Annual report pursuant to Section 13 and 15(d)

Note 8 - Warrant Derivative Liability

v3.5.0.2
Note 8 - Warrant Derivative Liability
 12 Months Ended
Jun. 30, 2016
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE
8
- Warrant Derivative Liability
 
In 2012, we issued warrants to certain investors and a consultant (together, the "2012 Warrant Holders") to purchase a total of 2,970,347 shares of our common stock at $0.41 per share (the "2012 Warrants").  The 2012 Warrants include exercise price re-set provisions should future equity offerings be offered at a price lower than the warrant exercise price.  In accordance with ASC No. 815, the re-set provisions are recorded
as derivative liabilities in the accompanying consolidated financial statements.
 
W
arrants classified as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting date.  Using the Monte Carlo simulation model these warrants were determined to have a fair value per share and aggregate value as of June 30, 2016 and an aggregate value as of June 30, 2015 as follows:
 
   
Issued
Warrants
    
Fair
Value Per
Share
$ as of
June 30,
2016
    
Total
Fair Value in
Aggregate
$ as of
June 30,
2016
    
Total
Fair Value in
Aggregate
$ as of
June
30, 2015
  
                                 
June 2012 Warrants
     562,551     $ 0.008     $ 5,000     $ 4,000  
July 2012 Warrants
     338,013     $ 0.009     $ 3,000     $ 3,000  
August 2012 Warrants
     120,719     $ 0.010     $ 1,000     $ 1,000  
October 2012 Warrants
     48,287     $ 0.012     $ 1,000     $ 1,000  
Advisory Agreement Warrants
     1,837,777     $ 0.008     $ 14,000     $ 14,000  
Total
     2,907,347             $ 24,000     $ 23,000  
 
Significant assumptions used to estimate the fair value of the warrants classified as derivative liabilities are summarized below:
 
   
As of
June 30, 2016
    
 
As of
June 30, 2015
 
  
Risk-free interest rate
     0.44%-0.49 %     0.62%-0.76 %
Expected life (average) (years)
     .96–1.33       1.96-2.34  
Stock price (based on prices on valuation date)
   $ 0.05     $ 0.05  
Exercise price
   $ 0.15     $ 0.27  
Expected
volatility
     110 %     100 %
 
As discussed in Note 7 above, during May 2016 we sold shares of our common stock at a price of $0.04 per share
, thereby triggering an anti-dilution provision included in the warrants to purchase an aggregate of 2,907,347 shares of common stock upon exercise. As a result, the exercise price of such warrants was reduced to $0.15 per share. The remaining terms, including expiration dates, of all effected warrants remain unchanged.
 
The change in the estimated fair value of warrants classified as derivative liabilities during the year ended June 30, 2016 and 2015 was $11,000 and $548,000, respectively, and is included as a component of other income (expense) in the accompanying consolidated statements of operations (see Note 10).