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Warrants and Derivative Liabilities | 3 Months Ended
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Jun. 30, 2014
Warrants and Derivative Liabilities | 11. Warrants and Derivative Liabilities Senior Convertible Note Warrant On April 4, 2012, the Company entered into the Purchase Agreement with CVI. The Purchase Agreement included the Original Warrant to purchase 3,094,060 shares of the Company’s common stock. The warrant is exercisable at any time on or after the date that is six months after the issuance of the warrant and entitles CVI to purchase shares of the Company’s common stock for a period of five years from the initial date the warrant becomes exercisable at a price equal to $5.45 per share, subject to certain price-based and other anti-dilution adjustments. On October 9, 2013, the Company amended the Purchase Agreement with CVI (the “Amendment”). Pursuant to the Amendment, the Company exchanged the Original Warrant for the Exchanged Warrant, with a reduced exercise price of $2.61 per share of common stock. Other than the reduced exercise price, the Exchanged Warrant has the same terms and conditions as the Original Warrant. As a result of the sales of common stock under the ATM (See Note 12, “Stockholders’ Equity”, for further discussion of the ATM), and other issuances, during the three months ended June 30, 2014, the exercise price of the Exchanged Warrant was reduced to $2.57 per share. The Exchanged Warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates would beneficially own in excess of 4.99% of the Company’s common stock. This percentage may be raised to any other percentage not in excess of 9.99% at the option of CVI, upon at least 61-days prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time. The Company calculated the fair value of the derivative liabilities, (see Note 4, “Fair Value Measurements”, and Note 10, “Debt” for further discussion), and warrants utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option’s life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. The Company accounts for the warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as a change in fair value of derivatives and warrants until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. Following is a summary of the key assumptions used to calculate the fair value of the warrant:
| June 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fiscal Year 14 | 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk-free interest rate |  | 0.98 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expected annual dividend yield |  | — | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expected volatility |  | 83.50 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Term (years) | 3.26 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value | $2.3 million |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  | Post-modification |  |  | Pre-modification |  |  |  |  |  |  |  |  |  |  |  |
| March 31, |  |  | December 31, |  |  | October 9, |  |  | October 9, |  |  | September 30, |  |  | June 30, |  | March 31, |
Fiscal Year 13 | 2014 |  |  | 2013 |  |  | 2013 |  |  | 2013 |  |  | 2013 |  |  | 2013 |  | 2013 |
Risk-free interest rate |  | 1.11 | % |  |  | 1.17 | % |  |  | 1.05 | % |  |  | 1.05 | % |  |  | 1.02 | % |  |  | 1.13 | % |  | 0.67 | %
Expected annual dividend yield |  | — | % |  |  | — | % |  |  | — | % |  |  | — | % |  |  | — | % |  |  | — | % |  | — | %
Expected volatility |  | 80.99 | % |  |  | 75.60 | % |  |  | 71.50 | % |  |  | 71.50 | % |  |  | 72.00 | % |  |  | 71.90 | % |  | 71.70 | %
Term (years) | 3.51 |  |  | 3.76 |  |  | 3.99 |  |  | 3.99 |  |  |  | 4.01 |  |  |  | 4.27 |  |  | 4.51 |
Fair value | $ 2.2 million |  |  | $ 2.2 million |  |  | $ 3.2 million |  |  | $ 2.2 million |  |  | $ 2.5 million |  |  | $ 3.0 million |  | $ 3.4 million |
The Company recorded a net loss, resulting from the increase in the fair value of the Exchanged Warrant, of $0.1 million compared to a net gain, resulting from the decrease in fair value of $0.4 million to change in fair value of derivatives and warrants in the three months ended June 30, 2014, and 2013, respectively. Convertible Note Derivative Liability The Company determined certain embedded derivatives issued with the Initial Note required accounting as a liability, which requires they be accounted for as a standalone liability subject to revaluation at each balance sheet date with changes in fair value recorded as change in fair value of derivatives and warrants until the earlier of exercise or expiration. The terms of the December 2012 Amendment with CVI provided for, among other things, the exchange of the Initial Note for the Exchanged Note and reduced the conversion price of the Initial Note from $4.85 per share to $3.19 per share in the Exchanged Note. As a result of the sales of common stock under the ATM (See Note 12, “Stockholders’ Equity”, for further discussion of the ATM) the conversion price of the Exchanged Note was further reduced to $3.10 per share. On March 2, 2014, the Company entered into an Exchange Agreement with CVI, pursuant to which the Company exchanged the Exchanged Note for approximately 6.6 million shares of common stock, in full satisfaction of all amounts owed under the Exchanged Note, including any accrued interest. In addition, the Company exchanged the remaining value for the derivative liability identified with the Exchanged Note and any unamortized debt discount. Following is a summary of the key assumptions used to value the convertible notes derivative features:
| March 31, |  | December 31, |  |  | September 30, |  |  | June 30, |  | March 31, |
Fiscal Year 13 | 2014 |  | 2013 |  |  | 2013 |  |  | 2013 |  | 2013 |
Principal outstanding (000's) | $ | — |  | $ |  | 10,411 |  |  | $ |  | 10,411 |  |  | $ |  | 14,389 |  | $ |  | 15,380 |
Stock price |  | N/A |  | $ |  | 1.64 |  |  | $ |  | 2.34 |  |  | $ |  | 2.64 |  | $ |  | 2.67 |
Percentage volume condition met |  | — % |  |  |  | 87.20 | % |  |  |  | 80.20 | % |  |  |  | 87.50 | % |  |  | 80.50 | %
Expected volatility |  | — % |  |  |  | 68.60 | % |  |  |  | 66.30 | % |  |  |  | 65.80 | % |  |  | 66.90 | %
Risk free rate |  | — % |  |  |  | 0.12 | % |  |  |  | 0.10 | % |  |  |  | 0.21 | % |  |  | 0.20 | %
Bond yield |  | — % |  |  |  | 16.50 | % |  |  |  | 15.50 | % |  |  |  | 16.70 | % |  |  | 16.50 | %
Recovery rate |  | — % |  |  |  | 35.00 | % |  |  |  | 35.00 | % |  |  |  | 37.00 | % |  |  | 30.00 | %
Redeemable |  | N/A |  |  | yes |  |  |  | yes |  |  |  | yes |  |  | yes |
Total time (years) |  | — |  |  |  | 0.75 |  |  |  |  | 1.00 |  |  |  |  | 1.26 |  |  |  | 1.51 |
Dilution effect |  | N/A |  |  | yes |  |  |  | yes |  |  |  | yes |  |  | yes |
Fair value | $ | — |  | $ | — |  |  | $ | 0.2 million |  |  | $ | 0.5 million |  | $ | 0.5 million |
Fair value as a percent of par |  | — % |  |  |  | 0.02 | % |  |  |  | 0.70 | % |  |  |  | 3.3 | % |  |  | 3.4 | %
Based on historical VWAP of the Company’s common stock as well as the historic average dollar trading volume of the Company’s common stock, the percentage volume condition is the probability that the Company will convert monthly installment payments into the Company’s common stock. The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company’s common stock and the implied volatility of the Company’s traded options. To determine the risk-free interest rate, an interpolated rate was used based on the one, two and three-year United States Treasury rates. The bond yield was estimated using comparable corporate debt and yield information. The recovery rate of the Exchanged Note was estimated by reviewing historical corporate debt that went into default. The bond is redeemable by the Company at any point after the one-year anniversary of the grant date provided certain provisions within the note. The total time is based on the actual 30-month contractual terms. It was determined that there is a dilution effect based on the Company’s ability to make payments in shares of common stock. The Company recorded no change in fair value of derivatives and warrants in the three months ended June 30, 2013. Senior Secured Term Loan – First Warrant On June 5, 2012, the Company entered into the Loan and Security Agreement with Hercules. (See Note 10, “Debt,” for additional information regarding the Loan and Security Agreement.) In conjunction with this agreement, the Company issued the First Warrant to purchase 139,276 shares of the Company’s common stock. The First Warrant is exercisable at any time after its issuance and expires on December 5, 2017, at a price equal to $3.59 per share subject to certain price-based and other anti-dilution adjustments. The exercise price was reduced to $1.95 per share in conjunction with entering into the New Term Loan. An anti-dilution adjustment resulted in a reduction to the exercise price to $1.94 per share as of June 30, 2014. The Company accounts for the First Warrant as a liability due to certain provisions within the warrant, which requires that it be recorded at fair value. The First Warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as changes in fair value of derivatives and warrants until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. Following is a summary of the key assumptions used to calculate the fair value of the First Warrant:
| June 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fiscal Year 14 | 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk-free interest rate |  | 1.04 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expected annual dividend yield |  | — | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expected volatility |  | 82.75 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Term (years) |  | 3.43 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value | $ 0.1 million |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  | Post-modification |  |  | Pre-modification |  |  |  |  |  |  |  |  |  |  |  |
| March 31, |  |  | December 31, |  |  | November 15, |  |  | November 15, |  |  | September 30, |  |  | June 30, |  | March 31, |
Fiscal Year 13 | 2014 |  |  | 2013 |  |  | 2013 |  |  | 2013 |  |  | 2013 |  |  | 2013 |  | 2013 |
Risk-free interest rate |  | 1.18 | % |  |  | 1.24 | % |  |  | 1.00 | % |  |  | 1.00 | % |  |  | 1.09 | % |  |  | 1.20 | % |  | 0.70 | %
Expected annual dividend yield |  | — | % |  |  | — | % |  |  | — | % |  |  | — | % |  |  | — | % |  |  | — | % |  | — | %
Expected volatility |  | 80.73 | % |  |  | 74.79 | % |  |  | 72.64 | % |  |  | 72.64 | % |  |  | 72.10 | % |  |  | 72.30 | % |  | 72.01 | %
Term (years) |  | 3.68 |  |  |  | 3.93 |  |  |  | 4.05 |  |  |  | 4.05 |  |  |  | 4.18 |  |  |  | 4.43 |  |  | 4.68 |
Fair value | $ 0.1 million |  |  | $ 0.1 million |  |  | $ 0.1 million |  |  | $ 0.1 million |  |  | $ 0.2 million |  |  | $ 0.2 million |  | $ 0.2 million |
The Company recorded no change in fair value of derivatives and warrants during either of the three month periods ended June 30, 2014 and 2013. Senior Secured Term Loan – Second Warrant On November 15, 2013, the Company amended the Loan and Security Agreement with Hercules and entered into the New Term Loan. (See Note 10, “Debt,” for additional information regarding the New Term Loan.) In conjunction with this agreement, the Company issued the Second Warrant to purchase 256,410 shares of the Company’s common stock. The Second Warrant is exercisable at any time after its issuance and expires on May 15, 2019, at a price equal to $1.95 per share subject to certain price-based and other anti-dilution adjustments. An anti-dilution adjustment resulted in a reduction to the exercise price to $1.94 per share as of June 30, 2014. The Company accounts for the Second Warrant as a liability due to certain provisions within the warrant, which requires that it be recorded at fair value. The Second Warrant is subject to revaluation at each balance sheet date and any change in fair value will be recorded as changes in fair value of derivatives and warrants until the earlier of expiration or its exercise at which time the warrant liability will be reclassified to equity. Following is a summary of the key assumptions used to calculate the fair value of the Second Warrant:
| June 30, |  |  |  |  |  |  |  |  |
Fiscal Year 14 | 2014 |  |  |  |  |  |  |  |  |
Risk-free interest rate |  | 1.57 | % |  |  |  |  |  |  |  |
Expected annual dividend yield |  | — | % |  |  |  |  |  |  |  |
Expected volatility |  | 80.00 | % |  |  |  |  |  |  |  |
Term (years) |  | 4.87 |  |  |  |  |  |  |  |  |
Fair value | $ 0.3 million |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  | New Issuance |
| March 31, |  |  | December 31, |  |  | November 15, |
Fiscal Year 13 | 2014 |  |  | 2013 |  |  | 2013 |
Risk-free interest rate |  | 1.76 | % |  |  | 1.89 | % |  |  | 1.55 | %
Expected annual dividend yield |  | — | % |  |  | — | % |  |  | — | %
Expected volatility |  | 79.73 | % |  |  | 80.37 | % |  |  | 76.97 | %
Term (years) |  | 5.12 |  |  |  | 5.37 |  |  |  | 5.49 |
Fair value | $ 0.3 million |  |  | $ 0.3 million |  |  | $ 0.3 million |
The Company recorded an increase in the fair value of the First Warrant and the Second Warrant resulting in a loss of less than $0.1 million during the three months ended June 30, 2014. The Company prepared its estimates for the assumptions used to determine the fair value of the warrants issued in conjunction with both the Exchanged Note and Term Loans utilizing the respective terms of the warrants with similar inputs, as described above.

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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=7668309&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 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 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=7476318&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 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 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 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 8: 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=7476318&loc=SL5624258-113959 Reference 9: 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=7476318&loc=SL5624163-113959 Reference 10: 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=7476318&loc=SL5624181-113959 Reference 11: 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=7476318&loc=SL5708773-113959 Reference 12: 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=7668309&loc=d3e80784-113994 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=7476318&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 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: 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=7476318&loc=SL5579245-113959 Reference 16: 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=7476318&loc=SL5580258-113959 Reference 17: 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=7476318&loc=SL5579240-113959 Reference 18: 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=7476318&loc=d3e41641-113959 Reference 19: 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=7476318&loc=d3e41638-113959 Reference 20: 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=7476318&loc=SL5624171-113959 + Details
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