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NOTE 10 - Derivative Liability
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Mar. 31, 2012
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| Derivatives and Fair Value [Text Block] |
NOTE
10 — Derivative Liability
The
Company deems financial instruments which do not have fixed
settlement provisions to be derivative instruments. The
common stock purchase warrants issued with the
Company’s August 13, 2007 private placement, and the
common stock purchase warrants issued to the placement agent
in the transaction, do not have fixed settlement provisions
because their exercise prices may be lowered if the Company
issues securities at lower prices in the future. The Company
was required to include the reset provisions in order to
protect the warrant holders from the potential dilution
associated with future financings. At issuance, the warrants
were recognized as equity instruments and have since been
re-characterized as derivative liabilities. Accordingly, the
warrant obligations are adjusted to fair value at the end of
each reporting period with the change in value reported in
the statement of operations. Such fair values were estimated
using the Black-Scholes valuation model. Although the Company
determined the common stock warrants include an implied
down-side protection feature, it performed a Monte-Carlo
simulation and concluded that the value of the feature is de
minimis between the two models and the use of the
Black-Scholes valuation model is considered to be a
reasonable method to value the warrants. The Company will
continue to adjust the derivative liability for changes in
fair value until the earlier of the exercise, at which time
the liability will be reclassified to stockholders’
(deficiency) equity, or expiration of the warrants.
The
derivative liability was valued using the Black-Scholes
option valuation model and the following assumptions on the
following dates:
The
fair value of the derivative liability decreased to $55,000
at March 31, 2012 from $337,000 at March 31, 2011.
Accordingly, the Company decreased the derivative liability
by $282,000 to reflect the change in fair value at March 31,
2012. This amount is included as a gain due to the change in
the fair value of derivative instruments in the accompanying
consolidated statement of operations for the year ended March
31, 2012. 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:
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