DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS

9 Months Ended

Dec. 31, 2014

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS

NOTE9: DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS

Accounting Standards Codification (ASC) 815 - Derivatives and Hedging provides guidance to determine what types of instruments, or embedded features in an instrument, are considered derivatives. This guidance can affect the accounting for convertible instruments that contain provisions to protect holders from a decline in the stock price, or down-round provisions. Down-round provisions reduce the exercise price of a convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments, or issues new convertible instruments that have a lower exercise price. We have determined that the conversion feature with the down-round provision on the Gemini notes should be treated as a derivative liability. The Company is required to report the conversion feature liability and the derivative liability resulting from the down-round provision at fair value and record the fluctuation of the fair value in current operations.

The Company recognizes the derivative liabilities at their respective fair values at inception and on each reporting date. The Company values its financial assets and liabilities on a recurring basis and certain nonfinancial assets and nonfinancial liabilities on a nonrecurring basis based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable inputs other that Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The Company recognizes the derivative liabilities at their respective fair values at inception and on each reporting date. The Company utilized a binomial option pricing model (“BOPM”) to develop its assumptions for determining the fair value of the conversion and anti-dilution features of the Gemini Note II, Secured Notes and Warrants. Key assumptions at June 26, 2013 for the Gemini Note II include a volatility factor of 50.0%, a dividend yield of 0%, expected life of .04 years and a risk free interest rate of 0.02%.

The Company estimated the original fair values of the embedded conversion and anti-dilution features of the Gemini Note II dated June 11, 2012 note to be $169,455 and $23,909, respectively. The fair value of the embedded conversion and anti-dilution features were $162,456 and $50,545 at March 31, 2013, respectively. The fair value of the conversion feature at the exchange date of June 26, 2013 of $100,819 and the fair value of the anti-dilution feature for the same date of $10,000 were settled as part of the modification of the Gemini Note II in conjunction with the June 26, 2013 private placement financing transaction. The gain on the conversion feature derivative is $61,637 and the gain on the down-round protection derivative is $40,545 for the year ended March 31, 2014.

At December 31, 2013, all of the related principal had been converted to common stock or retired, and no remaining value associated with the conversion feature derivative or down-round protection derivative are recorded as a result.

Key assumptions at December 31, 2014 for the Warrants discussed include a volatility factor of 90%, a dividend yield of 0%, expected life of 3.5 years and a risk free interest rate of 1.41%.

The Company estimated the fair value of the Warrants, including call options, to be $2.7961 per share and the down-round protection derivative for the same warrants is estimated at $0.3963. The number of Warrants issued and outstanding was 647,312. The carrying value of the Warrants with call options at December 31, 2014 was $1,809,949 and the carrying value of the down-round protection derivative for the same date was $256,530.

During the transition period ended December 31, 2014, a total of 117,648 warrants were exercised, reducing the fair value warrants and derivative liabilities and increasing Additional Paid in Capital by $319,865.

The table below provides a reconciliation of beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3):

	Down-round Protection Derivative			Convertible Feature Liability			Warrants			Warrant Down-round Protection Derivative			Total
Balance, April 1, 2013	$	(50,545	)	$	(162,456	)	$	—		$	—		$	(213,001	)
Settlement Through Modification of Gemini Note II		10,000			100,819			—			—			110,819
Fair Value at Issuance of New Debt		(641,113	)		(2,923,370	)		(1,781,592	)		(616,688	)		(5,962,763	)
Net Change in Fair Value		681,658			2,985,007			762,053			238,186			4,666,904
Balance, March 31, 2014		—			—			(1,019,539	)		(378,502	)		(1,398,041	)
Release of Warrants Liability upon Exercise		—			—			262,846			57,019			319,865
Net Change in Fair Value		—			—			(1,053,256	)		64,953			(988,303	)
Balance, December 31, 2014	$	—		$	—		$	(1,809,949	)	$	(256,530	)	$	(2,066,479	)

The derivative liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair values includes various assumptions about future activities and stock price and historical volatility inputs.

The following table describes the valuation techniques used to calculate fair values for assets in Level 3. There were no changes in the valuation techniques during the transition period ended December 31, 2014 and fiscal year ended March 31, 2014.

	Fair Value at December31, 2014		Fair Value at March31, 2014		Valuation Technique	Unobservable Input	Range
Warrants and Warrant    Down-round Protection    Derivative (combined)	$	2,066,479	$	1,398,041	Binomial Option    Pricing Model	Probability of    common stock    issuance at prices    less than exercise    prices stated    in agreements		30	%
						Probability of reset    provision being    waived		5	%

Significant unobservable inputs for the derivative liabilities include (1) the estimated probability of the occurrence of a down-round financing during the term over which the related debt and warrants are convertible or exercisable, (2) the estimated magnitude of the down-round, and (3) the probability of the reset provision being waived. These estimates which are unobservable in the market were utilized to value the anti-dilution features of the convertible debt and warrants as of December 31, 2014 and March 31, 2014.