10. 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 309,406 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 $54.50 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 $26.10 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 the 909,090 units, each unit consisting of one share of common stock and 0.90 of a warrant to purchase one share of common stock (adjusted to reflect our 1-for-10 reverse stock on March 24, 2015) sold to Hudson Bay Capital during the three months ended December 31, 2014, the exercise price of the Exchanged Warrant was reduced to $22.10 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 3, “Fair Value Measurements”, and Note 9, “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 Exchanged Warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The Exchanged 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 its 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:

	March 31,			December 31,			September 30,			June 30,
Fiscal Year 14	2015			2014			2014			2014

Risk-free interest rate		0.73	%		1.00	%		1.07	%		0.98	%
Expected annual dividend yield		—	%		—	%		—	%		—	%
Expected volatility		70.42	%		72.38	%		76.20	%		83.50	%
Term (years)	2.51			2.76			3.01			3.26
Fair value	$0.3 million			$0.5 million			$1.5 million			$2.3 million
							Post-modification			Pre-modification
	March 31,			December 31,			October 9,			October 9,			September 30,			June 30,
Fiscal Year 13	2014			2013			2013			2013			2013			2013

Risk-free interest rate		1.11	%		1.17	%		1.05	%		1.05	%		1.02	%		1.13	%
Expected annual dividend yield		—	%		—	%		—	%		—	%		—	%		—	%
Expected volatility		80.99	%		75.60	%		71.45	%		71.45	%		71.98	%		71.90	%
Term (years)	3.51			3.76			3.99			3.99				4.01			4.27
Fair value	$ 2.2 million			$ 2.2 million			$ 3.2 million			$ 2.2 million			$ 2.5 million			$ 3.0 million


	March 31,			December 31,			September 30,			June 30,			April 4,
Fiscal Year 12	2013			2012			2012			2012			2012

Risk-free interest rate		0.67	%		0.75	%		0.63	%		0.77	%		1.19	%
Expected annual dividend yield		—	%		—	%		—	%		—	%		—	%
Expected volatility		71.74	%		80.60	%		80.90	%		80.80	%		80.00	%
Term (years)		4.51			4.76			5.01			5.28			5.50
Fair value	$ 3.4 million			$ 4.4 million			$ 7.1 million			$ 8.6 million			$ 7.0 million

The Company recorded net gains, resulting from the decrease in the fair value of the Exchanged Warrant, of $1.9 million, $1.2 million and $3.6 million to change in fair value of derivatives and warrants in the years ended March 31, 2015, 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 the reduction of the conversion price of the Initial Note from $48.50 per share to $31.90 per share in the Exchanged Note.

On March 2, 2014, the Company entered into an Exchange Agreement with CVI, pursuant to which the Company exchanged the Exchanged Note for approximately 663,000 shares of common stock, in full satisfaction of all amounts owed under the Exchanged Note, including any accrued interest. In addition, the Company extinguished 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,
Fiscal Year 13	2014			2013			2013			2013

Principal outstanding (000's)	$ —			$	10,411		$	10,411		$	14,389
Stock price	N/A			$	16.40		$	23.40		$	26.40
Percentage volume condition met	— %				87.20	%		80.20	%		87.50	%
Expected volatility	— %				68.63	%		66.26	%		65.80	%
Risk free rate	— %				0.12	%		0.10	%		0.21	%
Bond yield	— %				16.50	%		15.50	%		16.70	%
Recovery rate	— %				35.00	%		35.00	%		37.00	%
Redeemable	N/A			yes			yes			yes
Total time (years)	—				0.75			1.00			1.26
Dilution effect	N/A			yes			yes			yes
Fair value	$ —			$ —			$ 0.2 million			$ 0.5 million
Fair value as a percent of par	— %				0.02	%		0.70	%		3.30	%



							Post-modification			Pre-modification
	March 31,			December 31,			December 20,			December 20,			September 30,			June 30,			April 4,
Fiscal Year 12	2013			2012			2012			2012			2012			2012			2012

Principal outstanding (000's)	$	15,380		$	20,944		$	20,944		$	24,074		$	24,074		$	25,000		$	25,000
Stock price	$	26.70		$	26.20		$	29.50		$	29.50		$	41.50		$	46.80		$	39.70
Percentage volume condition met		80.50	%		94.50	%		94.90	%		28.60	%		51.00	%		75.20	%		85.90	%
Expected volatility		66.91	%		73.50	%		72.50	%		72.50	%		70.00	%		71.00	%		75.00	%
Risk free rate		0.20	%		0.23	%		0.25	%		0.25	%		0.23	%		0.33	%		0.44	%
Bond yield		16.50	%		16.50	%		16.50	%		16.50	%		15.00	%		16.00	%		15.00	%
Recovery rate		30.00	%		30.00	%		30.00	%		30.00	%		30.00	%		30.00	%		30.00	%
Redeemable	yes			yes			yes			yes			yes			yes			yes
Total time (years)		1.51			1.76			1.79			1.79			2.01			2.28			2.50
Dilution effect	yes			yes			yes			yes			yes			yes			yes
Fair value	$ 0.5 million			$ 1.0 million			$ 1.5 million			$ 0.9 million			$ 2.8 million			$ 4.5 million			$ 3.8 million
Fair value as a percent of par		3.40	%		4.90	%		7.10	%		3.90	%		11.40	%		17.90	%		15.10	%

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 net gains, resulting from the decrease in the fair value of the derivative, of $0.5 million and $3.8 million to change in fair value of derivatives and warrants in the year ended March 31, 2014, and 2013, respectively.

Senior Secured Term Loan – First Warrant

On June 5, 2012, the Company entered into the Loan and Security Agreement with Hercules. (See Note 9, “Debt,” for additional information regarding the Loan and Security Agreement.) In conjunction with this agreement, the Company issued the First Warrant to purchase 13,927 shares of the Company’s common stock. The First Warrant was exercisable at any time after its issuance and had an expiration date of December 5, 2017, at a price equal to $35.90 per share subject to certain price-based and other anti-dilution adjustments. The exercise price was reduced to $19.50 per share in conjunction with entering into the New Term Loan B. An anti-dilution adjustment due to the sale of 909,090 units of the Company’s common stock to Hudson Bay Capital resulted in a reduction of the exercise price to $17.00 per share, on November 13, 2014. The Hercules Second Amendment resulted in the cancellation of the First Warrant on December 19, 2014.

The Company had accounted for the First Warrant as a liability due to certain provisions within the warrant, which required that it be recorded at fair value. The First Warrant was subject to revaluation at each balance sheet date and any change in fair value was recorded as a change in fair value of derivatives and warrants until the warrant was cancelled on December 19, 2014.

Following is a summary of the key assumptions used to calculate the fair value of the First Warrant:

				Pre-Exchange
	December 31,			December 19,			September 30,			June 30,
Fiscal Year 14	2014			2014			2014			2014

Risk-free interest rate		—	%		1.10	%		1.13	%		1.04	%
Expected annual dividend yield		—	%		—	%		—	%		—	%
Expected volatility		—	%		67.01	%		78.30	%		82.75	%
Term (years)	—				2.96			3.18			3.43
Fair value	—			$ 0.1 million			$ 0.1 million			$ 0.1 million

							Post-modification			Pre-modification
	March 31,			December 31,			November 15,			November 15,			September 30,			June 30,
Fiscal Year 13	2014			2013			2013			2013			2013			2013

Risk-free interest rate		1.18	%		1.24	%		1.00	%		1.00	%		1.09	%		1.20	%
Expected annual dividend yield		—	%		—	%		—	%		—	%		—	%		—	%
Expected volatility		80.73	%		74.79	%		72.64	%		72.64	%		72.10	%		72.30	%
Term (years)		3.68			3.93			4.05			4.05			4.18			4.43
Fair value	$ 0.1 million			$ 0.1 million			$ 0.1 million			$ 0.1 million			$ 0.2 million			$ 0.2 million



	March 31,			December 31,			September 30,			June 30,			June 5,
Fiscal Year 12	2013			2012			2012			2012			2012

Risk-free interest rate		0.70	%		0.75	%		0.64	%		0.80	%		0.77	%
Expected annual dividend yield		—	%		—	%		—	%		—	%		—	%
Expected volatility		72.01	%		80.14	%		81.18	%		80.32	%		79.99	%
Term (years)		4.68			4.93			5.18			5.44			5.50
Fair value	$ 0.2 million			$ 0.2 million			$ 0.4 million			$ 0.5 million			$ 0.4 million

The Company recorded net gains, resulting from the decrease in fair value of the First Warrant, of $0.1 million, $0.1 million and $0.2 million to change in fair value of derivatives and warrants during the years ended March 31, 2015, 2014, and 2013, respectively.

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 B. (See Note 9, “Debt,” for additional information regarding the New Term Loan B.) In conjunction with this agreement, the Company issued the Second Warrant to purchase 25,641 shares of the Company’s common stock. The Second Warrant was exercisable at any time after its issuance at a price equal to $19.50 per share subject to certain price-based and other anti-dilution adjustments and had an expiration date of May 15, 2019. An anti-dilution adjustment due to the sale of 909,090 units of the Company’s common stock to Hudson Bay Capital resulted in a reduction of the exercise price to $17.00 per share on November 13, 2014. The Hercules Second Amendment resulted in the cancellation of the Second Warrant on December 19, 2014.

The Company had accounted for the Second Warrant as a liability due to certain provisions within the warrant, which required that it be recorded at fair value. The Second Warrant was subject to revaluation at each balance sheet date and any change in fair value was recorded as a change in fair value of derivatives and warrants until the warrant was cancelled on December 19, 2014.

Following is a summary of the key assumptions used to calculate the fair value of the Second Warrant:

				Pre-Exchange
	December 31,			December 19,			September 30,			June 30,
Fiscal Year 14	2014			2014			2014			2014

Risk-free interest rate		—	%		1.65	%		1.65	%		1.57	%
Expected annual dividend yield		—	%		—	%		—	%		—	%
Expected volatility		—	%		71.82	%		78.10	%		80.00	%
Term (years)	—				4.41			4.62			4.87
Fair value	—			$0.1 million			$ 0.2 million			$ 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 a net gain, resulting from the decrease in fair value of the Second Warrant, of $0.3 million in the year ended March 31, 2015 and no change in the year ended March 31, 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.

Senior Secured Term Loan - New Warrant

On December 19, 2014, the Company entered into the Hercules Second Amendment and entered into the New Term Loan C. (See Note 9, “Debt” for additional information regarding the New Term Loan C). In conjunction with the agreement, the Company cancelled the First and Second Warrants, and reissued a Warrant to purchase 58,823 shares of the Company’s common stock. The Warrant is exercisable at any time after its issuance at a price of $11.00 per share, subject to certain price-based and other anti-dilution adjustments, and expires on June 30, 2020.

The Company accounts for the Warrant as a liability due to certain 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 its 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:

							New Issuance
	March 31,			December 31,			December 19,
Fiscal Year 14	2015			2014			2014

Risk-free interest rate		1.41	%		1.73	%		1.74	%
Expected annual dividend yield		—	%		—	%		—	%
Expected volatility		74.60	%		77.43	%		70.26	%
Term (years)		5.25			5.50			5.53
Fair value	$0.2 million			$0.2 million			$0.2 million

The Company recorded no significant change in the fair value of the Warrant in the year ended March 31, 2015.

November 2014 Warrant

On November 13, 2014, the Company completed an offering of 909,090 units of the Company’s common stock (adjusted to reflect our 1-for-10 reverse stock split effected on March 24, 2015) with Hudson Bay Capital. (See Note 12, “Stockholder’s Equity”, for further information). Each unit consisted of one share of the Company’s common stock and 0.90 of a warrant to purchase one share of common stock, or a warrant to purchase in the aggregate 818,181 shares (the “November 2014 Warrant”). The November 2014 Warrant is exercisable at any time, at a price equal to $11.00 per share and expires on November 13, 2019.

The Company accounts for the November 2014 Warrant as a liability due to certain provisions within the warrant, which requires that it be recorded at fair value. The November 2014 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 its 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 November 2014 Warrant:

							New Issuance
	March 31,			December 31,			November 13,
Fiscal Year 14	2015			2014			2014

Risk-free interest rate		1.28	%		1.61	%		1.64	%
Expected annual dividend yield		—	%		—	%		—	%
Expected volatility		75.96	%		78.00	%		72.86	%
Term (years)		4.62			4.87			5.00
Fair value	$2.5 million			$3.2 million			$4.3 million

The Company recorded a decrease in the fair value of the November 2014 Warrant, resulting in a gain of $1.8 million in the year ended March 31, 2015.