Annual report pursuant to Section 13 and 15(d)

DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCY

v3.21.2
DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCY
12 Months Ended
Jun. 30, 2021
DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCY  
DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCY

NOTE 6 — DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCY

As discussed in Note 7, the Company reduced the number of its authorized shares of common stock from 500.0 million shares to 10.0 million shares as of February 17, 2021. At the time of this change, the Company had approximately 8.4 million shares of common stock issued and outstanding, plus approximately 2.4 million shares that were required to be reserved for issuance pursuant to the Company’s stock option plans and outstanding warrant agreements. Accordingly, a total of 10.8 million shares were required to be authorized, which resulted in a deficiency of approximately 0.8 million shares that were unavailable to settle outstanding stock options and warrants as of February 17, 2021. Since the Company could have been required to settle in cash for up to 0.8 million shares, liability classification for these instruments was required beginning on February 17, 2021.

The Company’s accounting policy provided for selection of the stock options and warrant agreements with the earliest issuance dates to compute the estimated fair value of the financial instruments associated with the authorized share deficiency. These stock options and warrants were generally those with the highest exercise prices that were least likely to be exercised. The fair value of such stock options and warrants amounted to $3.6 million, which was reclassified from shareholders’ equity to a derivative liability as of February 17, 2021. As a result of the expiration of stock options and warrants for approximately 0.1 million shares from February 2021 through May 2021, the authorized share deficiency was reduced to approximately 0.7 million shares as of May 26, 2021, when the Company’s shareholders approved an increase in authorized shares from 10.0 million shares to 40.0 million shares.

Presented below is a summary of the derivative liability associated with the stock options and warrants that were subject to the Company’s accounting policy as of February 17, 2021 and May 26, 2021 (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

February 17, 2021

 

 May 26, 2021

 

 

Stock

 

 

 

 

 

 

 

Stock

 

 

 

 

 

 

 

    

Options

    

Warrants

    

Total

    

Options

    

Warrants

    

Total

Number of shares

 

 

253

 

 

527

 

 

780

 

 

212

 

 

521

 

 

733

Weighted average fair value per share

 

$

6.46

 

$

3.71

 

$

4.60

 

$

4.42

 

$

1.65

 

$

2.45

Fair value of derivative liability

 

$

1,638

 

$

1,953

 

$

3,591

 

$

935

 

$

861

 

$

1,796

 

Due to the reduction in fair value of the derivative liability from $3.6 million as of February 17, 2021 to $1.8 million as of May 26, 2021, the Company recognized a non-cash change in fair value of approximately $1.8 million in the accompanying consolidated statements of operations for the fiscal year ended June 30, 2021. The primary factor that resulted in this gain was a reduction in the market price in the Company’s common stock from $11.99 per share on February 17, 2021 to $7.69 per share on May 26, 2021 when the authorized share deficiency was cured. Fair value of the stock options and warrants set forth above was determined using the BSM option-pricing model with the following weighted-average assumptions as of February 17, 2021 and May 26, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 17, 2021

 

May 26, 2021

 

 

 

Stock

 

 

 

 

 

 

 

Stock

 

 

 

 

 

 

 

 

    

Options

    

Warrants

    

Total

    

Options

    

Warrants

    

Total

 

Market price of common stock

 

$

11.99

 

$

11.99

 

$

11.99

 

$

7.69

 

$

7.69

 

$

7.69

 

Exercise price

 

$

84.19

 

$

63.88

 

$

70.48

 

$

69.96

 

$

63.67

 

$

65.49

 

Risk-free interest rate

 

 

0.6

%  

 

0.1

%  

 

0.3

%  

 

1.0

%  

 

0.2

%  

 

0.4

%

Dividend rate

 

 

0.0

%  

 

0.0

%  

 

0.0

%  

 

0.0

%  

 

0.0

%  

 

0.0

%

Remaining contractual term (years)

 

 

4.6

 

 

1.5

 

 

2.5

 

 

5.2

 

 

1.3

 

 

2.4

 

Historical volatility

 

 

112.6

%  

 

123.5

%  

 

119.9

%  

 

119.1

%  

 

99.6

%  

 

105.2

%