Fair Value Measurement

9 Months Ended

Sep. 30, 2011

Fair Value Measurement

Fair Value Measurement

6. Fair Value Measurement

The Company considers all highly liquid investments with original maturities of generally three months or less at the time of acquisition to be cash equivalents. Cash equivalents are stated at cost, which approximates fair market value. The Company classifies marketable securities as available-for-sale. These securities are carried at fair market value with unrealized gains and, to the extent deemed temporary, unrealized losses, are reported as a component of other comprehensive gain or loss in stockholders’ deficit. Realized gains or losses on securities sold are based on the specific identification method.

Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary. The Company evaluates whether a decline in fair value below cost basis is other-than-temporary using available evidence regarding its investments. In the event that the cost basis of a security significantly exceeds its fair value, the Company evaluates, among other factors, the duration of the period that, and extent to which, the fair value is less than cost basis, the financial health of and business outlook for the issuer, including industry and sector performance, and operational and financing cash flow factors, overall market conditions and trends, the Company’s intent to sell the investment and if it is more likely than not that the Company would be required to sell the investment before its anticipated recovery. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded in the consolidated statements of operations and a new cost basis in the security is established.

Regardless of the Company’s intent to sell a security, the Company performs additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security.

The Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010 and September 30, 2011 are measured in accordance with FASB standards. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2010:

($ in thousands)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Money market funds	$	—	$	53	$	—	$	53
Warrant liability	—		—		220		220

The Company’s money market funds were valued at December 31, 2010 using calculated net asset values and are therefore classified as Level 2. The Company’s warrant liability was valued at December 31, 2010 using a Black- Scholes model and is therefore classified as Level 3.

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2011:

($ in thousands)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Money market funds	$	—	$	—	$	—	$	—
Warrant liability	—		—		70		70

The Company’s warrant liability was valued at September 30, 2011 using a Black- Scholes model and is therefore classified as Level 3.

The following tables roll forward the fair value of our warrant liability, whose fair value is determined by Level 3 inputs for the 2011 period presented:

Balance at December 31, 2010	$	220
Exercise warrants	(192		)
Change in fair value	56
Balance at March 31, 2011	$	84
Exercise warrants	—
Change in fair value	(41		)
Balance at June 30, 2011	$	43
Exercise warrants	—
Change in fair value	27
Balance at September 30, 2011	$	70

The Company’s warrant liability relates to warrants issued in connection with two offerings of common stock in 2009. An aggregate of 6,482,505 warrants were issued pursuant to these two offerings, of which 1,945,099 were outstanding as of December 31, 2010 and 681,884 were outstanding as of September 30, 2011. The fair value of the warrants is estimated using a Black-Scholes model. Due to a price adjustment clause included in the warrant agreements, the warrants were deemed to be a liability and, therefore, the fair value of the warrants is recorded in the liability section of the balance sheet. As such, the outstanding warrants are revalued each reporting period with the resulting gains and losses recorded as the change in fair value of warrant liability on the statement of operations.

The carrying amount of the Company’s debt approximates its fair value at December 31, 2010 and September 30, 2011.