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

12 Months Ended

Dec. 31, 2019

. 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

– 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 inactive 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 at

December 31, 2019

and

2018,

respectively (in thousands). The Company believes that the fair value of its Notes Payable - Other approximated book value, which totaled

$0.7

million at

December 31, 2019.

			Fair Value Measurements at December 31, 201 9
	Fair Value at December 31, 201 9		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	$	8	$	—	$	—	$	8

Nonrecurring
Corn and finished goods inventory	$	940	$	267	$	673	$	—

			Fair Value Measurements at December 31, 201 8
	Fair Value at December 31, 201 8		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	$	—

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands)
	Derivative Warrant Liability			2020 Embedded Derivative Liability

Balance, December 31, 2018	$	22		$	394

Total (gains) or losses for the period included in earnings		(14	)		(394	)
Purchases		—			—

Balance, December 31, 2019	$	8		$	—

There were

transfers between Level

and Level

inputs. There were

transfers in or out of Level

inputs. There were

issuances, purchases, sales or settlements of Level

inputs during the year ended

December 31, 2019.

The Company believes that the fair value of its accounts receivable and accounts payable approximate its book value due to their short-term nature.

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 distillers grain based upon Level

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

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 accounted for the

2020

Notes using the amortized cost method and reported

$13.9

million and

$12.6

million as of

December 31, 2019

and

2018,

respectively, net of debt discount and issuance costs.

2020

Notes Embedded Derivative

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

December 31, 2019

based upon Level

inputs. See Note

Embedded Derivatives, 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.

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.

- 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.

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