Note 10 - Fair Value Measurements

9 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Text Block]

Note 10 – Fair Value Measurements

FASB ASC 820-10, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.

As defined in ASC 820-10, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable.  The Company classifies fair value balances based on the observability of those inputs. ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs 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 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy defined by ASC 820-10 are as follows:

·   Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

·   Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.  Level 2 includes those financial instruments that are valued using models or other valuation methodologies.  These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.  Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.  Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

·   Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources.  These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The valuation techniques that may be used to measure fair value are as follows:

·   Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

·   Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method.

·   Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

The carrying value of the Company’s borrowings is a reasonable estimate of its fair value as borrowings under the Company’s credit facility reflect currently available terms and conditions for similar debt.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of December 31 2012 and March 31, 2012.  As required by FASB ASC 820-10, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

December 31, 2012	Level I		Level II		Level III		Total
Total Assets	$	-	$	-	$	-	$	-
Warrant liability		-		-		200,634		200,634
Total Liabilities	$	-	$	-	$	200,634	$	200,634

March 31, 2012	Level I		Level II		Level III		Total
Total Assets	$	-	$	-	$	-	$	-
Warrant liability		-		-		355,290		355,290
Total Liabilities	$	-	$	-	$	355,290	$	355,290

The Company adopted the guidance of ASC 815, which requires that we mark the value of our warrant liability (see Note 6) to market and recognize the change in valuation in our statement of operations each reporting period. Determining the warrant liability to be recorded requires us to develop estimates to be used in calculating the fair value of the warrant.  The fair value of the warrants is calculated using the Black-Scholes valuation model.

The following table provides a summary of the changes in fair value of our Level 3 financial liabilities from March 31, 2012 through December 31, 2012 as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to the liability held at December 31, 2012:

Level 3 Reconciliation	Beginning at beginning of period		Gains and losses for the period (realized and unrealized)			Purchases, issuances, sales and settlements, net		Transfers in or out of Level 3		Balance at the end of period
Warrant liability		355,290		(268,767	)		114,111				200,634
Total Liabilities	$	355,290	$	(268,767	)	$	114,111	$	-	$	200,634

(1)  $66,193 recorded as deferred debt expense and $47,918 recorded as financing costs

The common stock warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign corporation.  The warrants do not qualify for hedge accounting, and, as such, all changes in the fair value of these warrants are recognized as other income/expense in the statement of operations until such time as the warrants are exercised or expire.  Since these common stock warrants do not trade in an active securities market, the Company recognizes a warrant liability and estimates the fair value of these warrants using the Black-Scholes options model using the following assumptions:

Values at Inception

Date of Warrant	Expiration  Date		Number of Warrants		Exercise  Price		Fair Market Value Per Share		Expected Volatility			Remaining Life in Years		Risk Free  Interest Rate			Warrant  Liability
09-10-2010		09-10-2019		136,920	$	6.70	$	6.70		28.51	%		9		2.81	%	$	267,848
09-10-2010		09-10-2015		10,416	$	6.70	$	6.70		28.51	%		5		1.59	%	$	13,808
07-26-2012		09-10-2019		50,000	$	3.35	$	3.90		42.04	%		7		0.94	%	$	66,193
07-26-2012		09-10-2019		20,000	$	3.35	$	3.90		42.04	%		7		0.94	%	$	26,477
11-20-2012		09-10-2019		20,000	$	3.56	$	3.50		42.45	%		6.83		1.09	%		21,441

Values at March 31, 2012

Date of  Warrant	Expiration  Date		Number of Warrants		Exercise Price		Fair Market Value Per Share		Expected Volatility			Remaining Life in Years		Risk Free Interest Rate			Warrant Liability
09-10-2010		09-10-2019		136,920	$	6.70	$	6.33		53.19	%		7.45		2.23	%	$	338,116
09-10-2010		09-10-2015		10,416	$	6.70	$	6.33		53.19	%		3.45		2.23	%	$	17,174

Values at December 31, 2012

Date of  Warrant	Expiration Date		Number of Warrants		Exercise  Price		Fair Market Value Per Share		Expected Volatility			Remaining Life in Years		Risk Free Interest Rate			Warrant Liability
09-10-2010		09-10-2019		136,920	$	6.70	$	3.65		42.07	%		6.70		1.18	%	$	93,222
09-10-2010		09-10-2015		10,416	$	6.70	$	3.65		42.07	%		2.70		0.36	%	$	2,572
07-26-2012		09-10-2019		50,000	$	3.35	$	3.65		42.07	%		6.58		1.18	%	$	58,612
07-26-2012		09-10-2019		20,000	$	3.35	$	3.65		42.07	%		6.58		1.18	%	$	23,444
11-20-2012		09-10-2019		20,000	$	3.56	$	3.65		42.07	%		6.75		1.18	%	$	22,784

The volatility calculation was based on the 36 months for the Company’s stock price prior to the measurement date, utilizing January 1, 2010 as the initial period, as the Company believes that this is the best indicator of future performance, and the source of the risk free interest rate is the US Treasury rate related to 10 year notes.  The exercise price is per the agreement, the fair market value is the closing price of our stock on the date of measurement, and the expected life is based on management’s current estimate of when the warrants will be exercised.  All inputs to the Black-Scholes options model are evaluated each reporting period.