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Fair Value Measurement
 9 Months Ended
Sep. 30, 2012
Fair Value Measurement [Abstract]  
Fair Value Measurement

Note 3. Fair Value Measurement

The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Directly or indirectly observable inputs other than in Level 1, that include quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 — Unobservable inputs which are supported by little or no market activity that reflects the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The fair value hierarchy also requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Our cash equivalents are classified as Level 1 because they are valued primarily using quoted market prices.

Our bonds payable, marketable debt securities, and liability for warrants issued in our 2008 and 2009 financing, are classified as Level 2 as they are valued using alternative pricing sources and models utilizing market observable inputs.

Our liability for warrants issued in our 2011 financing is classified as Level 3 as the liability is valued using a Monte Carlo simulation model. Some of the significant inputs used to calculate the fair value of warrant liability include our stock price on the valuation date, expected volatility of our common stock as traded on NASDAQ, and risk-free interest rates that are derived from the yield on U.S. Treasury debt securities, all of which are observable from active markets. However, the use of a Monte Carlo simulation model requires the input of additional subjective assumptions including management’s assumptions regarding the likelihood of a re-pricing of these warrants pursuant to anti-dilution provisions and the progress of our R&D programs and its affect on potential future financings.

The following table presents financial assets and liabilities measured at fair value as of September 30, 2012:

 

                                 
    Fair Value Measurement
at Report Date Using		              
    Quoted Prices
in Active Markets
for
Identical Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Unobservable
Inputs
(Level 3)		     As of
September 30,
2012		  

Financial assets:

                                

Cash equivalents:

                                

Money market funds

   $ 1,170,798     $ —       $ —       $ 1,170,798  

U.S. Treasury debt obligations

     14,260,825       —         —         14,260,825  

Marketable securities:

                                

Debt securities

     —         6,031,735       —         6,031,735  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total financial assets

   $ 15,431,623     $ 6,031,735     $ —       $ 21,463,358  
   

 

 

    

 

 

    

 

 

    

 

 

  

Financial liabilities:

                                

Bond obligation

   $ —       $ 381,250     $ —       $ 381,250  

Warrant liabilities

     —         234,488       14,248,660       14,483,148  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total financial liabilities

   $ —       $ 615,738     $ 14,248,660     $ 14,864,398  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

Level 2 Reconciliation

The following table presents a roll forward for financial assets and liabilities measured at fair value using significant other observable inputs (Level 2) for 2012.

 

                                         
    Level 2
Beginning
Balance 12/31/11
$		     Net transfers (to)
from
Level 1
$		     Change
included in
earnings
$		     Settled
$		     Level 2
Ending
Balance 09/30/12
$		  

Marketable debt securities

     3,280,591       2,751,144       —         —         6,031,735  

Bond obligation

     522,500       —         —         (141,250 )      381,250  

Warrant liabilities

     31,195       —         203,293       —         234,488  

Transfers from Level 2 to Level 1 are the net of, (i) maturities of short term marketable debt securities into cash and cash equivalents and (ii) additional purchases of marketable debt securities.

Level 3 Reconciliation

The following table presents a roll forward for liabilities measured at fair value using significant unobservable inputs (Level 3) for 2012.

 

         
    Warrant
Liabilities		  

Balance at December 31, 2011

   $ 6,011,120  

Less fair value of warrants exercised

     (1,823,907 ) 

Less fair value of warrants expired

     (3,560,063 ) 

Add fair value of warrants issued

     1,714,436  

Add change in fair value of warrants

     11,907,074  
   

 

 

  

Balance at September 30, 2012

   $ 14,248,660