Note 3 - Fair Value Measurements and Other Financial Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Text Block]

Note 3.  Fair Value Measurements and Other Financial Measurements

Our financial instruments are accounted for at fair value on a recurring basis.  We have no financial instruments accounted for on a non-recurring basis as of June 30, 2012 or December 31, 2011. Fair value is defined 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. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

There were no assets recorded at fair value on a recurring basis at June 30, 2012 or December 31, 2011.

In arriving at fair-value estimates, we utilize the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement characterized based upon the lowest level of input that is significant is applied to the fair-value measurement. For us, recurring fair-value measurements are performed for warrant liabilities.

All warrant liability financial instruments are recognized in the balance sheet at their fair value. Changes in the fair values of warrant liability financial instruments are reported in earnings. We do not hold any derivative liability financial instruments that reduce risk associated with hedging exposure and we have not designated any of our warrant liability financial instruments as hedge instruments.

The Company has no items valued using Level 1 and Level 2 inputs. The fair values and corresponding classifications under the appropriate level of the fair value hierarchy of outstanding warrants recorded as recurring liabilities in the consolidated balance sheet were as follows:

	Level		June 30, 2012		December 31, 2011
Warrant liabilities:		3	$	475	$	654

     The following table presents quantitative information for Level 3 derivative contracts:

	Fair value at June 30, 2012		Valuation technique	Unobservable input
Liabilities:
Warrant liabilities	$	475	Black-Scholes-Merton option pricing model	Prevailing interest rates, Company’s stock price volatility, expected warrant term

The Company utilizes inputs that are not observable from objective sources, such as the Company’s internally developed assumptions used in pricing the liability and Company market data or assumptions that market participants would use in pricing the liability. The unobservable inputs are described in Note 9. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy. These instruments are valued using a Black-Scholes-Merton option-pricing model using market information as of the reporting date such as prevailing interest rates, the Company’s stock price volatility, and expected term.

There have been no transfers between Level 1, Level 2, or Level 3 categories.

The following table summarizes current warrant liabilities recorded at fair value at June 30, 2012:

	Cost		Fair Value		Carrying Value
Warrant liabilities:	$	1,928	$	475	$	475

Financial instruments classified as Level 3 in the fair value hierarchy represent warrant liabilities in which management has used at least one significant unobservable input in the valuation model. The following table represents a reconciliation of activity for such warrant liabilities:

Warrant liabilities
Opening balance – December 31, 2011	$	654
Purchases, sales, issuances, and settlements*		—
Transfers into and (or) out of Level 3*		—
Change in fair value		(179)
Unrealized gains / (losses)		—
Other adjustments		—
Closing balance – June 30, 2012	$	475

* There were no purchases, sales, transfers, issuances or settlements of Level 3 financial instruments.

Other Financial Instruments

The carrying values and fair values of the Company’s other financial instruments were as follows:

		June 30, 2012				December 31, 2011
Level		Carrying value		Fair value		Carrying value		Fair value
Accounts receivable, net	2		576		576		333		333
Trade accounts payable	2		6,225		6,225		5,870		5,870
Capital lease obligation	2		21		21		12		12

The following methods were used to estimate the fair values of other financial instruments:

Cash and cash equivalents, Restricted cash, Accounts receivable, Trade accounts payable and Capital lease obligation. The carrying amounts approximate fair value due to their short term nature.