Quarterly report pursuant to Section 13 or 15(d)

4. Derivative Liabilities

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4. Derivative Liabilities
 3 Months Ended
Jun. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
4. Derivative Liabilities

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 net-cash settlement features, which give the warrant holder the right to a 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, 2014 16,500 2.09 $ 5.00 128% 0.44% $ 37,000
Investor - Series A Warrants March 31, 2014 1,000 1.41 $ 3.00 128% 0.44%   1,000
Investor - Series B Warrants March 31, 2014 1,400,000 1.41 $ 3.63 128% 0.44%   2,958,000
Placement Agent Warrants March 31, 2014 69,037 2.09 $ 3.00 128% 0.44%   179,000
                $ 3,175,000
Warrant                  
Placement Agent Warrants June 30, 2014 16,500 1.84 $ 5.00 100% 0.47% $ 19,000
Investor - Series A Warrants June 30, 2014 1,000 1.16 $ 3.00 100% 0.11%   1,000
Investor - Series B Warrants June 30, 2014 1,400,000 1.16 $ 3.63 100% 0.11%   1,568,000
Placement Agent Warrants June 30, 2014 69,037 1.84 $ 3.00 100% 0.47%   109,000
                $ 1,697,000

 

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:

 

Three Months Ended June 30, 2014   Fair Value  
Beginning balance - April 1, 2014   $ 3,175,000  
Mark to market net unrealized gain     (1,478,000 )
Ending balance – June 30, 2014   $ 1,697,000