Extinguishment of derivative obligation		(159,000	)
Change in fair value of derivative obligation		(3,395,000	)
Balance – June 30, 2016		670,000
Change in fair value of derivative obligation		60,000
Balance – June 30, 2017		730,000
Change in fair value of derivative obligation		(133,000	)
Balance – December 31, 2017	$	597,000