Annual report pursuant to Section 13 and 15(d)

Note 9 - Warrant Derivative Liability

v3.7.0.1
Note 9 - Warrant Derivative Liability
 12 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE
9
- Warrant Derivative Liability
 
In
2012,
we issued warrants to certain investors and a consultant (together, the
"2012
Warrant Holders") to purchase a total of
297,035
shares of our common stock at
$4.10
per share (the
"2012
Warrants").  The
2012
Warrants include exercise price re-set provisions (the "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.
 
Warrants classified as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting date.
The change in the fair value of the derivative liabilities income for the years ended
June 30, 2017
and
2016
totaled approximately
$14,000
and
$11,000,
respectively
, and is included as a component of other income (expense) in the accompanying consolidated statements of operations (see Note
11
)
. The change in the warrant derivative liability is primarily attributable to the exchange of approximately
93%
of the outstanding warrants at
June 30, 2016
into shares of common stock during fiscal
2017
(see Note
8
) and the decrease in the market value of our common stock. Additionally, on
August 23, 2016,
we proposed to our
2012
Warrant Holders that the Re-set Provision included in the
2012
Warrants be eliminated.  Upon receiving consents to eliminate the Re-set Provision from a majority of the
2012
Warrant Holders, the Re-set Provision and the related derivative liability were eliminated as of
January 23, 2017. 
The derivative liabilities had an average fair value per warrant and aggregate value as of
June 30, 2016
of
$0.10
and
$24,000,
respectively.
 
Significant assumptions used to estimate the fair value of the warrants classified as derivative liabilities are summarized below:
 
   
 
As of
June 30, 2016
  
Risk-free interest rate
  
 0.44%
- 
0.49
%
Expected life (average) (years)
  
 0.96
–
1.33
  
Stock price (based on prices on valuation date)
  
 
 
$0.50
  
Exercise price
  
 
 
$1.55
  
Expected volatility
  
 
 
110
 %
 
As discussed
in Note
8
above, during
May 2016
we sold shares of our common stock at a price of
$0.40
per share, thereby triggering an anti-dilution provision included in the warrants to purchase an aggregate of
297,035
shares of common stock upon exercise. As a result, the exercise price of such warrants was reduced to
$1.55
per share. The remaining terms, including expiration dates, of all effected warrants remain unchanged.