Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 5 – Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability 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 fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

· Level 1 – Quoted prices in active markets for identical assets and 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 of the assets or liabilities.

Fair Value on a Recurring Basis

The table below categorizes assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012:

	Fair Value		Fair value measurement using
	March 31, 2013		Level 1		Level 2		Level 3
Assets:
Money Market	$	22,877	$	22,877	$	–	$	–
Certificate of Deposit		400		400		–		–
Total Assets	$	23,277	$	23,277	$	–	$	–
Liabilities:
Common stock warrant liability	$	6,143	$	–	$	–	$	6,143

	Fair Value		Fair value measurement using
	December 31, 2012		Level 1		Level 2		Level 3
Assets:
Money Market	$	23,377	$	23,377	$	–	$	–
Certificate of Deposit		400		400		–		–
Total Assets	$	23,777	$	23,777	$	–	$	–
Liabilities:
Common stock warrant liability	$	6,305	$	–	$	–	$	6,305

The table below summarizes the activity of Level 3 inputs measured on a recurring basis for the three months ended March 31, 2013 and 2012:

(in thousands)	Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2012	$	6,305
Change in fair value of common stock warrant liability		(162	)
Balance at March 31, 2013	$	6,143

(in thousands)	Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2011	$	6,996
Exercise of warrants		(126	)
Change in fair value of common stock warrant liability		3,434
Balance at March 31, 2012	$	10,304

The significant unobservable inputs used in the fair value measurement of common stock warrants are the historical volatility of our common stock market price, expected term of the applicable warrants, and the risk-free interest rate based on the U.S. Treasury yield curve in effect at the measurement date. In addition to the significant unobservable inputs noted above, the fair value measurement of certain five-year warrants issued in February 2011 also takes into account an assumption of the likelihood and timing of the occurrence of an event that would result in an adjustment to the exercise price in accordance with the anti-dilutive pricing provisions in the warrant. Any significant increases or decreases in the unobservable inputs, with the exception of the risk-free interest rate, would result in significantly higher or lower fair value measurements.

Significant Unobservable Input Assumptions of Level 3 Valuations	March 31, 2013			December 31, 2012
Historical Volatility		60%-79	%		56% -80	%
Expected Term (in years)		1.1 – 2.9			1.4 – 3.2
Risk-free interest rate		0.14% - 0.36	%		0.16% - 0.36	%

Fair Value of Long-Term Debt

As of March 31, 2013, the carrying value of the long-term debt, net of discounts, approximates fair value.