Quarterly report pursuant to sections 13 or 15(d)

8. FAIR VALUE MEASUREMENTS

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8. FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2012
Fair Value Measurements  
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 valued its warrants using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions. Significant assumptions used in the valuations for the dates noted are as follows (fair value in thousands):

 

As of September 30, 2012:

 

 

Original Issue
Date		     Exercise Price       Volatility       Risk
Free Int
Rate		       Term
(yrs)		       Marketability
Discount		       Fair Value  
                                                 
October 2010   $ 0.12       75.6%       0.62%       5.10       48.0%     $ 43  
December 2011   $ 0.84       77.7%       0.47%       4.21       55.9%       585  
July 2012   $ 0.50       76.8%       0.62%       4.76       57.5%       3,351  
July 2012   $ 0.43       73.9%       0.17%       1.26       57.5%       858  
September 2012   $ 0.59       74.1%       0.31%       3.00       58.5%       1,658  
                                            $ 6,495  
                                                 

 

 

 

 

As of December 31, 2011:

 

 

 

Original Issue
Date		     Exercise Price       Volatility       Risk
Free Int
Rate		       Term
(yrs)		       Marketability
Discount		     Fair Value  
                                                 
October 2010   $ 0.45       68.0%       1.09%       5.90       47.4%     $ 226  
December 2011   $ 1.50       68.0%       0.83%       4.96       52.0%       1,695  
                                            $ 1,921  

 

 

 The changes in the fair value of the Company’s Level 3 inputs were as follows (in thousands):

 

Balance, December 31, 2011   $ 1,921  
Warrant exercises     (112 )
Adjustments to fair value for the period     33  
Balance, March 31, 2012     1,842  
Adjustments to fair value for the period     (1,285 )
Balance, June 30, 2012     557  
July Offering     3,380  
September Offering     1,658  
Adjustments to fair value for the period     900  
Balance, September 30, 2012   $ 6,495  

 

 

Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair value of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1.

 

The following table summarizes fair value measurements by level at September 30, 2012 (in thousands):

 

    Level 1     Level 2     Level 3     Total  
Assets:                                
Commodity contracts(1)   $ 514       –       –     $ 514  
Total Assets   $ 514     $ –     $ –     $ 514  

__________

(1) Included in other current assets in the consolidated balance sheets.

 

  

 

    Level 1     Level 2     Level 3     Total  
Liabilities:                                
Warrants   $ –     $ –     $ 6,495     $ 6,495  
Commodity contracts(1)     291       –       –       291  
Total Liabilities   $ 291     $ –     $ 6,495     $ 6,786  

__________

(1) Included in accrued liabilities in the consolidated balance sheets.

 

The following tables summarize fair value measurements by level at December 31, 2011 (in thousands):

 

    Level 1     Level 2     Level 3     Total  
Assets:                                
Commodity contracts(1)   $ 244       –       –     $ 244  
Total Assets   $ 244     $ –     $ –     $ 244  

__________

(1) Included in other current assets in the consolidated balance sheets.

  

    Level 1     Level 2     Level 3     Total  
Liabilities:                                
Warrants(1)   $ –     $ –     $ 1,921     $ 1,921  
Commodity contracts(2)     500       –       –       500  
Total Liabilities   $ 500     $ –     $ 1,921     $ 2,421  

__________

(1) Included in other liabilities in the consolidated balance sheets.

(2) Included in accrued liabilities in the consolidated balance sheets.