Sonoma Pharmaceuticals, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

5. Derivative Liabilities (Tables)

5. Derivative Liabilities (Tables)

3 Months Ended

Jun. 30, 2012

Derivative liability related to warrants without fixed settlement provisions

The derivative liability related to warrants without fixed settlement provisions were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:

	June 30, 2012			March 31, 2012
Expected term		0.62 years			0.87 years
Risk-free interest rate		0.18	%		0.18	%
Dividend yield		0.00	%		0.00	%
Volatility		68.0	%		89.0	%
Warrants outstanding		835,935			762,876
Fair value of warrants	$	–		$	55,000

Derivative liability related to warrants with net-cash settlement provisions

The derivative liability related to warrants with net-cash settlement provisions were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:

	June 30, 2012			April 22, 2012
Expected life		2.32 years			2.50 years
Risk-free interest rate		0.41	%		0.40	%
Dividend yield		0.00	%		0.00	%
Volatility		100	%		100	%
Warrants outstanding		3,471,112			3,471,112
Fair value of warrants	$	1,155,000		$	2,347,000

Summary of the changes in the fair value of 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:

	Three Months Ended June 30,
	2012			2011
Beginning balance	$	(55	)	$	(337	)
Fair value of warrants issued		(2,347	)		–
Net unrealized gain		1,247			96
Ending balance	$	(1,155	)	$	(241	)

- 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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