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7. FINANCIAL INSTRUMENTS | 12 Months Ended
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Mar. 31, 2021
FINANCIAL INSTRUMENTS |
NOTE 7 - FINANCIAL INSTRUMENTS | NOTE 7—FINANCIAL INSTRUMENTS Fair value measurements Authoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosures. The guidance applies to all financial assets and financial liabilities that are measured on a recurring basis. The guidance requires fair value measurement to be classified and disclosed in one of the following three categories: Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. As of March 31, 2021, the Level 1 category included money market funds of $23.0 million, which were included in cash and cash equivalents on the Consolidated Balance Sheets. Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. As of March 31, 2021, the Level 2 category included short-term investments of $9.7 million and long term-investments of $5.8 million, which were primarily comprised of certificates of deposit, supranational obligations and agency securities. Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing. As of March 31, 2021, the Company’s Level 3 financial instruments measured at fair value on the Consolidated Balance Sheets consisted of the contingent consideration liability related to the MikaMonu acquisition. The fair value of the contingent consideration liability was initially determined as of the acquisition date using unobservable inputs. These inputs include the estimated amount and timing of future cash flows, the probability of success (achievement of the various contingent events) and a risk-adjusted discount rate of approximately 14.8% used to adjust the probability-weighted cash flows to their present value. Significant increases (decreases) in any of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, changes used in the assumptions for future cash flows and probability of success would be accompanied by a directionally similar change in the fair value measurement and expense. Conversely, changes in the risk-adjusted discount rate would be accompanied by a directionally opposite change in the related fair value measurement and expense. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with changes recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of March 31, 2021, the Company used a risk-adjusted discount rate of approximately 14.5% to adjust the probability-weighted cash flows to their present value using probabilities ranging from 0% to 15% for the remaining contingent events. The contingent consideration liability is included in contingent consideration, non-current on the Consolidated Balance Sheet at March 31, 2021 and 2020 in the amount of $4.2 million and $3.9 million, respectively. Refer to Note 14, “Acquisition” for more information. The fair value of financial assets measured on a recurring basis is as follows (in thousands):
|  |  |  |  | Fair Value Measurements at Reporting Date Using |
|  |  |  |  | Quoted Prices |  |  |  |  |
|  |  |  |  | in Active |  | Significant |  |  |
|  |  |  |  | Markets for |  | Other |  | Significant |
|  |  |  |  | Identical Assets |  | Observable |  | Unobservable |
|  |  |  |  | and Liabilities |  | Inputs |  | Inputs |
|  | March 31, 2021 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 22,992 |  | $ | 22,992 |  | $ | — |  | $ | — |
Marketable securities |  |  | 15,509 |  |  | — |  |  | 15,509 |  |  | — |
Total |  | $ | 38,501 |  | $ | 22,992 |  | $ | 15,509 |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 4,225 |  | $ | — |  | $ | — |  | $ | 4,225 |
|  |  |  |  | Fair Value Measurements at Reporting Date Using |
|  |  |  |  | Quoted Prices |  |  |  |  |
|  |  |  |  | in Active |  | Significant |  |  |
|  |  |  |  | Markets for |  | Other |  | Significant |
|  |  |  |  | Identical Assets |  | Observable |  | Unobservable |
|  |  |  |  | and Liabilities |  | Inputs |  | Inputs |
|  | March 31, 2020 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 14,117 |  | $ | 14,117 |  | $ | — |  | $ | — |
Marketable securities |  |  | 19,178 |  |  | — |  |  | 19,178 |  |  | — |
Total |  | $ | 33,295 |  | $ | 14,117 |  | $ | 19,178 |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 3,898 |  | $ | — |  | $ | — |  | $ | 3,898 |
The following table sets forth the changes in fair value of contingent consideration for the fiscal years ended March 31, 2021, 2020 and 2019, respectively:
|  | Year Ended March 31, |
|  | 2021 |  | 2020 |  | 2019 |
|  | (In thousands) |
Contingent consideration, beginning of period |  | $ | 3,898 |  | $ | 4,206 |  | $ | 5,514 |
Change due to accretion |  |  | 98 |  |  | 112 |  |  | 147 |
Re-measurement of contingent consideration |  |  | 229 |  |  | 80 |  |  | (326) |
Payment of contingent consideration |  |  | — |  |  | (500) |  |  | (1,129) |
Contingent consideration, end of period |  | $ | 4,225 |  | $ | 3,898 |  | $ | 4,206 |
Short-term and long-term investments All of the Company’s short-term and long-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The Company had money market funds of $23.0 million and $14.1 million at March 31, 2021 and March 31, 2020, respectively, included in cash and cash equivalents on the Consolidated Balance Sheets. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when the declines are determined to be other-than-temporary. The following table summarizes the Company’s available-for-sale investments:
|  | March 31, 2021 |
|  |  |  |  | Gross |  | Gross |  |  |  |
|  |  |  |  | Unrealized |  | Unrealized |  | Fair |
|  | Cost |  | Gains |  | Losses |  | Value |
|  | (In thousands) |
Short-term investments: |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 1,495 |  | $ | 13 |  | $ | — |  | $ | 1,508 |
Supranational obligations |  |  | 2,273 |  |  | 1 |  |  | — |  |  | 2,274 |
Agency bonds |  |  | 5,911 |  |  | 24 |  |  | — |  |  | 5,935 |
Total short-term investments |  | $ | 9,679 |  | $ | 38 |  | $ | — |  | $ | 9,717 |
Long-term investments: |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 3,750 |  | $ | 19 |  | $ | (1) |  | $ | 3,768 |
Supranational obligations |  |  | 1,023 |  |  | — |  |  | (1) |  |  | 1,022 |
Agency bonds |  |  | 1,001 |  |  | 1 |  |  | — |  |  | 1,002 |
Total long-term investments |  | $ | 5,774 |  | $ | 20 |  | $ | (2) |  | $ | 5,792 |
|  | March 31, 2020 |
|  |  |  |  | Gross |  | Gross |  |  |  |
|  |  |  |  | Unrealized |  | Unrealized |  | Fair |
|  | Cost |  | Gains |  | Losses |  | Value |
|  | (In thousands) |
Short-term investments: |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 12,000 |  | $ | 52 |  | $ | (1) |  | $ | 12,051 |
Agency bonds |  |  | 2,989 |  |  | 21 |  |  | — |  |  | 3,010 |
Total short-term investments |  | $ | 14,989 |  | $ | 73 |  | $ | (1) |  | $ | 15,061 |
Long-term investments: |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | 745 |  | $ | 18 |  | $ | — |  | $ | 763 |
Agency bonds |  |  | 2,029 |  |  | 42 |  |  | — |  |  | 2,071 |
Supranational obligations |  |  | 1,270 |  |  | 13 |  |  | — |  |  | 1,283 |
Total long-term investments |  | $ | 4,044 |  | $ | 73 |  | $ | — |  | $ | 4,117 |
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position as of March 31, 2021 and 2020, respectively.
|  | March 31, 2021 |
|  | Less Than 12 Months |  | 12 Months or Greater |  | Total |
|  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |
|  |  | Value |  |  | Loss |  |  | Value |  |  | Loss |  |  | Value |  |  | Loss |
|  | (In thousands) |
Certificates of deposit |  | $ | 1,499 |  | $ | (1) |  | $ | — |  | $ | — |  | $ | 1,499 |  | $ | (1) |
Supranational obligations |  |  | 2,037 |  |  | (1) |  |  | — |  |  | — |  |  | 2,037 |  |  | (1) |
|  | $ | 3,536 |  | $ | (2) |  | $ | — |  | $ | — |  | $ | 3,536 |  | $ | (2) |
|  | March 31, 2020 |
|  | Less Than 12 Months |  | 12 Months or Greater |  | Total |
|  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |  |  | Fair |  |  | Unrealized |
|  |  | Value |  |  | Loss |  |  | Value |  |  | Loss |  |  | Value |  |  | Loss |
|  | (In thousands) |
Certificates of deposit |  | $ | 2,498 |  | $ | (2) |  | $ | - |  | $ | - |  | $ | 2,498 |  | $ | (2) |
|  | $ | 2,498 |  | $ | (2) |  | $ | - |  | $ | - |  | $ | 2,498 |  | $ | (2) |
The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains and losses are due to changes in interest rates and bond yields. Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity. At March 31, 2021 and 2020, the deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was ($15,000) and ($30,000), respectively. As of March 31, 2021, contractual maturities of the Company’s available-for-sale investments were as follows:
|  |  |  |  | Fair |
|  | Cost |  | Value |
|  | (In thousands) |
Maturing within one year |  | $ | 9,679 |  | $ | 9,717 |
Maturing in one to three years |  |  | 5,774 |  |  | 5,792 |
|  | $ | 15,453 |  | $ | 15,509 |

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