Note 8 - Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Note

- Fair Value Measurements

The following tables

present the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

	Fair Value Measurement Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement
December 31, 2018
Derivative Instrument
Interest rate swap asset	$	-	$	75	$	-	$	75

December 31, 2017
Derivative Instrument
Warrant liability	$	-	$	-	$	831	$	831

The following table represents a reconciliation of our Level

warrant liability measured at fair value (in thousands):

	Year Ended December 31,
	2018			2017

Fair value of Level 3 instrument at the beginning of the period		831			-
Issues		-			307
Settlements		(1,371	)		-
Change in fair value of warrant liability		540			524
Fair value of Level 3 instrument at the end of period	$	-		$	831

Derivative Instruments

The Company's warrant liability was valued as a derivative instrument at issuance and using a combination of a Brownian Motion technique and a Lattice model, using observable market inputs and management judgment based on the following assumptions: a risk-free interest rate of

2.14%,

expected dividend yield of

0%,

a term of

4.49

years, and a volatility of

89.58%.

The valuation policies used are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. On

June 29, 2018,

both warrants, entitling the Holder to acquire

1,612,902

shares of our

$0.005

par value common stock were exercised, and proceeds in the amount of

$500,000

were used to reduce the subordinated debt balance.

The fair value of the interest rate swap is estimated using a discounted cash flow model. Such models involve using market-based observable inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are

not

material to the valuation. Due to the interest rate swaps being unique and

not

actively traded, the fair value is classified as Level

Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are

not

measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. As of

June 30, 2018,

and

December 31, 2017,

the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and interest approximates fair value due to the short-term nature of such items. The carrying value of the Company’s credit agreements are carried at cost which are approximately the fair value of the debt as the related interest rate are at the terms that approximate rates currently available to the Company.

The Company did

not

have any transfers of assets or liabilities between Level

Level

or Level

of the fair value measurement hierarchy during the years ended

December 31, 2018

and

2017.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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