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FAIR VALUE OF FINANCIAL INSTRUMENTS
3 Months Ended
Dec. 31, 2015
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
10.
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The provisions of the Fair Value Measurements and Disclosure Topic defines fair value, establishes a consistent framework for measuring fair value and provides the disclosure requirements about fair value measurements. This Topic also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s judgment about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the inputs as follows:
 
 
Level 1 – Valuations based on quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
 
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
 
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
In May 2011, we issued Class A and B Warrants that are measured at fair value on a recurring basis. We recorded these warrants as a liability determining the fair value at inception on May 11, 2011. Subsequent quarterly fair value measurements, using the Black Scholes model which is considered a level 2 measurement, are calculated with fair value changes charged to the statement of operations and comprehensive income (loss). The Class B Warrants expired in May 2012 and the liability was reduced to zero. The assumptions used to compute the fair value of the Class A Warrants at December 31, 2015 and September 30, 2015 were as follows:
 
 
 
December 31, 2015
 
 
September 30, 2015
 
 
 
Warrant A
 
 
Warrant A
 
 
 
 
 
 
 
 
 
 
Risk-free interest rate
 
 
0.31
%
 
 
0.14
%
Dividend yield
 
 
0.00
%
 
 
0.00
%
Volatility of the Company's common stock
 
 
73.39
%
 
 
65.03
%
Expected life of the options (years)
 
 
0.36
 
 
 
0.6
 
 
 
 
 
 
 
 
 
 
Fair value per unit
 
$
.124
 
 
$
.236
 
 
The carrying amounts for cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other assets, accounts payable and other accruals approximate their fair values because of their nature and respective duration. The carrying value of the note payable approximates fair value due to the variable nature of the interest rates.
 
We use an interest rate swap, designated as a hedge, to fix 60% of the debt from our credit facility with Huntington Bank. We did not enter into this derivative transaction to speculate on interest rates, but to hedge interest rate risk. The swap is recognized on the balance sheet at its fair value. The fair value is determined utilizing a cash flow model that takes into consideration interest rates and other inputs observable in the market from similar types of instruments, and is therefore considered a level 2 measurement.
 
The following table summarizes fair value measurements by level as of December 31, 2015, for the Company’s financial liabilities measured at fair value on a recurring basis:
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreement
 
$
-
 
$
27
 
$
-
 
Class A warrant liability
 
$
-
 
$
100
 
$
-
 
 
The following table summarizes fair value measurements by level as of September 30, 2015, for the Company’s financial liabilities measured at fair value on a recurring basis:
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreement
 
$
-
 
$
50
 
$
-
 
Class A warrant liability
 
$
-
 
$
189
 
$
-