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FAIR VALUE MEASUREMENTS | 12 Months Ended
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Dec. 31, 2011
FAIR VALUE MEASUREMENTS [Abstract] |
FAIR VALUE MEASUREMENTS | NOTE 6. FAIR VALUE MEASUREMENTS Certain assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 are measured in accordance with FASB ASC Topic 820-10-05, Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements. The statement requires fair value measurement be classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The following table summarizes our financial instruments measured at fair value as of December 31, 2011 (in thousands):
|  | December 31, 2011 Fair Value Measurements |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and equivalents – United States |  | $ | 4,870 |  |  | $ | 4,870 |  |  | $ | – |  |  | $ | – |
Cash and equivalents - Foreign currency |  |  | 10 |  |  |  | 10 |  |  |  | – |  |  |  | – |
Total assets |  | $ | 4,880 |  |  | $ | 4,880 |  |  | $ | – |  |  | $ | – |
Derivative Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability (2) |  | $ | 105 |  |  | $ | – |  |  |  | – |  |  | $ | 105 |
Due to Lican (1) |  |  | -- |  |  |  | – |  |  | $ | – |  |  |  | -- |
Total liabilities |  | $ | 105 |  |  | $ | – |  |  | $ | – |  |  | $ | 105 |
The following table summarizes our financial instruments measured at fair value as of December 31, 2010 (in thousands):
|  | December 31, 2010 Fair Value Measurements |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and equivalents – United States |  | $ | 3,788 |  |  | $ | 3,788 |  |  | $ | – |  |  | $ | – |
Cash and equivalents - Foreign currency |  |  | 39 |  |  |  | 39 |  |  |  | – |  |  |  | – |
Total assets |  | $ | 3,827 |  |  | $ | 3,827 |  |  | $ | – |  |  | $ | – |
Derivative Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability (2) |  | $ | 332 |  |  | $ | – |  |  |  | – |  |  | $ | 332 |
Due to Lican (1) |  |  | 172 |  |  |  | – |  |  | $ | – |  |  |  | 172 |
Total liabilities |  | $ | 504 |  |  | $ | – |  |  | $ | – |  |  | $ | 504 |
(1) | Thisamount has been reduced to zero in 2011 as a result of the Steve Livneh settlement (See Note 12). At December 31, 2010 this amount was based upon the probable realization of 75,000 out of a possible 150,000 contingent shares related to the Lican Developments Ltd. Asset Purchase Agreement, which was valued at the adjusted current fair value market share price.
(2) | On April 18, 2010, we entered into a securities purchase agreement with purchasers named therein to raise in the aggregate of approximately $3 million in a private placement of common stock and warrants pursuant to Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder. Upon closing of the transaction, we entered into a registration rights agreement with the buyers and issued to the buyers an aggregate of 571,429 shares of common stock at a per share price of $5.25, and warrants to acquire additional shares of common stock of up to fifty (50%) percent of the common shares acquired by each respective buyer at an exercise price of $6.00 per share.
The warrants are immediately exercisable and will terminate on the fifth anniversary of the issuance date. The exercise price of the warrants is subject to adjustment so that, among other things, if we issue any shares of common stock (including options and warrants, with standard exceptions), at a price that is lower than the exercise price then in effect, the exercise price then in effect will be reduced to such lower price. In connection with the private placement, we paid certain cash fees and issued a warrant to the placement agent, Rodman & Renshaw, LLC, for the purchase of 42,857 shares of Common Stock at an exercise price of $6.00 per share for its activity engaged on behalf of the Company. In addition, the Company paid certain cash fees and issued a warrant to Gilford Securities Incorporated for the purchase of 10,000 shares of Common Stock at an exercise price of $6.00 per share for its activity engaged on behalf of the Company. The warrants issued contained provisions for a net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer or share exchange). Due to this contingent redemption provision, the warrants require liability classification according to FASB ASC 480-10, “Distinguishing Liabilities from Equity" and must be recorded at fair value each reporting period. These warrants required classification as liabilities at inception and ongoing measurement at fair value each reporting period thereafter. The warrants are valued using a binomial lattice valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in this model at inception and as of December 31, 2011 included an expected life of 4 years, an expected dividend yield of zero, estimated volatility of 47%, and risk-free rates of return of 0.2%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the warrants and volatility is based on a weighted average of the historical volatility of our stock price and peer company stock price volatility. We also take into consideration a probability assumption for anti-dilution. Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands):
Description |  | Year Ended December 31, 2011 |  |  | Year Ended December 31, 2010 |
Beginning balance |  | $ | 504 |  |  | $ | 218 |
Purchases, issuances, and settlements |  |  | -- |  |  |  | 799 |
Reduced Lican liability from settlement |  |  | (111) |  |  |  | -- |
Total gain included in earnings (3) |  |  | (288) |  |  |  | (513 | )
Ending Balance |  | $ | 105 |  |  | $ | 504 |
(3) | Gains for the period ended December 31, 2011 related to the revaluation of equity based liabilities. The gains related to the warrant liability portion were calculated from the date of the warrant issuance (April 18, 2010) through December 31, 2011. These gains and losses are reflected in our consolidated statements of operations as a component of other income (expense).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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