4. Fair Value

The Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities include available for sale securities classified as cash equivalents and a preferred stock warrant liability, respectively. ASC 820-10 (“Fair Value Measurement Disclosure”) requires the valuation using a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and therefore, are based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

As prescribed by U.S. GAAP, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures and based on various factors, it is possible that an asset or liability may be classified differently from period to period. However, the Company expects changes in classifications between levels will be rare.

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2012, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

	December 31, 2013
	(In thousands)
Description	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total
	(Level 1)		(Level 2)		(Level 3)		December 31, 2013
Assets measured at fair value
Cash and Cash Equivalents	$	10,014	$	-	$	-	$	10,014
Restricted Cash		375		-		-		375
Short term investments		-	$	6,191		-	$	6,191

Total Assets measured at fair value	$	10,389	$	6,191	$	-	$	16,580

	December 31, 2012
	(In thousands)
	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Total
Description	(Level 1)		(Level 2)		(Level 3)		December 31, 2012

Assets measured at fair value
Cash and Cash Equivalents	$	8,896	$	-	$	-	$	8,896
Restricted Cash		375		-		-		375
Short term investments		-		907		-		907

Total Assets measured at fair value	$	9,271	$	907	$	-	$	10,178

Liabilities measured at fair value
Preferred Stock Warrant Liability	$	-	$	-	$	(109)	$	(109)

Total Liabilities measured at fair value	$	-	$	-	$	(109)	$	(109)

The change in the fair value of the Level III preferred stock warrant liability is summarized below:

	December 31,
	2013		2012
	(In thousands)
Fair value at beginning of year	$	109	$	-
Issuances		-		128
Change in fair value recorded in other income (expense)		1,800		(19)
Reclassification to additional paid-in capital upon the merger		(1,909)		-
Fair value at end of year	$	-	$	109

The Company utilized the Monte Carlo simulation to value the liability related to the preferred warrants, which requires significant unobservable, or Level 3, inputs. The Monte Carlo simulation is a generally accepted statistical method used to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of the Company’s future expected stock prices and minimizes standard error.