Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

The following table (in thousands) sets forth our assets and liabilities that were measured at fair value on a recurring basis at September 30, 2014 and at December 31, 2013 by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

	As of September 30, 2014								As of December 31, 2013
Assets and Liabilities	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of September 30, 2014		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2013
Assets:
Money market funds	$	59,862	$	—	$	—	$	59,862	$	30,325	$	—	$	—	$	30,325
Total assets at fair value	$	59,862	$	—	$	—	$	59,862	$	30,325	$	—	$	—	$	30,325
Liabilities:
Warrant liability	$	—	$	—	$	1	$	1	$	—	$	—	$	19	$	19
Total liabilities at fair value	$	—	$	—	$	1	$	1	$	—	$	—	$	19	$	19

The change in the fair value measurement using significant unobservable inputs (Level 3) is summarized below (in thousands):

Balance at December 31, 2013	$	19
Change in fair value recorded as interest income		(69	)
Change in fair value recorded as interest expense		51
Balance at September 30, 2014	$	1

The warrant liability represents our allocation of a portion of the proceeds from the May 2013 Comerica Loan (as defined in Note 6). The allocation of the proceeds from the Comerica Loan was based on the fair value of the warrant liability on the date of grant. We accounted for equity contracts not indexed to the issuer’s own stock and not meeting the definition of a derivative as an asset or liability. We utilized the Binomial pricing model to determine the fair value of the warrant liability. We record changes in the fair value of the warrant liability as interest expense or interest income, as applicable.

We used significant assumptions in estimating the fair value of the warrant liability including the estimated volatility, risk free interest rate, estimated fair value of the preferred shares, and the estimated life of the warrant. These assumptions were used to establish an expected set of cash flows which were probability-weighted and discounted to present value to determine a fair value.