Fair Value Measurements

The guidance regarding fair value measurements establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company did not have any transfer of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value hierarchy during the years ended December 31, 2013 and 2012.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2013:



	Fair Value Measurements at
	December 31, 2013
	Total		Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Using Significant Other Unobservable Inputs (Level 2)		Using Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	26,852,560	$	26,852,560			$	—
Mutual funds	18,099,904		—		18,099,904		—
Municipal bonds	805,704		—		805,704		—
Investment in affiliated entity	9,664,587		9,664,587		—		—
Common stock warrants	717,500		—		—		717,500
Total Assets	$	56,140,255	$	36,517,147	$	18,905,608	$	717,500
Liabilities:
Common stock warrants	$	19,540,583	$	—	$	—	$	19,540,583
Total Liabilities	$	19,540,583	$	—	$	—	$	19,540,583

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2012:



	Fair Value Measurements at
	December 31, 2012
	Total		Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Using Significant Other Unobservable Inputs (Level 2)		Using Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	1,686,406	$	1,686,406	$	—	$	—
Mutual funds	7,583,931		—		7,583,931		—
Certificates of deposit	250,000		—		250,000		—
Municipal bonds	200,070		—		200,070		—
Investment in affiliated entity	10,703,332		10,703,332		—		—
Common stock warrants	267,200		—		—		267,200
Total Assets	$	20,690,939	$	12,389,738	$	8,034,001	$	267,200
Liabilities:
Common stock warrants	$	2,859,899	$	—	$	—	$	2,859,899
Total Liabilities	$	2,859,899	$	—	$	—	$	2,859,899

Level 1 assets include money market funds held by the Company that are valued at quoted market prices, as well as the Company’s investment in VGX Int’l, for which the fair value is based on the market value of 8,220,775 common shares on December 31, 2013 and 2012, listed on the Korean Stock Exchange. The Company accounts for its investment at fair value on a recurring basis.

Level 2 assets at December 31, 2013 include mutual funds held by the Company that are initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing market observable data. The Company obtains the fair value of its Level 2 assets from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. The professional pricing service gathers quoted market prices and observable inputs for all of mutual funds from a variety of industry data providers. The valuation techniques used to measure the fair value of the Company's Level 2 financial instruments were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. The Company validates the quoted market prices provided by the primary pricing service by comparing their assessment of the fair values of the Company's investment portfolio balance against the fair values of the Company's investment portfolio balance obtained from an independent source.

Level 3 assets at December 31, 2013 include two warrants received by the Company to purchase shares of common stock of OncoSec Medical Incorporated (“OncoSec”), in connection with the first and second amendments to the Asset Purchase Agreement between the Company and OncoSec signed in September 2011 and March 2012, respectively. The first warrant to purchase 1,000,000 shares of common stock of OncoSec has a contractual life of five years with an exercise price of $1.20 per share. The second warrant to purchase 3,000,000 shares of common stock of OncoSec has a contractual life of five years with an exercise price of $1.00 per share.

As of December 31, 2013 the Company recorded a long-term asset of approximately $718,000 associated with the warrants received to purchase common stock of OncoSec. The Company valued the warrants received in March 2012 as of the issuance date using the Black Scholes pricing model and recorded a $501,000 gain on sale of assets within the consolidated statement of operations. Inputs used in the pricing model include estimates of OncoSec stock price volatility, expected warrant life and risk-free interest rate. The Company develops its estimates based on publicly available historical data and knowledge of OncoSec. The Company reassesses the fair value of the warrants at each reporting date. The assumptions used to estimate the fair values of the OncoSec common stock warrants at December 31, 2013 are presented below:



Risk-free interest rate	0.78%
Expected volatility	85%
Expected life in years	2.75-3.25
Dividend yield	—

As a result of these calculations, the Company recorded an increase (decrease) in fair value of the two warrants of $450,000 and ($334,000) for the years ended December 31, 2013 and 2012, respectively. The change in fair value is reflected in the Company's consolidated statement of operations as a component of change in fair value of common stock warrants.

The following table presents a summary of changes in fair value of the Company’s total Level 3 financial assets for the years ended December 31, 2013 and 2012:



	Year Ended		Year Ended
	December 31, 2013		December 31, 2012
Balance at beginning of year	$	267,200	$	100,000
Common stock warrant recorded at fair value upon acquisition	—		501,000
Increase (Decrease) in fair value included in change in fair value of common stock warrants	450,300		(333,800		)
Balance at end of year	$	717,500	$	267,200

Level 3 liabilities held as of December 31, 2013 consist of common stock warrant liabilities associated with warrants to purchase the Company's common stock issued in July 2009, January 2011 and March 2013. Level 3 liabilities held as of December 31, 2012 consist of common stock warrant liabilities associated with warrants to purchase the Company's common stock issued in July 2009, January 2011 and December 2011. During the year ended December 31, 2013, warrants to purchase 21,164,997 shares of common stock were exercised.

As of December 31, 2013 the Company recorded a $19.5 million common stock warrant liability. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The Company develops its estimates based on historical data. The range of assumptions used to estimate the fair values of common stock warrants at December 31, 2013 are presented below:



Risk-free interest rate	0.13%-1.75%
Expected volatility	90%-112%
Expected life in years	.50-4.70
Dividend yield	—

Changes in these assumptions as well as in the Company's stock price on the valuation date can have a significant impact on the fair value of the common stock warrant liability. As a result of these calculations, the Company recorded an increase (decrease) in fair value of $46.1 million, $(2.3) million and $(8.8) million for the years ended December 31, 2013, 2012 and 2011, respectively. The significant change in fair value was primarily due to the change in the Company's stock price during the period. The change in fair value is reflected in the Company's consolidated statement of operations as a component of change in fair value of common stock warrants. Warrants that were exercised during the period were revalued on the day prior to exercise and then reclassified into stockholders' equity upon exercise.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the years ended December 31, 2013 and 2012:



	Year Ended			Year Ended
	December 31, 2013			December 31, 2012
Balance at beginning of year	$	2,859,899		$	5,176,319
Record fair value of warrants issued in March 2013 financing	5,968,244			—
Increase (Decrease) in fair value included in change in fair value of common stock warrants	46,082,969			(2,316,420		)
Change in classification from liability to stockholders' equity due to warrant exercises	(35,370,529		)	—
Balance at end of year	$	19,540,583		$	2,859,899