| 5. 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 |
| Warrant |
|
|
|
|
|
|
|
|
|
| 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 |
| |
|
|
|
|
|
|
|
|
|
| Warrant |
|
|
|
|
|
|
|
|
|
| Placement Agent Warrants |
June 30, 2015 |
16,500 |
0.84 |
$ |
5.00 |
143% |
0.28% |
$ |
5,000 |
| Investor - Series A Warrants |
June 30, 2015 |
1,000 |
0.16 |
$ |
3.00 |
143% |
0.01% |
|
– |
| Investor - Series B Warrants |
June 30, 2015 |
1,400,000 |
0.16 |
$ |
3.63 |
143% |
0.01% |
|
35,000 |
| Placement Agent Warrants |
June 30, 2015 |
69,037 |
0.84 |
$ |
3.00 |
143% |
0.28% |
|
30,000 |
| |
|
|
|
|
|
|
|
$ |
70,000 |
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, |
|
| |
|
2015 |
|
|
2014 |
|
| Beginning balance |
|
$ |
11,000 |
|
|
$ |
3,175,000 |
|
| Mark to market net unrealized loss (gain) |
|
|
59,000 |
|
|
$ |
(1,478,000 |
) |
| Ending balance |
|
$ |
70,000 |
|
|
$ |
1,697,000 |
|
|