Derivative Liabilities

3 Months Ended

Jun. 30, 2011

Derivative Liabilities [Abstract]

Derivative Liabilities

Note 6 — Derivative Liabilities

In accordance with current accounting guidance, certain of the Company’s outstanding warrants to purchase shares of common stock and embedded conversion features in convertible notes payable previously treated as equity are no longer afforded equity treatment because these instruments have reset or ratchet provisions in the event the Company raises additional capital at a lower price, among other adjustments. As such, the fair value of these common stock purchase warrants and embedded conversion features were treated as derivative liabilities since their date of issuance or modification. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. As of June 30, 2011 and March 31, 2011 the Company had derivative warrant liabilities of $122,214 and $156,497, respectively.

During the three months ended June 30, 2011 and 2010, the Company recognized aggregate gains of $34,283 and $116,528, respectively, due to the change in fair value of its derivative instruments. See Note 2 — Organization and Summary of Significant Accounting Policies — Fair Value Measurements, for the components of changes in derivative liabilities.

The Company’s common stock purchase warrants do not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using Black-Scholes using the following assumptions:

	For the Three Months	For the Year
	Ended	Ended
	June 30, 2011	March 31, 2011
Expected dividends	—	—
Expected term (in years)	2.76 – 2.81	3.01 – 4.22
Risk-free interest rate	0.81%	0.64% – 1.79%
Expected volatility	131% – 132%	128% – 189%

Historical volatility was computed using daily pricing observations for recent periods that correspond to the remaining term of the warrants, which had an original term of five years from the date of issuance. The expected life is based on the remaining term of the warrants. The risk-free interest rate is based on U.S. Treasury securities with a maturity corresponding to the remaining term of the warrants.