Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements  
Fair Value Measurement
17. 
Fair Value Measurements
 
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
 
The three levels are described below:

 
Level 1 Inputs —
 Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;
 
 
Level 2 Inputs —
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
 
 
Level 3 Inputs —
Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.
 
The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.
 
   
Fair Value Measurements as of December 31, 2011
  
   
Total
    
Level 1
    
Level 2
    
Level 3
  
Assets:
                        
Restricted cash equivalents
   $ 1,431,765     $ 1,394,265     $ 37,500       -  
Marketable securities
     1,950,000       1,950,000       -       -  
Total Assets:
   $ 3,381,765     $ 3,344,265     $ 37,500       -  
                                 
Liabilities:
                                
Warrant liabilities
   $ 868,725       -       -     $ 868,725  
Total Liabilities:
   $ 868,725       -       -     $ 868,725  
 
   
Fair Value Measurements as of December 31, 2010
  
   
Total
    
Level 1
    
Level 2
    
Level 3
  
Assets:
                        
Restricted cash equivalents
   $ 401,893     $ 351,893     $ 50,000       -  
Marketable securities
     2,451,620       2,451,620       -       -  
Total Assets:
   $ 2,853,513     $ 2,803,513     $ 50,000       -  
                                 
Liabilities:
                                
Warrant liabilities
   $ 2,966,710       -       -     $ 2,966,710  
Total Liabilities:
   $ 2,966,710       -       -     $ 2,966,710  
 
As of December 31, 2011 and 2010, the Company's restricted cash equivalents are comprised of the following:

 
a)
Money market funds valued at the net asset value of shares held by the Company and is classified within level 1 of the fair value hierarchy;

 
b)
Certificate of deposit valued based upon the underlying terms of a letter of credit, as discussed in Note 16, and classified within level 2 of the fair value hierarchy.

Marketable securities consist of state authority and municipal security fund bonds which are valued at fair value and classified within level 1 of the fair value hierarchy.

The fair value methodology for the warrant liabilities is discussed in Note 13.

The carrying amounts reported in the financial statements for cash and cash equivalents, note receivable, prepaid expenses and other currents assets, and accounts payable and accrued expenses approximate fair value because of the short term maturity of these financial instruments.

The following table sets forth a reconciliation of changes in the year ended December 31, 2011 and 2010 in the fair value of the liabilities classified as level 3 in the fair value hierarchy:
 
   
Warrant
Liabilities
    
Total Level 3
Liabilities
  
Balance at January 1, 2011
   $ 2,966,710     $ 2,966,710  
Additions, fair value of warrants issued in March, 2011
     2,924,333       2,924,333  
Unrealized gains, net
     (4,739,881 )     (4,739,881 )
Unrealized gains on expiration
     (38,569 )     (38,569 )
Transfers out of Level 3
     (243,868 )     (243,868 )
Balance at December 31, 2011
   $ 868,725     $ 868,725  

   
Put Feature on
Common Stock
    
Warrant
Liabilities
    
Total Level 3
Liabilities
  
Balance at January 1, 2010
   $ 97,713     $ 3,099,476     $ 3,197,189  
Additions, fair value of warrants issued in June, 2010
     -       1,980,880       1,980,880  
Unrealized losses, net
     -       3,823,146       3,823,146  
Unrealized gains on expiration
     (97,713 )     -       (97,713 )
Transfers out of Level 3
     -       (5,936,792 )     (5,936,792 )
Balance at December 31, 2010
   $ -     $ 2,966,710     $ 2,966,710  

Additions consist of the fair value of warrant liabilities upon issuance.  Transfers out of Level 3 for warrant liabilities consist of warrant exercises.  The Company's policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstance that caused the transfer.  There were no significant transfers in and out of Levels 1 and 2 for the years ended December 31, 2011 and 2010.