| 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 |
|
|