Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value Of Financial Instruments

Fair Value Of Financial Instruments

6. Fair Value of Financial Instruments

The Company's financial instruments, carried at cost, include accounts receivable, accounts payable, a line of credit, notes payable, and capital lease obligations. The carrying amounts of accounts receivable and accounts payable approximate fair value because of their short-term nature. The carrying value of the line of credit, notes payable and capital lease obligations approximate fair value because the interest rates fluctuate with market interest rates or the fixed rates are based on current rates offered to the Company for debt with similar terms and maturities and the Company's credit rating has not changed significantly since the origination of its line of credit, notes payable or capital lease obligations.

As of June 30, 2011, the Company measures its fair value instruments under ASC Topic 825, Financial Instruments, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. It also establishes a three-level valuation hierarchy for disclosures of fair value measurement as follows:

• Level 1 – quoted prices in active markets for identical assets or liabilities,

• Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date, and

• Level 3 – significant unobservable inputs that reflect management's best estimate of what market participants would use to price the assets or liabilities at the measurement date.

Private Placement Warrants Liability

As of June 30, 2011, the Company's sole financial instrument measured at fair value is the Company's warrants issued in the Private Placement, discussed further in Note 10. The liability for these warrants is valued based on unobservable inputs and thus is considered a Level 3 financial instrument. The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, Distinguishing Liabilities from Equity, and ASC 815. The value of the warrants was determined based upon an exercise price of $13.00 per share (post-Reverse Split), the purchase price for (i.e., the value of) the Company's preferred stock and related warrants of $18.0 million in aggregate, and an assessment of the risk-free interest rate of 2.1% using 5-year Treasury Bond yields, an anticipated volatility factor of 50.0% from peer group companies, and a zero dividend yield, all incorporated into the valuation using the Black-Scholes option pricing model. Some level 3 inputs were used to estimate the fair value of these warrants due to the limited trading activity of the Company's common stock and no trading market for the warrants, and a lack of comparable market quotes for similar entities. As a result of limited market trading of its common stock to date, the Company believes that changes in the fair value of the warrant liability will be insignificant.

The following table summarizes fair value measurements by level as of June 30, 2011 for the Company's financial instrument measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
Private placement warrant liability	$	—	$	—	$	2,783

The following table summarizes the change in the fair value of the Company's Level 3 financial instrument for the six months ended June 30, 2011:

Level 3 Liability – Private placement warrant liability	Six months ended June 30, 2011
Balance at December 31, 2010	$	—
Warrants issued		2,888
Changes in warrant liability value		(105	)
Balance at June 30, 2011	$	2,783

As of December 31, 2010, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.