Note 3 - Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Text Block]

3.  Fair Value Measurements

The Company measures and records cash equivalents and warrant liabilities at fair value in the accompanying financial statements.  Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value include: 

Level 1 - Observable inputs for identical assets or liabilities such as quoted prices in active markets;

Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 - Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use.

The following tables represent the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and December 31, 2010:

	As of December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Investment in money market funds (1)	$	16,326,888	$	-	$	-	$	16,326,888
Total assets	$	16,326,888	$	-	$	-	$	16,326,888
Liabilities:
Compensatory stock options not yet issued (2)	$	-	$	-	$	378,750	$	378,750
Accrued warrant liability		-		-		7,285,959		7,285,959
Total liabilities	$	-	$	-	$	7,664,709	$	7,664,709

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Investment in money market funds (1)	$	2,021,334	$	-	$	-	$	2,021,334
Total assets	$	2,021,334	$	-	$	-	$	2,021,334
Liabilities
Compensatory stock options not yet issued (2)	$	-	$	-	$	2,992,180	$	2,992,180
Accrued warrant liability		-		-		25,350,733		25,350,733
Total liabilities	$	-	$	-	$	28,342,913	$	28,342,913

(1) Included in cash and cash equivalents in the accompanying consolidated balance sheets.

(2) Included in accrued bonuses in the accompanying consolidated balance sheets.

The Company utilizes the Black-Scholes model to measure the accrued warrant liability. The following are the assumptions used to measure the accrued warrant liability at December 31, 2011, which were determined in a manner consistent with that described for grants of options to purchase common stock as set forth in Note 2:

	2011			2010
Stock Price	$	2.86		$	7.22
Exercise Price	$	1.60 - 5.00		$	1.60 - 4.50
Term in years		1.58 - 2.23			2.09 - 2.62
Volatility		66.68 - 71.55	%		73.99 - 83.25	%
Annual rate of quarterly dividends		0	%		0	%
Discount rate- bond equivalent yield		.20 - .28	%		.65 - .86	%

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the years ended December 31, 2011 and 2010:

	Accrued Warrant Liability			Compensatory Stock Options Issued After Year End
Balance, December 31, 2009	$	8,410,379		$	970,200
Total gains or losses (realized/unrealized) included in earnings (1)(2)		16,011,769			37,800
Issuances		2,948,617			2,992,180
Settlements		(2,020,032	)		(1,008,000	)
Balance, December 31, 2010		25,350,733			2,992,180
Total gains or losses (realized/unrealized) included in earnings (1)(2)		(19,821,787	)		(17,953	)
Issuances		2,752,441			378,750
Settlements		(995,428	)		(2,974,227	)
Balance, December 31, 2011	$	7,285,959		$	378,750
Amount of total gains or losses for the period included in earnings as change in value of warrant liability attributable to the change in unrealized gains or losses relating to liabilities recorded at the reporting date:
December 31, 2010	$	15,051,835		$	-
December 31, 2011	$	(19,790,451	)	$	-

(1) Realized & unrealized gains or losses related to the accrued warrant liability were included as change in value of accrued warrant liability.

(2) Realized gains or losses related to compensatory stock options were included in research & development expense and general & administrative expense.

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis, as documented above, from those measured at fair value on a nonrecurring basis. As of December 31, 2011 and 2010, the Company had no assets or liabilities that were measured at fair value on a nonrecurring basis.

The carrying amounts of the Company’s remaining financial instruments, which include cash, short-term investments, accounts receivable and accounts payable, approximate their fair values due to their short maturities.