Note 13 — Derivative Financial Instruments

As of June 30, 2013, we had recorded a derivative liability of $4.5 million representing the estimated fair value of our outstanding stock warrants which was triggered by our June 26, 2013 capital raise that included full ratchet anti-dilution protection for the new warrants issued during the offering. With the anti-dilution protection afforded these new warrants, we no longer met the criteria for equity accounting for our warrants and therefore began accounting for all warrants as liabilities. In that our warrants were accounted for under the equity method at March 31, 2013, we had no similar liability at that date.

The fair value of the warrants at June 30, 2013 was estimated using the Black-Scholes pricing model based on the following significant assumptions:

Expected Term		0.36 years
Volatility*		105.93%
Risk-Free Rate		0.06%
Dividend Yield		—

*The Company’s estimates of expected volatility are based on the historic volatility of the Company’s common stock as well as the historic volatility of the Company’s peers due to the limited availability of historical trading information on the Company itself.

During the quarter ended June 30, 2013, we also realized a $2.9 million derivative gain related to the embedded conversion options included in the Very Hungry Notes. These conversion options were tied to our previously announced investor rights offering on May 22, 2013 and when this rights offering was subsequently terminated on June 17, 2013 we recognized a gain equal to the fair value of these conversion options.