Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 7 - Fair Value Measurements

The Company follows the provisions of ASC Topic 820, “Fair Value Measurement and Disclosures”, (“ASC 820”). This topic defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 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 under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities and our notes payable. The carrying amounts of our cash and cash equivalents (which are comprised primarily of deposit and overnight sweep accounts), accounts receivable, accounts payable and certain accrued liabilities approximate fair value due to the short maturity of these instruments. The carrying value of our notes payable approximates fair value due to the market rate of the stated interest rate.

The Company’s assets that are measured at fair value on a recurring basis relate to the Company’s money market accounts. The Company’s liabilities that are measured at fair value on a recurring basis relate to contingent consideration resulting from the acquisition of Xoft and the Warrants issued in connection with the Deerfield Facility Agreement.

The Company’s money market funds are included in cash and cash equivalents in the accompanying balance sheet, and are considered a Level 1 investment as they are valued at quoted market prices in active markets.

The following table sets forth Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy.

Fair value measurements using: (000’s) as of December 31, 2013
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts	$	7,572	$	—	$	—	$	7,572
Total Assets	$	7,572	$	—	$	—	$	7,572
Liabilities
Contingent Consideration	$	—	$	—	$	—	$	—
Warrants		—		—		3,986		3,986
Total Liabilities	$	—	$	—	$	3,986	$	3,986
Fair value measurements using: (000’s) as of March 31, 2014
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts	$	36,057	$	—	$	—	$	36,057
Total Assets	$	36,057	$	—	$	—	$	36,057
Liabilities
Warrant Liability	$	—	$	—	$	2,850	$	2,850
Total Liabilities	$	—	$	—	$	2,850	$	2,850

As discussed in Note 3, the Company issued 450,000 immediately exercisable warrants to Deerfield. The warrant liability for the warrants associated with the debt is valued using the binomial lattice-based valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions in valuing the warrant liability were as follows as of December 31, 2013 and March 31, 2014.

	March 31, 2014			December 31, 2013
Warrants
Exercise price	$	3.50		$	3.50
Volatility		52.7	%		56.2	%
Equivalent term (years)		3.77			4.00
Risk-free interest rate		1.3	%		1.3	%

The volatility was determined based on the definition in the Warrants, and the risk-free interest rate was determined using the six year LIBOR rate as of the measurement date.

In addition the other significant assumptions include the probability of voluntary exercise versus a major transaction (as defined in the Warrants); and assuming a major transaction, the probability of cashless major exercise; and assuming a cashless major exercise, the annual probabilities for a major transaction. The Company had estimated a low probability of these items as of March 31, 2014. On April 30, 2014, Deerfield exercised the warrants, for an aggregate purchase price of $1,575,000, and the Company issued 450,000 shares of Common Stock. The Warrant obligation was fully satisfied following that exercise.

The following sets forth a reconciliation of the changes in the fair value of warrants payable during the period:

Warrants	Amount
Balance as of December 31, 2013		3,986
Gain from change in fair value of warrant		(1,136	)
Balance as of March 31, 2014	$	2,850

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets, including our goodwill, are measured at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. We did not consider any assets to be impaired during the three months ended March 31, 2014.