DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is to offset changes in the fair value or cash flows of our commodity feedstock and processed inventories. The Company has entered into certain financial derivative instruments to manage this risk. In addition, see Note 13 for details regarding our Warrants granted in connection with the Series B Preferred Stock.

The derivative financial instruments the Company has entered into are futures contracts which have terms of less than a year to offset the effects of the market value changes in our hedged items, as well as to avoid significant volatility that might arise due to market exposure.

The Company records all derivative financial instruments at their fair value in its consolidated balance sheets. None of the derivative financial instruments that the Company holds are designated as either a fair value hedge or cash flow hedge and the gain or loss on the derivative instrument is recorded in earnings. The Company has determined that the fair value of its derivative financial instruments are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available commodity futures prices rates at each financial reporting date. At September 30, 2015, the fair value of the Company’s futures contracts totaled a nominal net asset and will be included in other prepaid assets in future consolidated balance sheets; and the gain of approximately $395,400 is included in gain on futures contracts in the accompanying consolidated statements of operations. The notional principal of outstanding futures contracts at September 30, 2015 was $2,600,000.

At September 30, 2015, the Company’s financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when the Company’s financial instruments are in net liability positions. The Company does not use derivative financial instruments for trading or speculative purposes.