Note 14 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

14. Fair Value Measurements and Other Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants for the purpose of selling the asset or transferring the liability. The Company uses fair value measurements based on quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company can access as of the measurement date (Level 1); significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (Level 2), or significant unobservable inputs reflecting the Company’s own assumptions about what basis market participants would use in pricing an asset or liability (Level 3), depending on the nature of the item being valued.

As discussed in Note 8— Construction in Progress and Investment in Affiliates, the Company issued contingent consideration as part of a transaction to acquire assets from HPL in September 2014. The Company issued the third party $3.30 million to be paid with shares of the Company’s Common Stock at a price per share equal to $1.10 or 3,000,000 shares of Common Stock, subject to an adjustment which indicates that if the dollar volume-weighted average price (“VWAP”) for the Company’s Common Stock is less than $1.00 per share for the five trading days prior to March 30, 2015, then the Company shall issue HPL additional shares of Common Stock so that the total number of shares issued by the Company under the agreement multiplied by the five day VWAP will have a value of at least $3.0 million on March 30, 2015. The contingent consideration meets the definition of a derivative and the Company has recorded the fair value of such derivative as a derivative liability in the Consolidated Balance Sheet as of September 30, 2014 and since the derivative was not designed as a hedge, the change in fair value was recorded in the Consolidated Statement of Operations for the corresponding reporting period.

In arriving at fair-value estimates, the Company utilizes the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the fair value hierarchy, the fair-value measurement is characterized based upon the lowest level of significant input.

The Company did not have any derivatives valued using Level 1 and Level 2 inputs as of September 30, 2014 and December 31, 2013. The fair values and corresponding classifications under the appropriate levels of the fair value hierarchy of the outstanding derivative liability recorded as recurring liabilities in the Consolidated Balance Sheet consisted of the following (in thousands):

	Level		September 30, 2014		December 31, 2013
Derivative liability:		3	$	673	$	-

The following table presents quantitative information for Level 3 measurements (in thousands):

	Fair value at September 30, 2014		Valuation technique	Unobservable input
Liabilities:
Derivative liability	$	673	Black-Scholes option pricing model	Prevailing interest rates, Company’s stock price volatility, term, dividends

There have been no transfers between Level 1, Level 2, or Level 3 categories.

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Financial instruments classified as Level 3 in the fair value hierarchy represents the derivative liability in which management has used at least one significant unobservable input in the valuation model. The following table represents a reconciliation of activity for the derivative liability in order to arrive at the current derivative liability recorded at fair value as of September 30, 2014 (in thousands):

Derivative Liability
Opening balance – December 31, 2013	$	-
Purchases, sales, issuances, and settlements		983
Transfers into and (or) out of Level 3		-
Change in fair value		(310	)
Closing balance – September 30, 2014	$	673

There were no assets or liabilities measured on a non-recurring basis as of September 30, 2014 and December 31, 2013.

Other Financial Instruments

The carrying values and fair values of the Company’s other financial instruments were as follows (in thousands):

	September 30, 2014				December 31, 2013
	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	12,789	$	12,789	$	1,031	$	1,031
Notes receivable, current	$	-	$	-	$	8,450	$	8,450
Notes receivable, noncurrent	$	13,416	$	13,416	$	13,668	$	13,668
Line of credit	$	-	$	-	$	4,250	$	4,250

The following methods were used to estimate the fair values of other financial instruments:

Cash and cash equivalents. The carrying amount approximates fair value because of the short maturity of the instruments. The fair value for Cash and cash equivalents were classified in Level 1 of the fair value hierarchy.

Notes receivable, current, Notes receivable, noncurrent. The fair value of Notes receivable, current were based on anticipated cash flows, which approximates carrying value, and were classified in Level 2 of the fair value hierarchy. The fair value of Notes receivable, noncurrent was classified in Level 3 of the fair value hierarchy. The Company used multiple techniques, including an income approach applying discounted cash flows approach, to measure the fair value using Level 3 inputs; the results of each technique have been reasonably weighted based upon management’s judgment applying qualitative considerations to determine the fair value at the measurement date.

Line of credit. The carrying amount of the Line of credit approximated fair value due to the short maturity and its variable market rate of interest that changes with current Prime or LIBOR rate and no change in counterparty credit risk. The Line of credit was classified in Level 2 of the fair value hierarchy.