Stockholders' Equity

9 Months Ended

Dec. 30, 2011

Stockholders' Equity

Note 7.  Stockholders’ Equity

Warrants

At March 31, 2011, the Company had the following warrants outstanding and exercisable:

	Shares (000’s)		Exercise Price
Convertible Note – 2nd Tranche *		713	$	1.7000
2007 Warrants		630	$	1.7900
2010 Warrants		267	$	1.4040
Total		1,610

At December 30, 2011, the Company had the following warrants outstanding and exercisable:

	Shares (000’s)		Exercise Price
2007 Warrants		630	$	1.7900
2010 Warrants		267	$	1.4040
Total		897

* Expired on September 20, 2011

In fiscal years 2005 and 2006, warrants (the Convertible Note Warrants) were issued in connection the issuance of convertible debt.  The convertible debt has all been subsequently converted into Class A Common Stock.  The Convertible Note Warrants were issued in two tranches with the final 712,682 shares expired September 20, 2011.

On September 14, 2007, the Company completed a private placement (the 2007 Offering). Each unit sold by the Company in the 2007 Offering consisted of four (4) shares of the Company’s Class A Common Stock, par value $0.001 per share (the 2007 Offering Shares) and one (1) five year warrant exercisable for one share of Class A Common Stock at an exercise price of $1.85 each a 2007 Warrant. The Company sold a total of 741,332 units consisting of 2,965,332 2007 Offering Shares and 741,332 2007 Warrants, of which 33,000 units consisting of 132,000 2007 Offering Shares and 33,000 2007 Warrants were to related parties at the prevailing closing stock price of $1.83 per share, for an aggregate purchase price of $4.5 million.  The offer and sale of the 2007 Offering Shares and 2007 Warrants were made pursuant to Rule 506 promulgated pursuant to the Securities Act and each of the investors was an accredited investor as defined by Rule 501 promulgated pursuant to the Securities Act.  The exercise price for the 2007 Warrants is subject to adjustment based on a formula contained in the Private Placement agreement, if Class A Common Stock is issued in the future below the $1.85 exercise price.  The exercise price was reduced to $1.79 in June 2010 as a result of the issuance of Class A Common Stock to the MEDC and MSF at a price of $0.54 per share.  In addition, the number of warrants increased by 24,095 as a result of the change in exercise price.  Future adjustments cannot reduce the exercise price below $1.79.

As described in Note 6, on November 29, 2010, the Company issued 267,196 warrants to Robin Risser and Steve Williamson (the 2010 Warrants).  Each warrant is exercisable over a five year period for one share of the Company’s Class A Common Stock at an exercise price of $1.404 subject to adjustment, based on a formula in the Warrant Agreements, if Class A Common Stock is issued in the future below the $1.404 exercise price.  Future adjustments cannot reduce the exercise price below $1.17.  As a result of the exercise price reset feature, the fair value of the warrants is recorded as a liability.

As a result of adopting the FASB’s guidance, effective April 1, 2009, on how an entity should evaluate whether an instrument is indexed to its own stock, the Company’s outstanding warrants, which previously were treated as equity, were no longer afforded equity treatment because of their exercise price reset features.

The fair value of the 2010 Warrants was approximately $13,000 at December 30, 2011 and $732,000 at March 31, 2011.  Since the Convertible Note Warrants expired on September 20, 2011, these warrants did not have a fair value at December 30, 2011.  During the three and nine month periods ended December 30, 2011, the Company recorded other income of $84,000 and $719,000, respectively, for the change in fair value of the warrant liability.  During the three and nine month periods ended December 31, 2010, the Company recorded other expense of $97,000 and $186,000, respectively, for the change in fair value of the warrant liability.

The fair value of the warrants was estimated using the Monte Carlo option pricing model using the following assumptions:

	December 30, 2011			December 31, 2010
Expected term (in years)		3.9			0.7 – 4.9
Volatility		72.2	%		50.64% - 65.49	%
Expected dividend		--			--
Risk-free interest rate		2.0	%		0.83% - 1.16	%

Expected volatility is based primarily on historical volatility using the weekly stock price for the most recent period equivalent to the term of the warrants.  A dividend yield of zero has been assumed based on the Company’s actual past experience and the fact that the Company does not anticipate paying a dividend on its shares in the future.  The Company has based its risk-free interest on the implied yield available on U.S. Treasury issues with equivalent expected term.

The inputs used to determine the fair value of the warrants are classified as Level 3 inputs in the FASB’s fair value hierarchy, primarily regarding the computation of historical volatility. Management classified these as Level 3 measurements as they are based on unobservable inputs and involve management judgment.

The following chart represents the activity in the Company’s Level 3 warrants during the nine months ended December 30, 2011 and December 31, 2010.

	For Periods Ended
	December 30, 2011			December 31, 2010
Level 3 Warrants, beginning of period	$	732,000		$	112,000
Transfer to Additional Paid in Capital		--			(32,000	)
Addition – Related Party Warrants, initial fair value		--			161,000
Change in fair value of warrant liability		(719,000	)		186,000
Level 3 Warrants, end of period	$	13,000		$	427,000

Preferred Stock

In prior Annual Reports on Form 10-K and Quarterly Reports on Form10-Q, the Company showed 40,000 shares of Class A convertible preferred stock outstanding on the Balance Sheet at zero value.  After a review of historical conversion detail, it was determined that these 40,000 shares were in fact converted to Class A Common Stock and should not be shown as a separate line item in Shareholders’ Equity.  In the Company’s Quarterly Report on Form10-Q for the period ended December 30, 2011, this line was removed.