Note 9 - Derivative Instruments; Fair Value

The following tables represents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 30, 2012, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

		Amount as of
Description		9/30/2013	Level 1		Level 2		Level 3
Interest Rate Swap	$	78,000	$	-	$	78,000	$	-
Warrant Liability		675,000		-		675,000

	$	753,000	$	-	$	753,000	$	-

		Amount as of
Description		12/31/2012		Level 1		Level 2		Level 3
Interest Rate Swap	$	128,000	$	-	$	128,000	$	-
Warrant Liability		721,000		-		721,000		-
	$	849,000			$	849,000

The Company is exposed to certain market risks including the effect of changes in interest rates. The Company uses derivative instruments to manage financial exposures that occur in the normal course of business. It does not hold or issue derivatives for speculative trading purposes. The Company is exposed to non-performance risk from the counterparties in its derivative instruments. This risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher and all counterparties are monitored on a continuous basis. The fair value of the Company’s derivatives reflects this credit risk.

On July 1, 2011, the Company entered into a swap agreement with BMO Capital Markets with respect to $6,780,000 of our loan balances with BMO Harris Bank N.A. This swap agreement limits the Company’s exposure to interest rate fluctuations on the Company’s floating rate loans. The swap agreement has the effect of fixing the interest rate on the loan balances covered by the swap at 4.65% per annum. The swap agreement is a derivative financial instrument and we determine and record the fair market value of the swap agreement each quarter. The value is recorded on the balance sheet of the Company and the amount of the unrealized gain or loss for each period is recorded as interest income or expense.

Fair Values of Derivative Instruments in the Statement of Financial Position

	Liability Derivatives as of
	September 30, 2013			December 30, 2012
Derivatives not designated as hedging instruments under Statement 133	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest Rate Contracts	Accrued Liabilities	$	78,000	Accrued Liabilities	$	128,000

The Effect of Derivative Instruments on the Statement of Financial Performance

	For the three months ended
	September 30, 2013			September 30, 2012
Derivatives not Designated as Hedging Instruments under Statement 133	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative		Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Interest Rate Contracts	Interest Expense	$	(3,000)	Interest Expense	$	(10,000)
Interest on fixed/variable rate variances		$	21,000		$	20,000

The Effect of Derivative Instruments on the Statement of Financial Performance

	For the nine months ended
	September 30, 2013			September 30, 2012
Derivatives not Designated as Hedging Instruments under Statement 133	Location of Gain (Loss) Recognized in Income on Derivative		Amount of Gain (Loss) Recognized in Income on Derivative	Location of Gain (Loss) Recognized in Income on Derivative		Amount of Gain (Loss) Recognized in Income on Derivative
Interest Rate Contracts	Interest Expense	$	(12,000)	Interest Expense	$	(61,000)
Interest on fixed/variable rate variances		$	61,000		$	59,000