XML 105 R19.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value Measurements
 6 Months Ended
Jun. 30, 2013
Fair Value Measurements [Abstract]  
Fair Value Measurements
14.
Fair Value Measurements
 
Fair value measurements are market-based measurements, not entity-specific measurements.  Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability.  We follow a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values.  The basis for fair value measurements for each level within the hierarchy is described below:
 
·  Level 1: Quoted prices in active markets for identical assets or liabilities.
 
·  Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
 
·  Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.
 
The following table provides a summary of the recognized assets and liabilities that we measure at fair value on a recurring basis:
 
 
 
Balance as of
  
Basis of Fair Value Measurements
 
 
 
June 30, 2013
  
Level 1
  
Level 2
  
Level 3
 
Assets:
 
  
  
  
 
Cash equivalents
 
$
4,644,000
  
$
4,644,000
  
$
—
  
$
—
 
 
                
Liabilities:
                
Warrant liability
 
$
—
  
$
—
  
$
—
  
$
—
 
 
 
 
Balance as of
  
Basis of Fair Value Measurements
 
 
 
December 31, 2012
  
Level 1
  
Level 2
  
Level 3
 
Assets:
 
  
  
  
 
Cash equivalents                                                                  
 
$
6,145,000
  
$
6,145,000
  
$
—
  
$
—
 
 
                
Liabilities:
                
Put option liability                                                                  
 
$
(2,250,000
)
 
$
—
  
$
—
  
$
(2,250,000
)
Warrant liability                                                                  
 
$
(418,000
)
 
$
—
  
$
—
  
$
(418,000
)

We use quoted market prices to determine the fair value of our cash equivalents, which consist of money market funds that are classified in Level 1 of the fair value hierarchy.

We valued our put liability using an option pricing theory based simulation analysis (i.e., a Monte Carlo simulation). Because some of the inputs to our valuation model are either not observable quoted prices or are not derived principally from or corroborated by observable market data by correlation or other means, the put option liability is classified as Level 3 in the fair value hierarchy.

The following table summarizes the change in our Level 3 put option liability value:
 
 
 
Three months ended
  
Six months ended
 
Put option liability
 
June 30, 2013
  
June 30, 2013
 
 
 
  
 
Beginning balance
 
$
(2,500,000
)
 
$
(2,250,000
)
Decrease in fair value recognized in operating expenses
  
2,500,000
   
2,250,000
 
Ending balance
 
$
—
  
$
—
 
 
 
 
Three months ended
  
Six months ended
 
Put option liability
 
June 30, 2012
  
June 30, 2012
 
 
 
  
 
Beginning balance
 
$
(1,640,000
)
 
$
(1,910,000
)
Increase  in fair value recognized in operating expenses
  
(460,000
)
  
(190,000
)
Ending balance
 
$
(2,100,000
)
 
$
(2,100,000
)

Common stock purchase warrants issued in connection with our August 2008 private equity placement do not trade in an active securities market, and as such, we estimate the fair value of these warrants using the option pricing model (see note 5).  Some of the significant inputs are observable in active markets, such as common stock market price, volatility, and risk free rate.  The fair value of these warrants also incorporate our assumptions about future equity issuances and their impact to the down-round protection feature. Because some of the inputs to our valuation model are either not observable quoted prices or are not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as Level 3 in the fair value hierarchy.

The following table summarizes the change in our Level 3 warrant liability value:
 
 
 
Three months ended
  
Six months ended
 
Warrant liability
 
June 30, 2013
  
June 30, 2013
 
 
 
  
 
Beginning balance
 
$
(84,000
)
 
$
(418,000
)
Decrease in fair value recognized in operating expenses
  
84,000
   
418,000
 
Ending balance
 
$
—
  
$
—
 

 
 
Three months ended
  
Six months ended
 
Warrant liability
 
June 30, 2012
  
June 30, 2012
 
 
 
  
 
Beginning balance
 
$
(757,000
)
 
$
(627,000
)
Increase  in fair value recognized in operating expenses
  
(251,000
)
  
(381,000
)
Ending balance
 
$
(1,008,000
)
 
$
(1,008,000
)
 
The Company measures the fair value of its assets acquired and liabilities assumed in business acquisition.  See Note 4 for discussion of fair value measurements of certain assets recorded at fair value on a non-recurring basis.

No other assets or liabilities are measured at fair value on a recurring basis, or have been measured at fair value on a non-recurring basis subsequent to initial recognition, on the accompanying consolidated condensed balance sheet as of June 30, 2013.