Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Assets and Liabilities Measured at Fair Value

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
	September 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	)

Level 3 Put Option Liability and Warrant Liability

The following table summarizes the change in our Level 3 put option liability value:

Put option liability	Three months ended September 30, 2013		Nine months ended September 30, 2013

Beginning balance	$	—	$	(2,250,000	)
Decrease in fair value recognized in operating expenses		—		2,250,000
Ending balance	$	—	$	—

Put option liability	Three months ended September 30, 2012			Nine months ended September 30, 2012

Beginning balance	$	(2,100,000	)	$	(1,910,000	)
Increase in fair value recognized in operating expenses		(300,000	)		(490,000	)
Ending balance	$	(2,400,000	)	$	(2,400,000	)

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 estimated 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:

Warrant liability	Three months ended September 30, 2013		Nine months ended September 30, 2013

Beginning balance	$	—	$	(418,000	)
Decrease in fair value recognized in operating expenses		—		418,000
Ending balance	$	—	$	—

Warrant liability	Three months ended September 30, 2012			Nine months ended September 30, 2012

Beginning balance	$	(1,008,000	)	$	(627,000	)
Increase in fair value recognized in operating expenses		(863,000	)		(1,244,000	)
Ending balance	$	(1,871,000	)	$	(1,871,000	)

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

+ References+ Details