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
With the adoption of Accounting Standards Codification, or ASC, 820 “Fair Value Measurements and Disclosures,” beginning January 1, 2008, assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of the Company’s financial instruments, including cash and cash equivalents, amounts receivable and accounts payable, the carrying values approximate fair value due to their short-term nature.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:
  •   Level 1 — Quoted prices in active markets for identical securities;
  •   Level 2 — Other significant observable inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities); and
  •   Level 3 — Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability.
As quoted prices in active markets are not readily available for certain financial instruments, the Company obtains estimates for the fair value of financial instruments through third party pricing service providers.
In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820.
The Company invests its excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. Our securities are not collateralized and mature within one year.
A description of the valuation techniques applied to the Company’s financial instruments measured at fair value on a recurring basis follows.
Financial Instruments
Cash
Significant amounts of cash are held on deposit with large, well established Canadian and U.S. financial institutions.
Government and Agency Securities
Government Securities U.S. and Canadian Government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. and Canadian Government securities are categorized in Level 1 of the fair value hierarchy.
U.S. Agency Securities U.S. agency securities are comprised of two main categories consisting of callable and non-callable agency-issued debt securities. Non-callable agency-issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities are categorized in Level 2 of the fair value hierarchy.
Corporate and Other Debt
Corporate Bonds and Commercial Paper The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds and commercial paper are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.
The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
                                 
(in thousands)   Level 1     Level 2     Level 3     2011  
Assets
                               
Cash
  $ 1,367     $ —     $ —     $ 1,367  
Money market securities
  $ 11,931     $ —     $ —     $ 11,931  
Government securities
  $ 1,026     $ —     $ —     $ 1,026  
Corporate bonds and commercial paper
  $ —     $ 55,309     $ —     $ 55,309  
 
                       
 
  $ 14,324     $ 55,309     $ —     $ 69,633  
Liabilities
                               
Warrants
  $ —     $ —     $ 6,248     $ 6,248  
Marketable securities consist of the following:
                                 
            Gross     Gross        
(in thousands)   Amortized     Unrealized     Unrealized     Estimated  
2011   Cost     Gain     Loss     Fair Value  
 
                               
Cash
  $ 1,367     $ —     $ —     $ 1,367  
Money market securities
  $ 11,554     $ —     $ —     $ 11,554  
Government securities
  $ —     $ —     $ —     $ —  
Corporate bonds and commercial paper
  $ 2,802     $ —     $ —     $ 2,802  
 
                       
Cash and cash equivalents
  $ 15,723     $ —     $ —     $ 15,723  
 
                               
Money market securities
  $ 377     $ —     $ —     $ 377  
 
                       
Restricted cash
  $ 377     $ —     $ —     $ 377  
 
                               
Government securities
  $ 1,026     $ —     $ —     $ 1,026  
Corporate bonds and commercial paper
  $ 52,619     $ 8     $ (120 )   $ 52,507  
 
                       
Short-term investments
  $ 53,645     $ 8     $ (120 )   $ 53,533  
All securities included in cash, and cash equivalents have maturities of 90 days or less at the time of purchase. All securities included in short-term investments have maturities of within one year of the balance sheet date.
There were no significant realized or unrealized gains or losses on the sales of marketable securities in the nine months ended September 30, 2011 and no significant unrealized gains or losses are included in accumulated other comprehensive income as at September 30, 2011. Realized gains and losses are transferred out of accumulated other comprehensive income into interest income using the specific identification method.
All of the marketable securities held as of September 30, 2011 had maturities of one year or less. The Company only invests in A (or equivalent) rated securities with maturities of one year or less. Given the quality of the investment portfolio, its short-term nature, and subsequent proceeds collected on sale of securities that reached maturity, the Company does not believe that there are any other than temporary impairments related to its investments in marketable securities at September 30, 2011.
The Company has recorded a $6,248,000 warrant liability as of September 30, 2011. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. See note 5(d) in the Notes to Financial Statements for further details on the inputs used in the Black-Scholes pricing model used to recalculate the warrant liability.
The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the nine months ended September 30, 2011:
                         
                    Remaining  
    Liability at             Liability at  
    December 31,     Gain (loss) on     September 30,  
(In thousands)   2010     warrants     2011  
Warrant liability
  $ 15,269     $ 9,021     $ 6,248