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Fair Value Measurements
 9 Months Ended
Dec. 31, 2012
Fair Value Measurements [Abstract]  
Fair Value Measurements

4. Fair Value Measurements 

 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance related to disclosures of fair value measurements. The guidance requires gross presentation of activity within the Level 3 measurement roll-forward and details of transfers in and out of Level 1 and 2 measurements. It also clarifies two existing disclosure requirements on the level of disaggregation of fair value measurements and disclosures on inputs and valuation techniques. A change in the hierarchy of an investment from its current level will be reflected in the period during which the pricing methodology of such investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 will be made in the event that the related security is significant to total cash and investments. The Company did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the three months ended December 31, 2012.

A valuation hierarchy for disclosure of the inputs to valuation used to measure fair value has been established. This hierarchy prioritizes the inputs into three broad levels as follows:

 

 

Level 1 -

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

 

Level 2 -

Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

 

Level 3 -

Unobservable inputs that reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets carried at fair value, measured as of December 31, 2012 and March 31, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Total

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

Carrying

 

Active Markets

 

Observable Inputs

 

Unobservable Inputs

 

 

Value 

 

(Level 1) 

 

(Level 2) 

 

(Level 3) 

December 31, 2012:

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Cash equivalents

$
23,639 

$
23,639 

$

 -

$

 -

Liabilities:                               

 

 

 

 

 

 

 

 

Derivative liability

$
1,024 

$

 -

$

 -

$
1,024 

Warrants

 
4,581 

 

 -

 

 -

 
4,581 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

Carrying

 

Active Markets

 

Observable Inputs

 

Unobservable Inputs

 

 

Value 

 

(Level 1) 

 

(Level 2) 

 

(Level 3) 

March 31, 2012:

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Cash equivalents

$
23,485 

$
23,485 

$

 -

$

 -

Short-term commercial paper 

 
5,304 

 

 -

 
5,304 

 

 -

 

 

 

The table below reflects the activity for the Company’s major classes of liabilities measured at fair value for the period ended December 31, 2012 (in thousands):

 

 

 

 

 

 

 

 

Derivative

 

 

 

 

 

Liability

 

 

Warrants

April  1, 2012

$

 -

 

$

 -

Valuation of original derivative liability

 
3,779 

 

 

 -

Warrant issuance with Senior Convertible Note

 

 -

 

 
7,018 

Warrant issuance with Senior Secured Term Loan

 

 -

 

 
380 

Valuation of derivative liability attributable to modification

 
542 

 

 

 -

Mark to market adjustment

 
(3,297)

 

 
(2,817)

Balance at December 31, 2012

$
1,024 

 

$
4,581 

 

 

Valuation Techniques

Cash Equivalents

Cash equivalents consist of highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments and are measured using such inputs as quoted prices, and are classified within Level 1 of the valuation hierarchy.  Cash equivalents consist principally of certificates of deposits and money market accounts. 

Marketable Securities

Marketable securities consist primarily of government-backed securities and commercial paper and are measured using such inputs as quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals), and inputs that are derived principally from or corroborated by observable market data by correlation or other means, and are classified within Level 2 of the valuation hierarchy. The Company’s marketable securities generally have maturities of greater than three months from original purchase date but less than twelve months from the date of the balance sheet.  The Company determines the appropriate classification of its marketable securities at the time of purchase and re-evaluates such classification as of each balance sheet date. All marketable securities are considered available-for-sale and are carried at fair value. The Company periodically reviews the realizability of each short-term and long-term marketable security when impairment indicators exist with respect to the security. If an other-than-temporary impairment of value of the security exists, the carrying value of the security is written down to its estimated fair value.

Derivative Liability

The Company has identified all of the derivatives (“Derivative Liability”) associated with the Exchanged Note which include holder change of control redemption rights, issuer optional redemption rights, sale redemption rights and a feature to convert the Exchanged Note into equity at the holder’s option. The Derivative Liability is subject to revaluation at each balance sheet date, and any change in fair value will be recorded as a change in fair value in other income (expense) until the earlier of its exercise or expiration. The Company relies on assumptions in a lattice model to determine the fair value of Derivative Liability. The Company has appropriately valued the Derivative Liability within Level 3 of the valuation hierarchy.  See Note 11, “Debt”, for discussion on the Exchanged Note, Derivative Liability and valuation assumptions used.

Warrants

Warrants were issued in conjunction with the Initial Note and the Term Loan. See Note 11, “Debt,” for additional information on warrants.  These warrants are subject to revaluation at each balance sheet date, and any change in fair value will be recorded as a change in fair value in other income (expense) until the earlier of their exercise or expiration.

             The Company relies on various assumptions to determine the fair value of warrants. The Company has appropriately valued the warrants within Level 3 of the valuation hierarchy.  See Note 12, “Warrants and Derivative Liabilities,” for a discussion of the warrants and the valuation assumptions used.