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Fair Value Measurements
 3 Months Ended
Mar. 31, 2012
Fair Value Measurements
5. Fair Value Measurements

 

The Company has adopted the Fair Value Measurements and Disclosure Topic of the FASB. This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis. The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosure about fair value measurements. This Topic enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Topic requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

 

Assets/Liabilities Measured at Fair Value on a Recurring Basis

 

    Fair Value Measurement at March 31, 2012        
    Quoted Price                  
    in Active     Significant            
      Markets     Other      Significant         
    for Identical     Observable     Unobservable        
    Instruments     Inputs     Inputs        
    Level 1     Level 2     Level 3     Total  
Assets                                
Cash equivalents   $ -     $ 4,604     $ -     $ 4,604  
                                 
Liabilities                                
Derivative liabilities     -       1,750       -       1,750  
TOTAL   $ -     $ 6,354     $ -     $ 6,354  

 

The Company's financial instruments include cash equivalents and derivatives. Only cash equivalents and derivatives are carried at their fair value. The derivative liabilities include warrants denominated in a currency other than the Company’s functional currency and options issued to contractors in a currency other than the functional currency of the Company. The warrants are carried at fair value and calculated using the Black-Scholes option pricing model using the following assumptions: expected dividend 0%; risk-free interest rate of 1.3%-1.5%; expected volatility of 138% - 139%; and a 3.1 or 4.0 year remaining life. The options also use the Black-Scholes model with the following assumptions: expected dividend 0%; risk-free interest rate of 1.73%-1.89% expected volatility of 124%-128%; and a 5.6-6.2 year remaining life. The risk free rate was based on Bank of Canada Bond issues of similar term. Expected volatility was estimated by using historical volatility of weekly close share prices for a period equal to the remaining life of the instrument.