Annual report pursuant to Section 13 and 15(d)

11. Derivative Liability

v2.4.1.9
11. Derivative Liability
 12 Months Ended
Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
11. 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:

 

Fair Value - Issue Date Measurement
Date 		Warrants Remaining
Contract
Term in
Years 		Exercise
Price 		Volatility Risk-free
Interest
Rate 		Fair
Value
Placement Agent Warrants December 9, 2013 16,500 2.40 $ 5.00 223% 0.44% $ 64,000
Investor - Series A Warrants February 26, 2014 450,620 1.50 $ 3.00 100% 0.44%   814,000
Investor - Series B Warrants February 26, 2014 1,400,000 1.50 $ 3.63 100% 0.44%   2,271,000
Placement Agent Warrants February 26, 2014 69,037 2.18 $ 3.00 100% 0.44%   143,000
                $ 3,292,000
Fair Value – Exercises                  
Investor - Series A Warrants March 18, 2014 315,434 1.44 $ 3.00 104% 0.44% $ 1,180,000
Investor - Series A Warrants March 19, 2014 134,186 1.44 $ 3.00 104% 0.44%   503,000
                $ 1,683,000
Fair Value – Reporting Date                  
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
Fair Value – Reporting Date                  
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

 

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,  
    2015     2014  
Beginning balance   $ 3,175,000     $ –  
Fair value of warrants issued     –       3,292,000  
Mark to market net unrealized (gain) loss     (3,164,000 )     1,566,000  
Reclassification to additional paid in capital     –       (1,683,000 )
Ending balance   $ 11,000     $ 3,175,000