Derivative Liability and Fair Value Measurements

6 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Derivative Liability and Fair Value Measurements

Note 3: Derivative Liability and Fair Value Measurements

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 both Gemini notes. Key assumptions at September 30, 2012 for the April 2, 2012 note include a volatility factor of 83.0%, a discount rate of 1, a dividend yield of 0%, expected life of .26 years and a risk free interest rate of .10%. The June 11, 2012 note assumptions at September 30, 2012 include a volatility factor of 101.3%, a discount rate of 1, a dividend yield of 0%, expected life of .45 years and a risk free interest rate of .12%.

The Company estimated the original fair value of the embedded conversion feature of the April 2, 2012 Note to be $287,600 and the anti-dilution feature for the same Note is estimated at $58,800. The gain on the convertible feature liability is $560,000 and the loss on the derivative liability is $90,000 for the quarter ended September 30, 2012. For the six months ended September 30, 2012, loss on conversion feature liability was $1,072,400 and the loss on the derivative liability was $66,400. The number of convertible shares at September 30, 2012 for this note is 4,000,000. The carrying value of the conversion feature at September 30, 2012 is $1,360,000 and the carrying value of the anti-dilution feature for the same date is $125,200.

The Company estimated the original fair value of the embedded conversion feature of the June 11, 2012 Note to be $169,455 and the anti-dilution feature for the same Note is estimated at $23,909. The gain on the convertible feature liability is $118,636 and the loss on the derivative liability is $15,636 for the quarter ended September 30, 2012. For the six months ended September 30, 2012, the gain on the conversion feature liability was $15,727 and the loss on the derivative liability was $10,636. The number of convertible shares at September 30, 2012 for this note is 909,091. The carrying value of the conversion feature at September 30, 2012 is $153,727 and the carrying value of the anti-dilution feature for the same date is $34,545.

The derivative liabilities and conversion feature 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 as inputs.

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

				Convertible Feature
	Derivative Liability			Liability			Total
Balance, April 1, 2012	$	0		$	0		$	0
Fair Value at Issuance		82,709			457,055			539,764
Net Change in Fair Value		(28,600	)		1,735,309			1,706,709
Balance, June 30, 2012	$	54,109		$	2,192,364		$	2,246,473
Net Change in Fair Value		105,636			(678,636	)		(573,000	)
Balance September 30, 2012	$	159,745		$	1,513,728		$	1,673,473