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FAIR VALUE | 9 Months Ended
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Sep. 30, 2014
Fair Value |
FAIR VALUE |
| 3. | FAIR VALUE
As defined in ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
| · | Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
| · | Level 2: Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
| · | Level 3: Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in its measurement of fair value. The fair value of the Company’s financial assets and liabilities that are measured on a recurring basis were determined using the following inputs as of December 31, 2013 (in $000s):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 26,476 |  |  | $ | — |  |  | $ | — |  |  | $ | 26,476 |
Financial instrument associated with stock purchase agreement |  |  | — |  |  |  | 397 |  |  |  | — |  |  |  | 397 |
Total assets |  | $ | 26,476 |  |  | $ | 397 |  |  | $ | — |  |  | $ | 26,873 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other liabilities measured at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Scottish Enterprise agreement |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | 20 |
Other liabilities measured at fair value |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | 20 |
Total liabilities |  | $ | — |  |  | $ | — |  |  | $ | 20 |  |  | $ | 20 |
The fair value of the Company’s financial assets and liabilities that are measured on a recurring basis were determined using the following inputs as of September 30, 2014 (in $000s):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  | $ | 20,218 |  |  | $ | — |  |  | $ | — |  |  | $ | 20,218 |
Financial instrument associated with stock purchase agreement |  |  | — |  |  |  | 277 |  |  |  | — |  |  |  | 277 |
Total assets |  | $ | 20,218 |  |  | $ | 277 |  |  | $ | — |  |  | $ | 20,495 |
The following table reconciles the beginning and ending balances of Level 3 inputs for the nine months ended September 30, 2014 (in $000s):
|  | Level 3 |
Balance as of December 31, 2013 |  |  | 20 |
Change in valuation of Scottish Enterprise agreement |  |  | (20 | )
Balance as of September 30, 2014 |  |  | — |
Financial Instrument Associated with Stock Purchase Agreement On November 14, 2013, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC (“Aspire”) (the “Purchase Agreement”) under which Aspire purchased 511,509 shares of common stock for an aggregate purchase price of $2.0 million and committed to purchase up to an additional 3,042,038 shares from time to time as directed by the Company over the next two years at prices derived from the market prices on or near the date of each sale (see Note 8 – Stockholders’ Equity). The Company has accounted for the right to sell additional shares under the Purchase Agreement based on the guidance of ASC 815 “Derivative Financial Instruments” (“ASC 815”), which requires the instrument to be measured at fair value with changes in fair value reported in earnings. The instrument had a fair value of $0.5 million at the date of the transaction and a fair value of $0.4 million and $0.3 million as of December 31, 2013 and September 30, 2014, respectively. The $0.1 million decrease in the fair value of the Purchase Agreement during the nine months ended September 30, 2014 was recognized as a loss in the consolidated statements of operations. The primary inputs used to determine fair value are the price of the Company’s common stock, the remaining term, and aggregate share purchases on the measurement date. The fair value of the Purchase Agreement is remeasured each reporting period and gains or losses will continue to be reported until the agreement is exhausted or expired. Liabilities Measured at Fair Value Scottish Enterprise Agreement On June 22, 2009, the Company amended an agreement with Scottish Enterprise (“SE”) (the “Amendment”) pursuant to which, if the Company failed to maintain minimum staff levels before July 1, 2014 without SE’s prior consent, the Company would have been obligated to pay up to £4 million to SE, calculated as a maximum of £4 million (approximately $6.5 million at December 31, 2013) less the market value of the shares held by SE at the time staffing levels in Scotland fell below the prescribed minimum levels. The staffing levels did not fall below the minimum level before July 1, 2014 and the Company is no longer liable to make any payments under the Amendment. This arrangement was accounted for as a liability under ASC Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”), and is measured at fair value. Changes in fair value are recognized in earnings. Due to the nature of the associated contingency and the likelihood of occurrence, the Company concluded the fair value of this liability was approximately $20,000 at December 31, 2013. The most significant inputs in estimating the fair value of this liability were the probabilities that staffing levels would fall below the prescribed minimum and that the Company would be unable or unwilling to replace such employees within the prescribed time period. At December 31, 2013, the Company used a scenario analysis model to arrive at the fair value of the Scottish Enterprise Agreement and assumed a 30% probability of falling below a minimum staffing level and a 1% probability that the occurrence of such an event would not be cured within the prescribed time period. At September 30, 2014, the Company had no further liability under the agreement and the fair value of the liability was $0. Changes in the value of this liability have been recorded in the consolidated statement of operations.

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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 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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