Note 12 - Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

12.

Fair Value Measurements

Accounting standards define fair value, outline a framework for measuring fair value, and detail the required disclosures about fair value measurements. Under these standards, 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 in the principal or most advantageous market. Standards establish a hierarchy in determining the fair market value of an asset or liability. The fair value hierarchy has

three

levels of inputs, both observable and unobservable. Standards require the utilization of the highest possible level of input to determine fair value.

Level 

1

– inputs include quoted market prices in an active market for identical assets or liabilities.

Level 

2

– inputs are market data, other than Level 

1,

that are observable either directly or indirectly. Level 

2

inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.

Level 

3

– inputs are unobservable and corroborated by little or

no

market data.

 These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable at

March 31, 2018

and

December 31, 2017,

respectively (in thousands).

			Fair Value Measurements at March 31, 2018 (In thousands)
	Fair Value at March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring:
Derivative Warrant Liability	$	1,474	$	-	$	-	$	1,474
2020 Embedded Derivative Liability		2,366		-		-		2,366
Total Recurring Fair Value Measurements	$	3,840	$	-	$	-	$	3,840
Nonrecurring
Corn and finished goods inventory	$	1,835	$	33	$	1,802	$	-
Total Non-Recurring Fair Value Measurements	$	1,835	$	33	$	1,802	$	-

			Fair Value Measurements at December 31, 2017 (In thousands)
	Fair Value at December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring:
Derivative Warrant Liability	$	1,951	$	–	$	–	$	1,951
2020 Notes Embedded Derivative Liability		5,224		–		–		5,224
Total Recurring Fair Value Measurements	$	7,175	$	–	$	–	$	7,175
Nonrecurring
Corn and finished goods inventory	$	1,916	$	189	$	1,727	$	–
Total Non-Recurring Fair Value Measurements	$	1,916	$	189	$	1,727	$	–

The following table provides changes to those fair value measurements using Level

3

inputs for the

three

months ended

March 31, 2018.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands)
	Derivative Warrant Liability			2020 Notes Embedded Derivative
Opening Balance	$	1,951		$	5,224
Transfers into Level 3		–			–
Transfers out of Level 3		–			–
Total (gains) or losses for the period
Included in earnings		(477	)		(2,858	)
Included in other comprehensive income		–			–
Purchases, issues, sales and settlements
Purchases		–			–
Issues		–			–
Sales		–			–
Settlements		–			–
Closing balance	$	1,474		$	2,366

Inventories.

The Company records its corn inventory at fair value only when the Company’s cost of corn purchased exceeds the market value for corn. The Company determines the market value of corn and dry distiller’s grain based upon Level

1

inputs using quoted market prices. The Company records its ethanol, isobutanol and hydrocarbon inventory at market using Level

2

inputs.

2020

Notes Embedded Derivative

. The Company had estimated the fair value of the embedded derivative on a stand-alone basis to be

$2.4

million at

March 31, 2018

and

$5.2

million at

December 31, 2017

based upon Level

3

inputs. Changes in the fair value of the embedded derivative is recognized each reporting period as a “

Change in fair value of

2020

Notes embedded derivative

” in the consolidated Statements of Operations and Statements of Cash Flows. See Note

6,

Embedded Derivatives and Derivative Warrant Liabilities, for the fair value inputs used to estimate the fair value of the embedded derivative.

Derivative Warrant Liability

. Prior to

2017,

the Company estimated the fair value of the Series A, Series F and Series K warrants using a Monte-Carlo model (Level

3

). For all other warrants the Company valued these using a standard Black-Scholes model (Level

2

). However, beginning in the

first

quarter

2017,

the Company valued the Series F and K using a Monte-Carlo model (Level

3

) and other warrants using Black-Scholes models comprised of some inputs requiring the use of Monte-Carlo models (Level

3

). During the

first

quarter of

2018,

only the Series K warrants were valued using a Monte-Carlo model. The Company has estimated the fair value of the derivative warrant liability to be

$1.5

million as of

March 31, 2018.

Changes in the fair value of the derivative warrant liability is recognized each reporting period as a “

Change in fair value of derivative warrant liability

” in the consolidated Statements of Operations and Statements of Cash Flows.

 While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.