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8. FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2014
Fair Value Disclosures [Abstract] |
8. FAIR VALUE MEASUREMENTS. | The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as follows:
| · | Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;
| · | Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and
| · | Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.
The Company recorded its warrants issued from 2010 through 2013 at fair value and designated them as Level 3 on their issuance dates. Warrants – Except for the warrants issued September 26, 2012, the Company’s warrants were valued using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions. The warrants issued September 26, 2012, did not contain any anti-dilution protection features, and as a result, the warrants were valued using the Black-Scholes Valuation Model. Of the various inputs used, the volatility and the current price of the Company’s common stock most significantly impact the fair value adjustments of the warrants. As the price of the Company’s common stock increases or decreases, the valuation of the warrants will increase or decrease, respectively. As the estimated volatility of the Company’s common stock increases or decreases, the valuation of the warrants will increase or decrease, respectively. These changes may result in significantly higher or lower fair value measurements from period to period. Significant assumptions used and related fair values for the Company’s warrants as of September 30, 2014 were as follows:
Original Issuance |  | Exercise Price |  | Volatility |  | Risk-Free Interest Rate |  | Term (years) |  | Discount for marketability restrictions |  | Warrants Outstanding |  | Fair Value |
09/26/2012 |  | $8.85 |  | 51.2% |  | 0.13% |  | 0.99 |  |  | 35.6% |  |  | 473,000 |  | $ | 1,732,000 |
07/3/2012 |  | $6.09 |  | 52.3% |  | 1.07% |  | 2.76 |  |  | 31.7% |  |  | 391,000 |  |  | 2,361,000 |
12/13/2011 |  | $8.43 |  | 52.0% |  | 0.58% |  | 2.21 |  |  | 29.2% |  |  | 138,000 |  |  | 700,000 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 1,002,000 |  | $ | 4,793,000 |
Significant assumptions used and related fair values for the Company’s warrants as of December 31, 2013 were as follows:
Original Issuance |  | Exercise Price |  | Volatility |  | Risk-Free Interest Rate |  | Term (years) |  | Discount for marketability restrictions |  | Warrants Outstanding |  | Fair Value |
03/28/2013 |  | $7.59 |  | 52.4% |  | 0.13% |  | 1.20 |  |  | 22.7% |  |  | 788,000 |  | $ | 495,000 |
06/21/2013 |  | $7.59 |  | 52.4% |  | 0.13% |  | 1.24 |  |  | 22.7% |  |  | 1,051,000 |  |  | 660,000 |
01/11/2013 |  | $6.32 |  | 63.3% |  | 1.27% |  | 4.03 |  |  | 43.8% |  |  | 1,709,000 |  |  | 2,892,000 |
09/26/2012 |  | $8.85 |  | 58.5% |  | 0.38% |  | 1.74 |  |  | 42.3% |  |  | 1,771,000 |  |  | 702,000 |
07/3/2012 |  | $6.09 |  | 61.2% |  | 1.27% |  | 3.51 |  |  | 40.2% |  |  | 1,812,000 |  |  | 3,008,000 |
07/3/2012 |  | $5.47 |  | 52.8% |  | 0.01% |  | 0.01 |  |  | 42.3% |  |  | 804,000 |  |  | 3,000 |
12/13/2011 |  | $8.43 |  | 60.4% |  | 0.78% |  | 2.95 |  |  | 37.9% |  |  | 306,000 |  |  | 455,000 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 8,241,000 |  | $ | 8,215,000 |
Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair values of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs. The following table summarizes fair value measurements by level at September 30, 2014 (in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts(1) |  | $ | 1,130 |  |  | $ | – |  |  | $ | – |  |  | $ | 1,130 |
Total Assets |  | $ | 1,130 |  |  | $ | – |  |  | $ | – |  |  | $ | 1,130 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrants(2) |  | $ | – |  |  | $ | – |  |  | $ | 4,793 |  |  | $ | 4,793 |
Commodity contracts(3) |  |  | 659 |  |  |  | – |  |  |  | – |  |  |  | 659 |
Total Liabilities |  | $ | 659 |  |  | $ | – |  |  | $ | 4,793 |  |  | $ | 5,452 |
__________ (1) Included in other current assets in the consolidated balance sheets. (2) Included in warrant liabilities at fair value in the consolidated balance sheets. (3) Included in other current liabilities in the consolidated balance sheets. The following table summarizes fair value measurements by level at December 31, 2013 (in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts(1) |  | $ | 961 |  |  | $ | – |  |  | $ | – |  |  | $ | 961 |
Total Assets |  | $ | 961 |  |  | $ | – |  |  | $ | – |  |  | $ | 961 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrants(2) |  | $ | – |  |  | $ | – |  |  | $ | 8,215 |  |  | $ | 8,215 |
Commodity contracts(3) |  |  | 859 |  |  |  | – |  |  |  | – |  |  |  | 859 |
Total Liabilities |  | $ | 859 |  |  | $ | – |  |  | $ | 8,215 |  |  | $ | 9,074 |
__________ (1) Included in other current assets in the consolidated balance sheets. (2) Included in warrant liabilities at fair value in the consolidated balance sheets. (3) Included in accrued liabilities in the consolidated balance sheets. For fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period. The changes in the Company’s fair value of its Level 3 inputs with respect to its warrants were as follows (in thousands):
Fair value of warrants, December 31, 2013 |  | $ | 8,215 |
Adjustments to fair value for the period |  |  | 37,465 |
Exercises of warrants |  |  | (40,884 | )
Expiration of warrants |  |  | (3 | )
Fair value of warrants, September 30, 2014 |  | $ | 4,793 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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