Sonoma Pharmaceuticals, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

10. Derivative Liabilities (Tables)

10. Derivative Liabilities (Tables)

12 Months Ended

Mar. 31, 2013

Schedule of assumptions for valuation of derivatives

The derivative liability 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:

	Modification Incremental Fair Value October 30, 2012		Pre-modification October 30, 2012		April 22, 2012
Expected life		4.00 years		2.00 years		2.50 years
Risk-free interest rate		0.74%		0.30%		0.40%
Dividend yield		0.00%		0.00%		0.00%
Volatility		89%		100%		100%
Warrants outstanding		495,874		495,874		495,874
Fair value of warrants	$	1,636,000	$	1,254,000	$	2,347,000

Summary of the changes in the fair value of Level 3 financial liabilities

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,
	2013			2012
Beginning balance	$	(55	)	$	(337	)
Fair value of warrants issued		(2,347	)		–
Mark to market net unrealized gain		1,148			282
Incremental fair value adjustment due to modification		(382	)		–
Reclassification to additional paid in capital		1,636			–
Ending balance	$	–		$	(55	)

- Definition

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring and/or nonrecurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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