Note 4 - Fair Value Disclosures; Derivative Instruments

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Derivatives and Fair Value [Text Block]

4.

Fair Value Disclosures; Derivative Instruments

U.S. GAAP

clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. U.S. GAAP also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based upon the best information available.

U.S. GAAP

establishes a

three

-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities at fair value into

one

of

three

different levels depending on the observability of the inputs employed in the measurement. The

three

levels are defined as follows:

● Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

● Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for the asset or liability, or unobservable but corroborated by market data, for substantially the full term of the financial instrument.

● Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument

’s categorization within the valuation hierarchy is based upon the lowest level of the input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following table presents information about the Company’s liabilities measured at fair value on a recurring basis as of

December 31, 2017

and

2016,

and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

	Amount as of
Description	12/31/201 7		Level 1		Level 2		Level 3
Warrant Liability		-		-		-		-
		-		-		-		-

	Amount as of
Description	12/31/201 6		Level 1		Level 2		Level 3
Warrant Liability	$	818,000		-	$	818,000		-
	$	818,000			$	818,000

The warrants were converted into notes and repaid during

2017.

  These were carried as a derivative liability at fair value. Changes in the fair value of the warrants were recognized in the consolidated statement of operations.

The interest rate swap entered into

December 14, 2017

had a

three

year term (ending

December 14, 2020)

and a notional amount of

$3

million.  The Company purchased a

2.25%

fixed rate in exchange for the variable rate on a portion of the notes payable under the PNC Agreements, which was

1.47%

at time of execution (see Note

8

).  The fair value of the swap was insignificant as of

December 31, 2017.