Annual report pursuant to Section 13 and 15(d)

11. Derivative Liability

v3.5.0.1
11. Derivative Liability
 12 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liability

Warrants Issued in Conjunction with the Company’s December 9, 2013 and February 26, 2014 Registered Direct Offerings

 

The Company deems financial instruments which require net-cash settlement as either an asset or a liability. The common stock purchase warrants issued in conjunction with the Company’s December 9, 2013 and February 26, 2014 registered direct offerings contain a net-cash settlement feature which give the warrant holder the right to net-cash settlement in the event certain transactions occur. Pursuant to the terms of the warrants, if such a transaction occurs the warrant holder will be entitled to a net-cash settlement value calculated using the Black-Scholes valuation model using an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the HVT function on Bloomberg, an expected term equal to the remaining term of the warrants, and applicable risk-free interest rate corresponding to the U.S. Treasury.

 

The derivative liabilities relating to the warrants with net-cash settlement provisions were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:

 

    Measurement
Date		   Warrants     Remaining
Contract
Term in
Years		     Exercise
Price		     Volatility     Risk-free
Interest
Rate		     Fair
Value		  
Warrant                                                    
Placement Agent Warrants   March 31, 2015     16,500       1.09       5.00       100%       0.26%     $ 1,000  
Investor - Series A Warrants   March 31, 2015     1,000       0.41       3.00       100%       0.14%       –  
Investor - Series B Warrants   March 31, 2015     1,400,000       0.41       3.63       100%       0.14%       5,000  
Placement Agent Warrants   March 31, 2015     69,037       1.09       3.00       100%       0.26%       5,000  
                                                $ 11,000  
                                                     
Warrant                                                    
Placement Agent Warrants   March 31, 2016     16,500       0.09       5.00       100%       0.21%     $ –  
Placement Agent Warrants   March 31, 2016     69,037       0.09       3.00       100%       0.21%       –  
                                                $ –  

 

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

    Year Ended March 31,  
    2016     2015  
Beginning balance   $ 11,000     $ 3,175,000  
Fair value of warrants issued     –       –  
Mark to market net unrealized gain     (11,000 )     (3,164,000 )
Reclassification to additional paid in capital     –       –  
Ending balance   $ –     $ 11,000