13.

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

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

Level

– inputs are market data, other than Level

that are observable either directly or indirectly. Level

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

Level

– inputs are unobservable and corroborated by little or

market data.

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

June 30, 2018

and

December 31, 2017,

respectively (in thousands).

			Fair Value Measurement s at June 30, 2018 (in thousands)
	Fair Value at June 30, 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	$	86	$	-	$	-	$	86
2020 Embedded Derivative Liability		684		-		-		684
Total Recurring Fair Value Measurements	$	770	$	-	$	-	$	770


Nonrecurring
Corn and finished goods inventory	$	1,747	$	188	$	1,559	$	-
Total Non-Recurring Fair Value Measurements	$	1,747	$	188	$	1,559	$	-

			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

inputs for the

six

months ended

June 30, 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		3,040			(2,347	)
Included in other comprehensive income		–			–
Purchases, issues, sales and settlements
Purchases		–			–
Issues		–			–
Sales		–			–
Settlements		(4,905	)		(2,193	)
Closing balance	$	86		$	684

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

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

inputs.

2020

Notes Embedded Derivative

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

basis to be

$0.7

million at

une

30,

2018

and

$5.2

million at

December 31, 2017

based upon Level

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

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

Derivative Warrant Liability

. The Company values the Series K Warrants using a Monte-Carlo model (Level III), and all others using a Black-Scholes model, which have historically included additional inputs (Level III). The Company has estimated the fair value of the derivative warrant

liability to be

$0.1

million as of

une

30,

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.