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5. Derivative Liabilities | 6 Months Ended | 12 Months Ended
--- | --- | ---
Sep. 30, 2014 | Mar. 31, 2014
Derivative Liability [Abstract] |  |
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 Bloomberg Historical Volatility (“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 | September 30, 2014 | 16,500 | 1.59 | $ | 5.00 | 100% | 0.58% | $ | 11,000
Investor - Series A Warrants | September 30, 2014 | 1,000 | 0.90 | $ | 3.00 | 100% | 0.13% |  | 1,000
Investor - Series B Warrants | September 30, 2014 | 1,400,000 | 0.90 | $ | 3.63 | 100% | 0.13% |  | 777,000
Placement Agent Warrants | September 30, 2014 | 69,037 | 1.59 | $ | 3.00 | 100% | 0.58% |  | 67,000
|  |  |  |  |  |  |  | $ | 856,000
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:
Derivative liabilities |  | Three Months Ended September 30, 2014 |  |  | Six Months Ended September 30, 2014 |
Beginning fair value |  | $ | 1,697,000 |  |  | $ | 3,175,000 |
Gain due to change in fair value of derivative liabilities |  |  | (841,000 | ) |  |  | (2,319,000 | )
Ending fair value |  | $ | 856,000 |  |  | $ | 856,000 |
| Warrants Issued in Conjunction with the Company’s August 13, 2007 Private Placement 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 were adjusted to fair value at the end of each reporting period with the change in value reported in the consolidated statement of comprehensive loss. 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’ equity (deficiency), or expiration of the warrants. On February 13, 2013, the stock purchase warrants issued with the August 13, 2007 private placement expired. Accordingly, the Company has decreased the derivative liability by $55,000, from the amount reported at March 31, 2012, to reflect the expiration of the warrants and related change in fair value. This amount is included as a gain due to the change in the fair value of derivative liabilities in the accompanying consolidated statement of comprehensive loss for the year ended March 31, 2013. Warrants Issued in Conjunction with the Company’s April 22, 2012 Registered Direct Offering 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 April 22, 2012 registered direct offering originally contained a net-cash settlement feature which gave the warrant holder the right to net-cash settlement in the event certain transactions occur. Pursuant to the terms of the original 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 100 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. On October 29, 2012, the Company entered into a side letter agreement with the holders of the warrants and the parties agreed to amend the terms of the warrants to eliminate the net-cash settlement feature contained in the warrants and extended the expiration date of the warrants by two years. Subsequent to the execution of the side letter agreement, the Company adjusted the fair value of the warrants to the modified fair value and recorded a $298,000 gain. Additionally, the Company recorded a $382,000 loss due to the incremental fair value adjustment resulting from the modification of the warrants from the April 2012 offering. Subsequent to the Company’s entry into the side letter agreement, the Company reclassified the fair value of the warrants of $1,636,000 from a liability to additional paid-in capital as classified on the accompanying March 31, 2013 consolidated balance sheet. The derivative liability 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:
|  | Modification Incremental Fair Value October 30, 2012 |  |  | Pre-modification October 30, 2012 |  |  | April 22, 2012 |
Expected life |  |  | 4.00 years |  |  |  | 2.00 years |  |  |  | 2.50 years |
Risk-free interest rate |  |  | 0.74% |  |  |  | 0.30% |  |  |  | 0.40% |
Dividend yield |  |  | 0.00% |  |  |  | 0.00% |  |  |  | 0.00% |
Volatility |  |  | 89% |  |  |  | 100% |  |  |  | 100% |
Warrants outstanding |  |  | 495,874 |  |  |  | 495,874 |  |  |  | 495,874 |
Fair value of warrants |  | $ | 1,636,000 |  |  | $ | 1,254,000 |  |  | $ | 2,347,000 |
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 occurrs 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 - Exercise Date |  |  |  |  |  |  |  |  |
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
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, |
|  | 2014 |  |  | 2013 |
Beginning balance |  | $ | – |  |  | $ | 55,000 |
Fair value of warrants issued |  |  | 3,292,000 |  |  |  | 2,347,000 |
Mark to market net unrealized loss (gain) |  |  | 1,566,000 |  |  |  | (1,148,000 | )
Incremental fair value adjustment due to modification |  |  | – |  |  |  | 382,000 |
Reclassification to additional paid in capital |  |  | (1,683,000 | ) |  |  | (1,636,000 | )
Ending balance |  | $ | 3,175,000 |  |  | $ | – |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5618551-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624181-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624163-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708773-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624177-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579245-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579240-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41641-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624171-113959 + Details
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