7. FINANCIAL INSTRUMENTS

6 Months Ended

Sep. 30, 2022

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 September 30, 2022, the Level 1 category included money market funds of $11.5 million, which were included in cash and cash equivalents on the Condensed 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 September 30, 2022, the Level 2 category included short-term investments of $5.4 million and long-term investments of $628,000, which were comprised of certificates of deposit, government 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 September 30, 2022, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of the contingent consideration liability related to the acquisition of MikaMonu. The fair value of the contingent consideration liability was initially determined as of the acquisition date using unobservable inputs. These inputs included 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) to the estimated amount and timing of future cash flows or the probability of success would result in a significantly higher (lower) fair value measurement. Conversely, a significant increase or (decrease) in the risk-adjusted discount rate would result in a significantly (lower) higher 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 Condensed Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of September 30, 2022, the Company used a risk-adjusted discount rate of approximately 16.3% to adjust the probability-weighted cash flows to their present value using probabilities ranging from 0% to 80% for the remaining contingent events. The contingent consideration liability is included in contingent consideration, non-current on the Consolidated Balance Sheet at September 30, 2022 and March 31, 2022 in the amount of $1.9 million and $2.7 million, respectively.

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
	September 30, 2022		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	11,483	$	11,483	$	—	$	—
Marketable securities		6,050		—		6,050		—
Total	$	17,533	$	11,483	$	6,050	$	—
Liabilities:
Contingent consideration	$	1,908	$	—	$	—	$	1,908

			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, 2022		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	16,142	$	16,142	$	—	$	—
Marketable securities		10,337		—		10,337		—
Total	$	26,479	$	16,142	$	10,337	$	—
Liabilities:
Contingent consideration	$	2,738	$	—	$	—	$	2,738

The following table sets forth the changes in fair value of contingent consideration for the six months ended September 30, 2022 and 2021, respectively:

	Six Months Ended September 30,
	2022		2021
	(In thousands)
Contingent consideration, beginning of period	$	2,738	$	4,225
Change due to accretion		102		45
Re-measurement of contingent consideration		(932)		—
Contingent consideration, end of period	$	1,908	$	4,270

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 loss in the Condensed Consolidated Balance Sheets.  The Company had money market funds of $11.5 million and $16.1 million at September 30, 2022 and March 31, 2022, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.  The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

The following table summarizes the Company’s available-for-sale investments:

	September 30, 2022
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
Certificates of deposit	$	3,500	$	—	$	(46)	$	3,454
Agency bonds		2,001		—		(33)		1,968
Total short-term investments	$	5,501	$	—	$	(79)	$	5,422
Long-term investments:
Supranational obligations	$	653	$	—	$	(25)	$	628
Total long-term investments	$	653	$	—	$	(25)	$	628

	March 31, 2022
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
Certificates of deposit	$	4,000	$	—	$	(11)	$	3,989
Supranational obligations		1,007		—		(7)		1,000
Agency bonds		2,011		—		(8)		2,003
Total short-term investments	$	7,018	$	—	$	(26)	$	6,992
Long-term investments:
Certificates of deposit	$	1,750	$	—	$	(18)	$	1,732
Supranational obligations		651		—		(17)		634
Agency bonds		997		—		(18)		979
Total long-term investments	$	3,398	$	—	$	(53)	$	3,345

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 September 30, 2022 and March 31, 2022, respectively.

	September 30, 2022
	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	$	1,720	$	(30)	$	1,733	$	(16)	$	3,453	$	(46)
Agency bonds		1,969		(33)		—		—		1,969		(33)
Supranational obligations		628		(25)		—		—		628		(25)
	$	4,317	$	(88)	$	1,733	$	(16)	$	6,050	$	(104)

	March 31, 2022
	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	$	4,974	$	(26)	$	246	$	(3)	$	5,220	$	(29)
Agency bonds		2,982		(26)		—		—		2,982		(26)
Supranational obligations		1,634		(24)		—		—		1,634		(24)
	$	9,590	$	(76)	$	246	$	(3)	$	9,836	$	(79)

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.

The deferred tax asset related to unrecognized gains and losses on short-term and long-term investments was $29,000 and $22,000 at September 30, 2022 and March 31, 2022, respectively.

As of September 30, 2022, contractual maturities of the Company’s available-for-sale investments were as follows:

			Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	5,501	$	5,422
Maturing in one to three years		653		628
	$	6,154	$	6,050

The Company classifies its short-term investments as “available-for-sale” as they are intended to be available for use in current operations.