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v2.4.0.6
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2012
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments
3. Fair Value of Financial Instruments

The Company’s financial instruments consist of cash equivalents, restricted cash, accounts receivable, accounts payable, long-term debt and certain warrant instruments. The carrying amounts of accounts receivable and accounts payable are considered reasonable estimates of their fair value, due to the short maturity of these instruments. Based on the borrowing rates currently available to the Company for long-term debt with similar terms and average maturities as the Company’s long-term debt, the fair value of long-term debt was not significantly different than the carrying value at September 30, 2012. The fair value of the other financial instruments is addressed below.

Accounting literature provides a fair value hierarchy, which classifies fair value measurements based on the inputs used in measuring fair value. These inputs include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table represents information about the assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

 

                                 

Description

  Level 1     Level 2     Level 3     Total  
    (in thousands)  

September 30, 2012

       

Liabilities:

                               

Warrant liability

  $ —       $ —       $ 10     $ 10  
         

December 31, 2011

                               

Assets:

                               

Cash equivalents, including restricted cash

  $ 24,045     $ —       $ —       $ 24,045  
         

Liabilities:

                               

Warrant liability

  $ —       $ —       $ 15     $ 15  

The Company’s cash equivalents and restricted cash at December 31, 2011 consist of money market funds which have been classified as Level 1 because these investments are registered securities that are actively traded. As such, fair value was determined based upon the quoted price for identical assets.

 

The fair value of the common stock warrants at September 30, 2012 and December 31, 2011 was determined using the Black-Scholes option pricing method. The assumptions included in the Black-Scholes model were as follows:

 

         
    Common Stock
Warrant Liability
    September 30, 2012   December 31, 2011

Weighted-average risk-free interest rate

  0.55%   0.90%

Expected dividend yield

  0%   0%

Weighted-average remaining contractual term

  4.5 years   5.3 years

Expected volatility

  74% - 75%   70%

Fair value of underlying shares of stock

  $3.68   $4.72

Significant increases (decreases) in any of those inputs, but primarily the fair value of underlying shares of stock, in isolation would result in a significantly lower (higher) fair value measurement.

The following table provides a roll-forward for the three and nine months ending September 30, 2012 and 2011 of the fair value of the warrant liability categorized with Level 3 inputs:

 

                                 
    Warrant Liability  
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2012     2011     2012     2011  
    (in thousands)  

Balance - Beginning of period

  $ 25     $ 32     $ 15     $ 248  

(Decrease) increase in fair value - recognized in operations as other income (expense)

    (15     (21     (5     35  

Reclassification of warrant liability to additional paid in capital

    —         —         —         (272
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance - End of period

  $ 10     $ 11     $ 10     $ 11  
   

 

 

   

 

 

   

 

 

   

 

 

 

The change in fair value of the warrants was primarily due to the passage of time and changes in the fair value of the equity instruments that underlie the warrants.