Note 15 - Fair Value Measurements and Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

15.

Fair Value Measurements and Fair Value of Financial Instruments

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 the Company's financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable; as carrying value approximately fair value due to their short-term nature; at

December 31, 2018 

and

2017,

respectively (in thousands).  

			Fair Value Measurements at December 31, 2018 (In thousands)
	Fair Value at December 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	$	22	$	-	$	-	$	22
2020 Notes Embedded Derivative Liability		394		-		-		394
Total Recurring Fair Value Measurements	$	416	$	-	$	-	$	416
Nonrecurring
Corn and finished goods inventory	$	1,047	$	29	$	1,018	$	-
	$	1,047	$	29	$	1,018	$	-

			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	$	-
	$	1,916	$	189	$	1,727	$	-

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands)
	Derivative Warrant Liability			2020 Embedded Derivative Liability
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		2,976			(2,637	)
Included in other comprehensive income		–			–
Purchases, issues, sales and settlements
Purchases		–			–
Issues		–			–
Sales		–			–
Settlements		(4,905	)		(2,193	)
Closing balance	$	22		$	394

Fair Value Methodology

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

.  The Company has estimated the fair value of the

2020

Notes to be

$13.5

million at

June 20, 2017,

the date the Company exchanged the

2017

Notes for the

2020

Notes, utilizing a binomial lattice model. The Company has elected to account for the

2020

Notes using the amortized cost method and reported at

$12.6

 million, net of debt discount and issuance costs at

December 31, 2018.

2020

Notes Embedded Derivative

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

$0.4

 million at

December 31, 2018 

based upon Level

3

inputs. See Note

7,

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

2020

Notes with and without the embedded derivative and 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

). The Company has estimated the fair value of the derivative warrant liability to be

$0.02

million as of

December 31, 2018.

 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.