Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

NOTE 6 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable and accounts payable approximate their estimated fair value due to the short-term nature of these instruments. Since our other financial liabilities are not traded in an open market, we generally use a present value technique, which is a level 3 input, as defined in generally accepted accounting principles, to measure the estimated fair value of these financial instruments, except for valuing stock options and warrants (see Note 7 below). The rate used for discounting expected cash flows is a risk-free rate adjusted for systematic and unsystematic risk.

The carrying amounts and estimated fair values of these financial instruments (all are liabilities) at June 30, 2013, are as follows (in thousands):


	Carrying			Estimated
	Amount			Fair Value
Notes Payable	$	2,705		$	2,660
Zero-coupon notes		230			224

Debentures		537			479
Senior notes		1,771			1,761
Long-term notes		225			221
Less unamortized discount		(150	)		—

Net liabilities	$	5,318		$	5,345

Due to the inherent nature of related party transactions, we have not attempted to estimate the fair value of liabilities payable to related parties of the Company. As such, related party notes payable with a carrying value of $3,000,000 are excluded from the table above.

We may be obligated to issue shares under a redemption provision within the Revolving Credit Facility (see Note 3). The redemption provision constitutes a put option for which we calculated a fair value at the issuance of the Revolving Credit Facility and recorded the value as a component of other accrued expenses on our balance sheet. We valued the put option using the Black Scholes options pricing model, a level 3 input, using a risk free interest rate, estimated volatility of our stock price, an estimated term, and expected dividend yield. At each reporting date, we revalue the put option using the same pricing model.

- 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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