|
10. Fair Value Measurements
The FASB has established a framework for measuring fair value using generally accepted accounting principles. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2. Inputs to the valuation methodology include:
· Quoted prices for similar assets or liabilities in active markets
· Quoted prices for identical or similar assets or liabilities in inactive markets
· Inputs other than quoted prices that are observable for the asset or liability
· Inputs that are derived principally from or corroborated by observable market data by correlation or other means
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The table below presents our assets and liabilities that are measured at fair value on a recurring basis during the first quarter of Fiscal 2012 and are categorized using the fair value hierarchy (in thousands):
|
|
|
Fair Value Measurements at June 30, 2011
|
|
|
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Cash Equivalents
|
|
$
|
9,539
|
|
$
|
9,539
|
|
$
|
|
|
$
|
|
|
|
Warrant Liability
|
|
$
|
(14,498
|
)
|
$
|
|
|
$
|
|
|
$
|
(14,498
|
)
|
Cash equivalents include cash held in money market and U.S. treasury funds at June 30, 2011.
The table below presents our assets and liabilities that are measured at fair value on a recurring basis during the fiscal year ended March 31, 2011 and are categorized using the fair value hierarchy (in thousands):
|
|
|
Fair Value Measurements at March 31, 2011
|
|
|
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Cash Equivalents
|
|
$
|
8,289
|
|
$
|
8,289
|
|
$
|
|
|
$
|
|
|
|
Restricted cash
|
|
$
|
1,250
|
|
$
|
1,250
|
|
$
|
|
|
$
|
|
|
|
Warrant Liability
|
|
$
|
(20,772
|
)
|
$
|
|
|
$
|
|
|
$
|
(20,772
|
)
|
Basis for Valuation
The carrying values reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. As the Companys obligations under the Credit Facility are based on adjustable market interest rates, the Company has determined that the carrying value approximates the fair value. The carrying values and estimated fair values of these obligations are as follows (in thousands):
|
|
|
As of
June 30, 2011
|
|
As of
March 31, 2011
|
|
|
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
|
Obligations under the credit facility
|
|
$
|
6,394
|
|
$
|
6,394
|
|
$
|
7,080
|
|
$
|
7,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the Companys warrant liability (see Note 9Underwritten and Registered Direct Placement of Common Stock) recorded in the Companys financial statements is determined using the MonteCarlo simulation valuation method and the quoted price of the Companys common stock in an active market, a Level 3 measurement. In the notes to its consolidated financial statements for the quarter ended June 30, 2010, the Company classified the inputs to determine the fair value of the warrant liability as Level 2 in the fair value hierarchy; however, the Company has reclassified such warrant liability as Level 3 for all periods presented because the Companys fair value determination was made using significant unobservable inputs. Volatility is based on the actual market activity of the Companys stock. The expected life is based on the remaining contractual term of the warrants and the risk free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants expected life.
The Company calculated the estimated fair value of warrants on the date of issuance and at each subsequent reporting date using the following assumptions:
|
|
|
Three Months Ended June 30,
2011
|
|
Three Months Ended June 30,
2010
|
|
|
Risk-free interest rates range
|
|
0.1% to 1.5%
|
|
0.6% to 2.4%
|
|
|
Contractual term (in years)
|
|
0.6 years to 4.9 years
|
|
1.6 years to 5.9 years
|
|
|
Expected volatility range
|
|
65.6% to 83.3%
|
|
87.8% to 102.8%
|
|
From time to time, the Company sells common stock warrants that are derivative instruments. The Company does not enter into speculative derivative agreements and does not enter into derivative agreements for the purpose of hedging risks.
As discussed above, the Company adopted authoritative guidance issued by the FASB on contracts in an entitys own equity that requires the common stock warrants to be classified as liabilities at their estimated fair value with changes in fair value at each reporting date recognized in the statement of operations. Prior to April 1, 2009, none of the assets and liabilities of the Company included in the consolidated balance sheets were measured at fair value using significant unobservable inputs (Level 3).
The table below provides a reconciliation of the beginning and ending balances for the warrant liability which is measured at fair value using significant unobservable inputs (Level 3) (in thousands):
|
Warrant liability:
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
26,803
|
|
|
Total realized and unrealized (gains) losses:
|
|
|
|
|
Expense included in change in fair value of warrant liability
|
|
3,667
|
|
|
Purchases, issuances and settlements
|
|
(9,698
|
)
|
|
Balance at March 31, 2011
|
|
$
|
20,772
|
|
|
Total realized and unrealized (gains) losses:
|
|
|
|
|
Expense included in change in fair value of warrant liability
|
|
(5,626
|
)
|
|
Purchases, issuances and settlement
|
|
(648
|
)
|
|
Balance at June 30, 2011
|
|
$
|
14,498
|
|