Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.3.0.15
Fair Value Measurements
 9 Months Ended
Sep. 30, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements
4.  Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

A fair value hierarchy was established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:

 
·
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 in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by readily observable market data for substantially the full term of the assets or liabilities; or

 
·
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.

The following tables set forth the Company's fair value hierarchy for its financial assets (cash equivalents) and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010.
 
Financial assets and liabilities carried at fair value as of September 30, 2011 and December 31, 2010 were classified as follows (in thousands):

   
Fair Value Measurements at September 30, 2011 Using
        
   
Quoted Prices in
Active Markets
for Identical
Assets
    
Significant
Other
Observable
Inputs
    
Significant
Unobservable
Inputs
        
   
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Assets:
                        
Money market funds (1)
     30,645       -       -       30,645  
Foreign exchange options
     -       1,371       -       1,371  
Total
   $ 30,645     $ 1,371     $ -     $ 32,016  
                                 
Liabilities:
                                
Warrant liabilities
   $ -     $ -     $ 896     $ 896  

   
Fair Value Measurements at December 31, 2010 Using
        
   
Quoted Prices in
Active Markets
for Identical
Assets
    
Significant
Other
Observable
Inputs
    
Significant
Unobservable
Inputs
       
   
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Assets:
                        
Repurchase agreements (1)
   $ 1,428     $ -     $ -     $ 1,428  
Money market funds (1)
     6,340       -       -       6,340  
Total
   $ 7,768     $ -     $ -     $ 7,768  
                                 
Liabilities:
                                
Warrant liabilities
   $ -     $ -     $ 4,245     $ 4,245  
 
(1)  Included in cash and cash equivalents
 
The fair value of the foreign exchange options at September 30, 2011 was determined using readily observable market inputs from actively quoted markets obtained from various third party data providers. These inputs, such as spot rate, forward rate and volatility have been derived from readily observable market data, meeting the criteria for Level 2 in the fair value hierarchy.

The fair value of the warrant liabilities at September 30, 2011 and December 31, 2010 was determined using the Black-Scholes Model, which requires inputs such as the expected term of the warrants, share price volatility and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop.

The fair value of the warrant liabilities was estimated using the following range of assumptions at September 30, 2011 and December 31, 2010:
 
   
September 30,
2011
    
December 31,
2010
  
Expected volatility
     105.4 - 106.8 %     93.5 - 94.9 %
Risk-free interest rate
     0.4 %     2.0 %
Expected term
  
3.2 - 3.4 years
    
3.9 - 4.1 years
  
 
The following table provides a summary of changes in the fair value of the Company's Level 3 financial liabilities for the nine months ended September 30, 2011 (in thousands):

   
Warrant
Liabilities at
September 30,
2011
  
Balance at December 31, 2010
   $ 4,245  
Net decrease in fair value of warrant liabilities on revaluation
     (3,349 )
Balance at September 30, 2011
   $ 896  
 
For the three and nine months ended September 30, 2011, the Company recognized net decreases of $0.5 million and $3.3 million, respectively, in the estimated fair value of the warrant liabilities resulting in recognized gains in the other income (expense) line of the condensed consolidated statements of operations.

For the three and nine months ended September 30, 2010, the Company recognized net decreases of $3.1 million and $4.8 million, respectively, in the estimated fair value of the warrant liabilities resulting in recognized gains in the other income (expense) line of the condensed consolidated statements of operations.