Derivative Obligations

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 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:

	December 31, 2018		December 31, 2017		June 30, 2017
Market price of common stock		$0.27		$3.00		$3.17
Expected volatility		94%		107%		110%
Contractual term (years)		2.2		3.2		3.7
Discount rate		2.48%		1.99%		1.66%
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

$596,000

during the year ended

December 31, 2018,

$133,000

during the

six

months ended

December 31, 2017

and (

$60,000

) during the year ended

June 30, 2017,

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, 2018

and

2017:

	Derivative Obligation
	December 31, 2018		December 31, 2017
Balance		$1,000		$597,000
Level 1		$-		$-
Level 2		$-		$-
Level 3		$1,000		$597,000

The following table reflects the change in fair value of the Company’s derivative:

	Amount
Balance – June 30, 2017	$	730,000
Change in fair value of derivative obligation		(133,000	)
Balance – December 31, 2017		597,000
Change in fair value of derivative obligation		(596,000	)
Balance – December 31, 2018	$	1,000