Derivative Instruments and Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and their Respective Fair Values Measured using Level Three Inputs

The derivatives and their respective fair values measured using Level 3 inputs are as follows:

	December 31, 2012		March 31, 2013
Derivative instruments classified as current liabilities:
Warrant contracts issued on October 27, 2006	$	597,000	$	616,000
Warrant contracts issued January 24, 2013	—		601,000
Warrant Series “B” contracts issued on February 18, 2011	3,000		1,000
Total derivatives	$	600,000	$	1,218,000

Changes in Fair Value of Derivative Instrument Liabilities using Level Three Inputs

The following table summarizes the changes in the fair value for the derivative instrument liabilities using Level 3 inputs:

	October 2006 Warrants		February 2011 "B" Warrants			January 2013 Warrants			Total Derivatives
Balance at December 31, 2012	$	597,000	$	3,000		$	—		$	600,000
Origination of derivative instrument	—		—			705,000			705,000
Fair value adjustments resulting from change in value of underlying asset and passage of time recognized in earnings	19,000		(2,000		)	(104,000		)	(87,000		)
Balance at March 31, 2013	$	616,000	$	1,000		$	601,000		$	1,218,000

Assumptions used in Calculating Fair Value of Derivative Instrument Liabilities Measured with Level Three Inputs

The fair value of derivative instrument liabilities measured with Level 3 inputs are revalued quarterly. The assumptions used in the calculations under our option pricing models for the following periods were as follows:

	October 2006 Warrants	February 2011 “B” Warrants	January 2013 Warrants
December 31, 2012:
Annual volatility (1)	52.9%	53.3%	N/A
Risk-free rate	0.21%	0.36%	N/A
Dividend rate	—%	—%	N/A
Closing price of Quantum stock	$0.68	$0.68	N/A
Conversion / exercise price	$0.83	$6.00	N/A
March 31, 2013:
Annual volatility (1)	44.8%	50.2%	73.7%
Risk-free rate	0.14%	0.36%	.07%-0.77%
Dividend rate	—%	—%	—%
Closing price of Quantum stock	$0.62	$0.62	$0.62
Conversion / exercise price	$0.62	$6.00	$1.00

(1) Annual volatility is based on the historical average of our identified peer group for a period consistent with the remaining term of the contract.