Derivative Obligations

Series A Warrants

Series A warrants to purchase

40,441

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:

	Year Ended December 31,
	2019			2018
Market price of common stock	$	4.40		$	2.70
Expected volatility		96	%		94	%
Contractual term (years)		1.2			2.2
Discount rate		1.59	%		2.48	%
Dividend rate		0	%		0	%
Exercise price	$	80.00		$	80.00

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

$1,000

during the year ended

December 31, 2019

and

$596,000

during the year ended

December 31, 2018,

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, 2019

and

2018:

	Year Ended December 31,
Derivative Obligation	2019		2018
Balance	$	-	$	1,000
Level 1	$	-	$	-
Level 2	$	-	$	-
Level 3	$	-	$	1,000

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

	Amount
Balance – December 31, 2017	$	597,000
Change in fair value of derivative obligation		(596,000	)
Balance – December 31, 2018		1,000
Change in fair value of derivative obligation		(1,000	)
Balance – December 31, 2019	$	--