Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

8. Fair Value of Financial Instruments

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. A majority of the Company’s financial liabilities have been classified as Level 2. These Level 2 liabilities consist of warrant liabilities and have been valued using the Black-Scholes pricing model. The fair values of our money markets (cash equivalents), are readily determinable and have therefore been classified as Level 1 assets. The Company assesses the levels of its financial instruments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy.

The Company uses the Black-Scholes pricing model to calculate fair value of its warrant liabilities. The Company considered using methods of valuation other than Black-Scholes for the year ended December 31, 2010, but due to the short term nature of these instruments, which expired in August 2011, the Company determined that using a different valuation method would not likely result in a materially different valuation. Key assumptions used to apply these models are as follows:

	December 31, 2010
Risk free interest rate		0.19	%
Expected life		0.62 years
Expected volatility of common share price		70	%
Common share price	$	5.40

Below is a summary of our fair value measurements at December 31,2010:

	Value at year end		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(in thousands)
Year ended December 31, 2010:
Warrant liabilities	$	861	$	—	$	861	$	—

There were no transfers between level 1, 2 or 3 during the years ended December 31, 2011 or 2010.

A summary of changes in the Warrant Liabilities is as follows:

	Fair Value of Warrant Liabilities
	(in thousands)
Balance January 1, 2010	$	1,633
Change in fair value of warrant liabilities		1,241
Intrinsic value of liability warrants exercised		(2,013	)
Balance December 31, 2010	$	861
Change in fair value of warrant liabilities		524
Intrinsic value of liability warrants exercised		(1,385	)
Balance December 31, 2011	$	—

The Company’s financial instruments consist of cash equivalents, accounts payable and accrued expenses. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature.