SUNation Energy, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements

12 Months Ended

Dec. 31, 2013

NOTE 13 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

Level 2 – Observable inputs such as quoted prices for similar instruments and quoted prices in markets that are not active, and inputs that are directly observable or can be corroborated by observable market data. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities.

Level 3 – Significant inputs to pricing that have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value of financial instruments.

Financial assets and liabilities measured at fair value as of December 31, 2013 and December 31, 2012, are summarized below:



		December 31, 2013

	Level 1		Level 2		Level 3		Total Fair Value

Cash equivalents:
Money Market funds	$	5,751,965	$	-	$	-	$	5,751,965
Certificates of deposit				239,904				239,904
Subtotal		5,751,965		239,904		-		5,991,869

Short-term investments:
Certificates of deposit		-		2,582,502		-		2,582,502
Corporate Notes/Bonds		-		3,159,812		-		3,159,812
Subtotal		-		5,742,314		-		5,742,314

Long-term investments:
Certificates of deposit		-		1,197,320		-		1,197,320
Corporate Notes/Bonds		-		2,723,658		-		2,723,658
Subtotal		-		3,920,978		-		3,920,978

Current Liabilities:		-
Accrued Consideration		-		-		(558,801)		(558,801)
Subtotal		-		-		(558,801)		(558,801)

Total	$	5,751,965	$	9,903,196	$	(558,801)	$	15,096,360



		December 31, 2012

	Level 1		Level 2		Level 3		Total Fair Value

Cash equivalents:
Money Market funds	$	5,497,788	$	-	$	-	$	5,497,788
Subtotal		5,497,788		-		-		5,497,788

Short-term investments:
Certificates of deposit		-		7,258,768		-		7,258,768
Corporate Notes/Bonds				3,800,143				3,800,143
Commercial Paper				1,642,627				1,642,627
Subtotal		-		12,701,538		-		12,701,538

Long-term investments:
Certificates of deposit		-		900,763		-		900,763
Corporate Notes/Bonds				4,475,634				4,475,634
Subtotal		-		5,376,397		-		5,376,397

Current Liabilities:
Accrued Consideration		-		-		(770,041)		(770,041)

Subtotal		-		-		(770,041)		(770,041)

Total	$	5,497,788	$	18,077,935	$	(770,041)	$	22,805,682

The estimated fair value of remaining contingent consideration as of December 31, 2013 was $558,801, as noted above. The estimated fair value is considered a level 3 measurement because the probability weighted discounted cash flow methodology used to estimate fair value includes the use of significant unobservable inputs, primarily the contractual contingent consideration gross margin targets and assumed probabilities. The change in the estimated contingent consideration during 2013 was due to $161,060 in payments, $6,282 in foreign currency gains, and $43,898 in gains included in operating income. The gains were the result of a change in future assumptions related to the contingent consideration.

There were no transfers between levels during 2013 and 2012.

- 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.

+ References + Details