AEMETIS, INC Fair Value Disclosure
The Company complies with the fair value measurements and disclosures standard which defines fair value, establishes a framework for measuring fair value, and expands disclosure for those assets and liabilities carried on the balance sheet on a fair value basis.
The Company's balance sheet contains derivative financial instruments that are recorded at fair value on a recurring basis. Fair value measurements and disclosures require that assets and liabilities carried at fair value be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.
Level 1 uses quoted market prices in active markets for identical assets or liabilities.
Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3 uses unobservable inputs that are not corroborated by market data.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Warrant liability: The warrant liability consists of stock warrants issued by the Company that contain a conditional obligation to repurchase feature. In accordance with accounting for warrants as liabilities, the Company calculated the fair value of warrants under Level 3 using the assumptions described in Fair Value of Warrants. Realized and unrealized gains and losses related to the change in fair value of the warrant liability are included in other income (expense) in the Consolidated Statement of Operations.
The following table summarizes financial liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| 2015 | ||||||||||||||||
| Warrant liability | $ | 54 | $ | - | $ | - | $ | 54 | ||||||||
| 2014 | ||||||||||||||||
| Warrant liability | $ | 108 | $ | - | $ | - | $ | 108 | ||||||||
The following table reflects the activity for liabilities measured at fair value using Level 3 inputs for the twelve months ended December 31, 2015 and 2014:
| Balance as of December 31, 2013 | $ | 60 | ||
| Related change in fair value | 48 | |||
| Balance as of December 31, 2014 | $ | 108 | ||
| Related change in fair value | (54 | ) | ||
| Balance as of December 31, 2015 | $ | 54 |
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis were not significant at December 31, 2015.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.