Stockholders' Equity

9 Months Ended

Dec. 28, 2012

Stockholders' Equity

Note 7.  Stockholders’ Equity

Warrants

At December 28, 2012, the Company had the following warrants outstanding and exercisable which could be exchanged into shares of Class A Common Stock:

	Shares (000’s)		Exercise Price
2007 Warrants		0	$	1.7900
2010 Warrants		267	$	1.4040
Total		267

At March 31, 2012, the Company had the following warrants outstanding and exercisable which could be exchanged into shares of Class A Common Stock:

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

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 was subject to adjustment based on a formula contained in the private placement agreement each investor in the 2007 Offering executed, if the Company issued Class A Common Stock 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.  Accordingly, the number of warrants has been increased by 24,095 as a result of the change in the exercise price.  The 2007 Warrants expired during the quarter ended September 28, 2012,, were not exercised and therefore are no longer outstanding.

In connection with the Fifth Note Amendment to the Picometrix Notes described in Note 6, the Company issued 267,196 warrants to Robin Risser and Steve Williamson (the 2010 Warrants).  Each 2010 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 warrants agreements pursuant to which the 2010 Warrants were issued, if the Company  issues Class A Common Stock in the future below $1.404.  Future adjustments cannot reduce the exercise price below $1.17.  As a result of the exercise price reset feature, the fair values of the warrants are recorded as a liability.

The Company records the change in the fair value of warrants accounted for as liabilities as a loss or income to its consolidated statement of operations.  Such amounts were an income item of $26,000 and $719,000 for the nine months ended December 28, 2012 and December 30, 2011, respectively.  For the three months ended December 28, 2012 and December 30, 2011, the change in fair value of the warrants were income items of $13,000 and $84,000, respectively. The 2010 Warrants had a fair value of $26,000 as of March 31, 2012 and had no fair value at the end of the current quarter.

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

	December 28, 2012		December 30, 2011
Expected term (in years)		2.9		3.9
Volatility		63.3%		72.20%
Expected dividend		--		--
Risk-free interest rate		0.35%		2.0%

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 warrant liability during the nine months ended December 28, 2012 and year ended March 31, 2012.

	For Periods Ended
	Nine Months Ended December 28, 2012			Year Ended March 31, 2012
Level 3 Warrants, beginning of period	$	26,000		$	732,000
Change in fair value of warrant liability		(26,000	)		(706,000	)
Level 3 Warrants, end of period	$	-		$	26,000