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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2013
Fair Value Measurements  
NOTE 5. FAIR VALUE MEASUREMENTS

Certain assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2013 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 September 30, 2013 (in thousands):

 

   

September 30, 2013

Fair Value Measurements

  
    Total     Level 1     Level 2     Level 3  
Assets:                        
Cash and equivalents – United States   $ 2,501     $ 2,501     $ -     $ --  
                                 
Liabilities:                                
Warrant liability (1)    $ 68     $ –     $ –     $ 68  

 

The following table summarizes our financial instruments measured at fair value as of December 31, 2012 (in thousands):

 

   

December 31, 2012

Fair Value Measurements

  
    Total     Level 1     Level 2     Level 3  
Assets:                        
Cash and equivalents – United States   $ 4,162     $ 4,162     $ –     $ –  
                                 
Liabilities:                                
    Warrant liability (1)   $ 85     $ –     $ –     $ 85  

 

(1)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 September 30, 2013 included an expected remaining life of 2 years, an expected dividend yield of zero, estimated volatility range between 40% - 43%, and risk-free rates of return range between 0.31% - 0.40%. 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.

. 

Activity in our Level 3 liabilities was as follows (in thousands):

 

Description  

September 30,

2013

    

December 31,

2012

  
             
Beginning balance   $ 85     $ 105  
Total loss (gain) included in earnings (2)     (17)       (20 )
                 
Ending Balance   $ 68     $ 85  

  

(2)Gains and losses for the periods related to the revaluation of equity based liabilities. These gains or losses are included in our consolidated statements of operations.