AEMETIS, INC - Quarter Report: 2020 September (Form 10-Q)

  UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

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☑  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2020

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from _____________to ____________

 

Commission File Number: 001-36475

 

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AEMETIS, INC.

 (Exact name of registrant as specified in its charter)

———————

 

Nevada	26-1407544
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

 

20400 Stevens Creek Blvd., Suite 700

Cupertino, CA 95014

 (Address of Principal Executive Offices, including zip code)

 

(408) 213-0940

 (Registrant’s telephone number, including area code)

 

Title of each class of registered securities	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	AMTX	NASDAQ

 

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐  Non-accelerated filer ☐ Smaller reporting company ☑

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

The number of shares outstanding of the registrant’s Common Stock on October 31, 2020 was 21,815,654 shares.

 

  

AEMETIS, INC.

FORM 10-Q

Quarterly Period Ended September 30, 2020

INDEX

PART I--FINANCIAL INFORMATION
Item 1	Financial Statements.	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	44
Item 4.	Controls and Procedures.	44
PART II--OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors.	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	45
Item 3.	Defaults Upon Senior Securities.	45
Item 4.	Mine Safety Disclosures.	45
Item 5.	Other Information.	45
Item 6.	Exhibits.	46
Signatures		47

 

 

 

 

 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q, including statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events or other statements that are not historical facts. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding management’s plans; trends in market conditions with respect to prices for inputs for our products versus prices for our products; our ability to leverage approved feedstock pathways; our ability to leverage our location and infrastructure; our ability to incorporate lower-cost, non-food advanced biofuels feedstock at the Keyes plant; our ability to adopt value-add by-product processing systems; our ability to expand into alternative markets for biodiesel and its by-products, including continuing to expand our sales into international markets; our ability to maintain and expand strategic relationships with suppliers; our ability to continue to develop new and to maintain and protect new and existing intellectual property rights; our ability to adopt, develop and commercialize new technologies; our ability to refinance our senior debt on more commercial terms or at all; our ability to continue to fund operations and our future sources of liquidity and capital resources; our ability to sell additional notes under our EB-5 note program and our expectations regarding the release of funds from escrow under our EB-5 note program; our ability to improve margins; and our ability to raise additional capital. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on current assumptions and predictions and are subject to numerous risks and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference as well as those business risks and factors described elsewhere in this report and in our other filings with the Securities and Exchange Commission (the “SEC”), including without limitation, our most recent Annual Report on Form 10-K.

 

  

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements.

AEMETIS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands except for par value)

 

	September 30, 2020	December 31, 2019
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$79	$656
Accounts receivable, net of allowance for doubtful accounts of $647 and $0 as of September 30, 2020 and December 31, 2019	3,243	2,036
Notes receivable	3,746	-
Inventories	4,816	6,518
Prepaid expenses	727	794
Other current assets	936	2,572
Total current assets	13,547	12,576
Property, plant and equipment, net	103,050	84,226
Operating lease right-of-use assets	2,843	557
Other assets	2,730	2,537
Total assets	$122,170	$99,896
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$15,023	$15,968
Current portion of long term debt	41,979	5,792
Short term borrowings	17,357	16,948
Mandatorily redeemable Series B convertible preferred stock	3,226	3,149
Accrued property taxes	5,356	4,095
Accrued contingent litigation fees	6,200	6,200
Current portion of operating lease liability	286	377
Other current liabilities	6,398	5,290
Total current liabilities	95,825	57,819
Long term liabilities:
Senior secured notes and revolving notes	120,781	107,205
EB-5 notes	34,500	36,500
GAFI secured and revolving notes	-	29,856
Other long term debt	11,729	6,124
Series A preferred units	28,494	14,077
Operating lease liability	2,662	200
Other long term liabilities	3,742	2,487
Total long term liabilities	201,908	196,449
Stockholders' deficit:
Series B convertible preferred stock, $0.001 par value; 7,235 authorized; 1,323 shares issued and outstanding each period, respectively (aggregate liquidation preference of $3,969 for each period respectively)	1	1
Common stock, $0.001 par value; 40,000 authorized; 21,027 and 20,570 shares issued and outstanding each period, respectively	21	21
Additional paid-in capital	88,119	86,852
Accumulated deficit	(259,498)	(237,421)
Accumulated other comprehensive loss	(4,206)	(3,825)
Total stockholders' deficit	(175,563)	(154,372)
Total liabilities and stockholders' deficit	$122,170	$99,896

 

The accompanying notes are an integral part of the financial statements.

 

 

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

LOSS

(Unaudited, in thousands except for earnings per share)

 

	For the three months ended September 30,		For the nine months ended September 30,
	2020	2019	2020	2019
Revenues	$40,923	$57,389	$128,227	$149,896
Cost of goods sold	40,152	53,407	113,830	142,992
Gross profit	771	3,982	14,397	6,904
Research and development expenses	37	37	175	160
Selling, general and administrative expenses	4,563	4,529	12,548	12,715
Operating income (loss)	(3,829)	(584)	1,674	(5,971)
Other (income) expense:
Interest expense
Interest rate expense	5,796	5,396	16,956	15,572
Debt related fees and amortization expense	674	946	2,578	3,565
Accretion of Series A preferred units	1,765	589	4,087	1,509
Loss contingency on litigation	-	-	-	6,200
Other (income) expense	153	(289)	393	(1,001)
Loss before income taxes	(12,217)	(7,226)	(22,340)	(31,816)
Income tax expense (benefit)	-	-	(263)	7
Net loss	$(12,217)	$(7,226)	$(22,077)	$(31,823)
Less: Net loss attributable to non-controlling interest	-	(900)	-	(2,832)
Net loss attributable to Aemetis, Inc.	$(12,217)	$(6,326)	$(22,077)	$(28,991)
Other comprehensive income (loss)
Foreign currency translation gain (loss)	314	(254)	(381)	(139)
Comprehensive loss	$(11,903)	$(7,480)	$(22,458)	$(31,962)
Net loss per common share
Basic	$(0.59)	$(0.31)	$(1.06)	$(1.42)
Diluted	$(0.59)	$(0.31)	$(1.06)	$(1.42)
Weighted average shares outstanding
Basic	20,861	20,554	20,732	20,433
Diluted	20,861	20,554	20,732	20,433

 

The accompanying notes are an integral part of the financial statements.

  

 

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 (Unaudited, in thousands)

 

	For the nine months ended September 30,
	2020	2019
Operating activities:
Net loss	$(22,077)	$(31,823)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation	826	630
Depreciation	3,515	3,337
Debt related fees and amortization expense	2,578	3,565
Intangibles and other amortization expense	36	36
Accretion of Series A preferred units	4,087	1,509
Deferred tax benefit	(263)	-
Provision for bad debts	647	-
Change in fair value of stock appreciation rights	-	(80)
Changes in operating assets and liabilities:
Accounts receivable	(1,902)	(4,359)
Inventories	1,542	2,563
Prepaid expenses	66	384
Other assets	1,684	(154)
Accounts payable	330	3,429
Accrued interest expense and fees	16,011	13,272
Other liabilities	(24)	6,565
Net cash provided by (used in) operating activities	7,056	(1,126)
Investing activities:
Capital expenditures	(14,921)	(5,053)
Note receivable	(3,687)	-
Net cash used in investing activities	(18,608)	(5,053)
Financing activities:
Proceeds from borrowings	12,135	39,246
Repayments of borrowings	(11,792)	(35,886)
TEC debt renewal and waiver fee payments	(300)	(530)
Grant proceeds received for capital expenditures	256	1,364
Payments on finance leases	(1,137)	-
Proceeds from the exercise of stock options	260	-
Proceeds from Series A preferred units financing	11,564	1,725
Net cash provided by financing activities	10,986	5,919
Effect of exchange rate changes on cash and cash equivalents	(11)	(9)
Net change in cash and cash equivalents for period	(577)	(269)
Cash and cash equivalents at beginning of period	656	1,188
Cash and cash equivalents at end of period	$79	$919
Supplemental disclosures of cash flow information, cash paid:
Cash paid for interest, net of capitalized interest of $291 and $231 for the nine months ended September 30, 2020 and 2019, respectively	$702	$1,836
Income taxes paid	8	-
Supplemental disclosures of cash flow information, non-cash transactions:
Subordinated debt extension fees added to debt	680	680
Fair value of warrants issued to subordinated debt holders	181	162
TEC debt extension, waiver fees, promissory notes fees added to debt	1,793	1,102
Capital expenditures in accounts payable	1,182	1,443
Operating lease liabilities arising from obtaining right of use assets	2,688	1,181
Financing lease liabilities arising from obtaining right of use assets	2,988	-
Stock Appreciation Rights issued for GAFI Amendment No. 1	-	1,050
Capital expenditures purchased on financing	5,652	-

 

The accompanying notes are an integral part of the financial statements.

 

  

AEMETIS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited, in thousands)

 

For the three and nine months ended September 30, 2020
	Series B Preferred Stock		Common Stock		Additional	Accumulated	Accumulated Other Comprehensive	Total Stockholders'
Description	Shares	Dollars	Shares	Dollars	Paid-in Capital	Deficit	Income/(Loss)	deficit
Balance at December 31, 2019	1,323	$1	20,570	$21	$86,852	$(237,421)	$(3,825)	$(154,372)
Stock-based compensation	-	-	-	-	310	-	-	310
Issuance and exercise of warrants	-	-	113	-	93	-	-	93
Foreign currency translation loss	-	-	-	-	-	-	(668)	(668)
Net loss	-	-	-	-	-	(12,052)	-	(12,052)
Balance at March 31, 2020	1,323	$1	20,683	$21	$87,255	$(249,473)	$(4,493)	$(166,689)
Stock-based compensation	-	-	-	-	325	-	-	325
Foreign currency translation loss	-	-	-	-	-	-	(27)	(27)
Net income	-	-	-	-	-	2,192	-	2,192
Balance at June 30, 2020	1,323	$1	20,683	$21	$87,580	$(247,281)	$(4,520)	$(164,199)
Stock options exercised	-	-	232	-	260	-	-	260
Stock-based compensation	-	-	-	-	191	-	-	191
Issuance and exercise of warrants	-	-	112	-	88	-	-	88
Foreign currency translation gain	-	-	-	-	-	-	314	314
Net loss	-	-	-	-	-	(12,217)	-	(12,217)
Balance at September 30, 2020	1,323	$1	21,027	$21	$88,119	$(259,498)	$(4,206)	$(175,563)

 

For the three and nine months ended September 30, 2019
	Series B Preferred Stock		Common Stock		Additional	Accumulated	Accumulated Other Comprehensive	Noncontrolling	Total Stockholders'
Description	Shares	Dollars	Shares	Dollars	Paid-in Capital	Deficit	Income/(Loss)	Interest	deficit
Balance at December 31, 2018	1,323	$1	20,345	$20	$85,917	$(193,204)	$(3,576)	$(4,740)	$(115,582)
Stock-based compensation	-	-	-	-	290	-	-	-	290
Issuance and exercise of warrants	-	-	30	-	67	-	-	-	67
Foreign currency translation gain	-	-	-	-	-	-	58	-	58
Net loss	-	-	-	-	-	(9,729)	-	(938)	(10,667)
Balance at March 31, 2019	1,323	$1	20,375	$20	$86,274	$(202,933)	$(3,518)	$(5,678)	$(125,834)
Stock-based compensation	-	-	-	-	196	-	-	-	196
Foreign currency translation gain	-	-	-	-	-	-	57	-	57
Net loss	-	-	-	-	-	(12,936)	-	(994)	(13,930)
Balance at June 30, 2019	1,323	$1	20,375	$20	$86,470	$(215,869)	$(3,461)	$(6,672)	$(139,511)
Stock-based compensation	-	-	-	-	144	-	-	-	144
Issuance and exercise of warrants	-	-	195	1	94	-	-	-	95
Foreign currency translation loss	-	-	-	-	-	-	(254)	-	(254)
Net loss	-	-	-	-	-	(6,326)	-	(900)	(7,226)
Balance at September 30, 2019	1,323	$1	20,570	$21	$86,708	$(222,195)	$(3,715)	$(7,572)	$(146,752)

 

 

AEMETIS, INC.

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

 

1. Nature of Activities and Summary of Significant Accounting Policies

Nature of Activities. Headquartered in Cupertino, California, Aemetis, Inc. (collectively with its subsidiaries on a consolidated basis, “Aemetis,” the “Company,” “we,” “our” or “us”) is an advanced renewable fuels and biochemicals company focused on the acquisition, development and commercialization of innovative technologies that replace traditional petroleum-based products through the conversion of second-generation ethanol and biodiesel plants into advanced biorefineries. Founded in 2006, we own and operate a 65 million gallon per year renewable ethanol facility (“Keyes Plant”) in California’s Central Valley, near Modesto, where we manufacture and produce ethanol, high-grade alcohol, wet distillers’ grains (“WDG”), condensed distillers solubles (“CDS”), and distillers’ corn oil (“DCO”). We also own and operate a 50 million gallon per year renewable chemical and advanced fuel production facility (“Kakinada Plant”) on the East Coast of India that produces high quality distilled biodiesel and refined glycerin for customers in India and Europe. We operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and biochemicals. Additionally, we own a partially completed plant in Goodland, Kansas (the “Goodland Plant”) through our subsidiary Goodland Advanced Fuels, Inc., (“GAFI”), which was formed to acquire the Goodland Plant. On December 31, 2019 we exercised an option to acquire all capital stock of GAFI for $10 and consolidated assets, liabilities, and equity of GAFI as a wholly-owned subsidiary from December 31, 2019. Prior to December 31, 2019, GAFI activity is shown as non-controlling interest in the consolidated statements of operations.

 

We also lease a site in Riverbank, California, near the Keyes Plant, where we plan to utilize biomass-to-fuel technology that we have licensed from LanzaTech Technology (“LanzaTech”) and InEnTec Technology (“InEnTec”) to build a cellulosic ethanol production facility (the “Riverbank Cellulosic Ethanol Facility”) capable of converting local California surplus biomass – principally agricultural orchard waste – into ultra-low carbon renewable cellulosic ethanol (the “Riverbank Project”). By producing ultra-low carbon renewable cellulosic ethanol, we expect to capture higher value D3 cellulosic renewable identification numbers (“RINs”) and California Low Carbon Fuel Standard (“LCFS”) credits.

In December 2018, we acquired a 5.2-acre parcel of land for the construction of a gas-to-liquid CO2 production facility by Messer. Aemetis sells carbon dioxide (“CO2”) produced at the Keyes Plant (the “CO2 Project”) to Messer for conversion and sale into the food processing, beverage, and technology sectors. The Aemetis portion of the CO2 Project construction was completed in January 2020, and Messer completed construction on their portion in April 2020. We commenced operations in late April 2020, and started recognizing revenue from this project in the second quarter of 2020.

In 2018, we formed Aemetis Biogas, LLC (“ABGL”) to construct a cluster of anaerobic biogas digesters at local dairies near the Keyes Plant (the “Biogas Project”) to produce ultra-low carbon renewable natural gas (“RNG”) for use as transportation fuel. Construction of the first two dairy digesters and pipeline in the cluster were completed and commissioned during the third quarter of 2020. ABGL has signed participation agreements or fully executed leases with 17 local dairies near the Keyes Plant to build anerobic digesters to capture methane gas from manure lagoons at such dairies, which would otherwise be released into the atmosphere. We plan to capture methane-rich biogas from multiple dairies and convey the gas via a private underground pipeline to a centralized location at our Keyes Plant, where we will remove impurities in the gas and convert it into RNG for any number of applications including injecting into the local utility pipeline operated by PG&E, operating a renewable compressed natural gas (“RCNG”) truck loading station that will service local trucking fleets to displace diesel fuel, or converting to clean electricity. The biogas can also be used as energy in our Keyes Plant to displace petroleum-based natural gas. We believe the environmental and economic benefits of the Biogas Project are potentially significant due to dairy biogas having a negative carbon intensity (“CI”) under the California LCFS. The biogas produced by ABGL is expected to also receive D3 RINs under the federal Renewable Fuel Standard (“RFS”).

 

  

On March 18, 2020, in order to address a supply shortage of hand sanitizer during the worldwide COVID-19 pandemic, the US Treasury Tobacco and Alcohol Tax and Trade Bureau (“TTB”) provided emergency waivers allowing fuel ethanol plants to produce high-grade alcohol for use in the production of hand sanitizer. Concurrently, during the first week of April 2020, Aemetis applied for and was approved by the TTB as a Distilled Spirits Producer (“DSP”), which would allow the Company to produce, in addition to fuel ethanol, high-grade alcohol for sanitizer and other health care and sanitary products, as well as industrial alcohol and potable alcohol for beverage spirits once the temporary waiver period expires.

Accordingly, Aemetis began supplying high-grade alcohol for the production of hand sanitizer. Aemetis has also implemented a series of capital projects at the Keyes facility that will ultimately enable the production of US Pharmacopeia (“USP”) grade alcohol for sale into these key consumer and industrial markets. During June 2020, Aemetis renamed Biofuels Marketing, Inc. as Aemetis Health Products, Inc., and began a sales and marketing strategy of blending, bottling and selling hand sanitizer into bulk, retail branded, and white label markets. Additionally, Aemetis Health Products, Inc. is developing sales and marketing channels for other personal protective equipment, where and when those opportunites arise.

Basis of Presentation and Consolidation. These consolidated financial statements include the accounts of Aemetis. Additionally, we consolidate all entities in which we have a controlling financial interest either directly or by option to acquire the interest. A controlling financial interest is usually obtained through ownership of a majority of the voting interests. However, an enterprise must consolidate a variable interest entity (“VIE”) if the enterprise is the primary beneficiary of the VIE, even if the enterprise does not own a majority of the voting interests. The primary beneficiary is the party that has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Prior to December 31, 2019, GAFI was consolidated into the financial statements as a VIE. On December 31, 2019, we exercised an option to acquire all capital stock of GAFI for $10 and consolidated assets, liabilities, and equity of GAFI into the accounts of Aemetis from December 31, 2019 forward.

The accompanying consolidated condensed balance sheet as of September 30, 2020, the consolidated condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the consolidated condensed statements of cash flows for the nine months ended September 30, 2020 and 2019, and the consolidated condensed statements of stockholders’ deficit for the three and nine months ended September 30, 2020 and 2019 are unaudited. The consolidated condensed balance sheet as of December 31, 2019 was derived from the 2019 audited consolidated financial statements and notes thereto. The consolidated condensed financial statements in this report should be read in conjunction with the 2019 audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019. The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of Company’s management, the unaudited interim consolidated condensed financial statements for the three and nine months ended September 30, 2020 and 2019 have been prepared on the same basis as the audited consolidated statements as of December 31, 2019 and reflect all adjustments, consisting primarily of normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.

 

  

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, revenues, and expenses during the reporting period. To the extent there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected.

Revenue Recognition. We derive revenue primarily from sales of ethanol, high-grade alcohol and related co-products in North America, and biodiesel and refined glycerin in India pursuant to supply agreements and purchase order contracts. We assessed the following criteria under the ASC 606 guidance: (i) identify the contracts with customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when the entity satisfies the performance obligations.

North America: In North America, until May 13, 2020, we sold all our ethanol to J.D. Heiskell & Co. (“J.D. Heiskell”) under the Working Capital and Purchasing Agreement (the “J.D. Heiskell Purchasing Agreement”). On May 13, 2020, we entered into an amendment to the Corn Procurement and Working Capital Agreement with J.D. Heiskell (the “Corn Procurement and Working Capital”), under the terms of which we will buy all corn from J.D.Heiskell and sell all WDG and corn oil we produce to J.D.Heiskell. Following May 13, 2020, we sold the majority of our fuel ethanol production to one customer, Kinergy Marketing, LLC (“Kinergy”), under a supply contract, with individual sales transactions occurring under such contract. Given the similarity of these transactions, we have assessed them as a portfolio of similar contracts. The performance obligation is satisfied by delivery of the physical product to one of Kinergy’s contracted trucking companies. Upon delivery, the customer has the ability to direct the use of the product and receive substantially all of its benefits. The transaction price is determined based on daily market prices negotiated by Kinergy for ethanol and by our marketing partner A.L. Gilbert Company (“A.L. Gilbert”) for WDG. There is no transaction price allocation needed.

During the first quarter of 2020, Aemetis began selling high-grade alcohol for consumer applications directly to customers on the West Coast and Midwest using a variety of payment terms. These agreements and terms were evaluated according to ASC 606 guidance and such revenue is recognized upon satisfaction of the performance obligation by delivery of the product based on the terms of the agreement. Sales of high-grade alcohol represented 2% and 18% of revenue for three and nine months ended September 30, 2020, respectively.

The below table shows our sales in North America by product category:

North America (in thousands)
	For the three months ended September 30,		For the nine months ended September 30,
	2020	2019	2020	2019
Ethanol and high-grade alcohol sales	$24,825	$27,456	$86,387	$84,453
Wet distiller's grains sales	7,143	8,783	22,983	26,119
Other sales	1,163	1,581	4,856	3,370
	$33,131	$37,820	$114,226	$113,942

 

We have elected to adopt the practical expedient that allows for ignoring the significant financing component of a contract when estimating the transaction price when the transfer of promised goods to the customer and customer payment for such goods are expected to be within one year of contract inception. Further, we have elected to adopt the practical expedient in which incremental costs of obtaining a contract are expensed when the amortization period would otherwise be less than one year.

 

  

We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those customers in certain contractual agreements.

In North America, we assessed principal versus agent criteria as we buy corn as feedstock in producing ethanol from our working capital partner J.D. Heiskell and sell all WDG and corn oil produced in this process to J.D. Heiskell through A.L. Gilbert. We sold all ethanol we produced to J.D.Heiskell until May 13, 2020. We consider the purchase of corn as a cost of goods sold and the sale of ethanol upon transfer to the common carrier as revenue on the basis that (i) we control and bear the risk of gain or loss on the processing of corn which is purchased at market prices into ethanol and (ii) we have legal title to the goods during the processing time. The pricing for both corn and ethanol is set independently. Revenues from sales of ethanol and its co-products are billed net of the related transportation and marketing charges. Transportation charges are accounted for in cost of goods sold and marketing charges are accounted for in sales, general and administrative expense. Transportation and marketing charges are known within days of the transaction and are recorded at the actual amounts. The Company has elected to adopt an accounting policy under which these charges have been treated as fulfillment activities provided after control has transferred. As a result, these charges are recognized in cost of goods sold and selling, general and administrative expenses, respectively, when revenue is recognized. Revenues are recorded at the gross invoiced amount. Hence, we are the principal in North America sales scenarios where our customer and vendor may be the same.

India: In India, we sell products pursuant to purchase orders (written or verbal) or by contract with governmental or international parties, in which performance is satisfied by delivery and acceptance of the physical product. Given that the contracts are sufficiently similar in nature, we have assessed these contracts as a portfolio of similar contracts as allowed under the practical expedient. Doing so does not result in a materially different outcome compared to individually accounting for each contract. All domestic and international deliveries are subject to certain specifications as identified in contracts. The transaction price is determined daily based on reference market prices for biodiesel, refined glycerin, and Palm Fatty Acid Distillers (“PFAD”) net of taxes. There is no transaction price allocation needed.

The below table shows our sales in India by product category:

India (in thousands)
	For the three months ended September 30,		For the nine months ended September 30,
	2020	2019	2020	2019
Biodiesel sales	$7,325	$17,057	$12,267	$32,201
Refined glycerin sales	449	951	909	2,186
PFAD sales	-	-	774	-
Other sales	18	1,561	51	1,567
	$7,792	$19,569	$14,001	$35,954

In India, we also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those same customers in certain contractual agreements. In those cases, we receive the legal title to feedstock from our customers once it is on our premises. We control the processing and production of biodiesel based on contract terms and specifications. The pricing for both feedstock and biodiesel is set independently. We hold the title and risk to biodiesel according to agreements we enter into in these situations. Hence, we are the principal in India sales scenarios where our customer and vendor may be the same.

 

Cost of Goods Sold. Cost of goods sold includes those costs directly associated with the production of revenues, such as raw material consumed, factory overhead and other direct production costs. During periods of idle plant capacity, costs otherwise charged to cost of goods sold are reclassified to selling, general and administrative expense.

Accounts Receivable. The Company sells ethanol and WDG through third-party marketing arrangements generally without requiring collateral and high-grade alcohol directly to customers on a variety of terms including advanced payment terms, based on the size and creditworthiness of the customer. DCO is marketed and sold to A.L. Gilbert and other customers under the J.D. Heiskell Purchasing Agreement. The Company sells CDS directly to customers on standard 30 day payment terms. The Company sells biodiesel, glycerin, and processed natural oils to a variety of customers and may require advanced payment based on the size and creditworthiness of the customer. Usually, invoices are due within 30 days on net terms. Accounts receivables consist of product sales made to large creditworthy customers. Trade accounts receivable are presented at original invoice amount, net of any allowance for doubtful accounts.

The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivables are charged against the allowance for doubtful accounts once un-collectability has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate, additional allowances may be required. We reserved $647 thousand and none in the allowances for doubtful accounts as of September 30, 2020 and December 31, 2019, respectively.

 

Notes Receivable. During the third quarter, the India subsidiary provided an interest bearing short-term note, with an interest rate of 12% per annum, to a working capital partner. The balance was recorded on the balance sheet under notes receivable for $3.7 million as of September 30, 2020.

Inventories. Finished goods, raw materials, and work-in-process inventories are valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value (“NRV”). Distillers’ grains and related products are stated at NRV. In the valuation of inventories, NRV is determined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Property, Plant and Equipment. Property, plant and equipment are carried at cost less accumulated depreciation after assets are placed in service and are comprised primarily of buildings, furniture, machinery, equipment, land, and the Keyes Plant, Goodland Plant and Kakinada Plant. The Goodland Plant is partially completed and is not ready for operation. The first two dairy digesters and pipeline in the Biogas Project were completed, commissioned and began to be depreciated during the third quarter of 2020. The CO2 Project was completed and commenced operations in the second quarter of 2020. Accordingly, any assets under the CO2 Project began being depreciated starting in May 2020. It is the Company’s policy to depreciate capital assets over their estimated useful lives using the straight-line method.

The Company evaluates the recoverability of long-lived assets with finite lives in accordance with ASC Subtopic 360-10-35 Property Plant and Equipment—Subsequent Measurements, which requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, based on estimated undiscounted cash flows, the impairment loss would be measured as the difference between the carrying amount of the assets and its estimated fair value. Additionally, the impact of the COVID-19 pandemic was assessed, and based upon this assessment, there is no impairment of assets needed.

California Energy Commission Technology Demonstration Grant. The Company has been awarded and completed the demonstration project associated with the $825 thousand matching grant program from the California Energy Commission (“CEC”) Natural Resources Agency to optimize the effectiveness of technologies to break down biomass to produce cellulosic ethanol. The Company has received all of the awarded grant proceeds as of September 30, 2020. The project focused on the deconstruction and conversion of sugars liberated from California-relevant feedstocks and then converting the sugars to ethanol. The Company receives these funds as reimbursement for actual expenses incurred. Due to the uncertainty associated with the expense approval process under the grant program, the Company recognizes the grant as a reduction of the expenses in the period when approval is received.

 

California Department of Food and Agriculture Dairy Digester Research and Development Grant. The Company has been awarded $3.2 million in matching grants from the California Department of Food and Agriculture (“CDFA”) Dairy Digester Research and Development program. The CDFA grant reimburses the Company for costs required to permit and construct two of the Company’s biogas capture systems under contract with central California dairies. The Company received $2.7 million as of September 30, 2020 as reimbursement for actual costs incurred. Due to the uncertainty associated with the approval process under the grant program, the Company recognizes the grant as a reduction of the costs in the period when approval is received.

California Energy Commission Low Carbon Advanced Ethanol Grant Program. In May 2019, the Company was awarded the right to receive reimbursements from the CEC in an amount up to $5.0 million (the “CEC Reimbursement Program”) in connection with the Company’s expenditures toward the development of the Riverbank Cellulosic Ethanol Facility. To comply with the guidelines of the CEC Reimbursement Program, the Company must make a minimum of $7.9 million in matching contributions to the Riverbank Project. The Company receives the CEC funds under the CEC Reimbursement Program for actual expenses incurred up to $5.0 million as long as the Company makes the minimum matching contribution. Given that the Company has not made the minimum matching contribution, the grant for reimbursement of capital expenditures of $256 thousand received during the third quarter of 2020 and of $1.36 million received during the third quarter of 2019 were recorded as other long term liabilities as of September 30, 2020 and December 31, 2019.

Basic and Diluted Net Loss per Share. Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the dilution of common stock equivalents such as options, convertible preferred stock, debt, and warrants to the extent the impact is dilutive. As the Company incurred net losses for the three and nine months ended September 30, 2020 and 2019, potentially dilutive securities have been excluded from the diluted net loss per share computations as their effect would be anti-dilutive.

The following table shows the number of potentially dilutive shares excluded from the diluted net loss per share calculation as of September 30, 2020 and 2019:

 

	As of
	September 30, 2020	September 30, 2019
Series B preferred (post split basis)	132	132
Common stock options and warrants	5,846	3,910
Debt with conversion feature at $30 per share of common stock	1,294	1,255
Total number of potentially dilutive shares excluded from the diluted net income (loss) per share calculation	7,272	5,297

Comprehensive Loss. ASC 220 Comprehensive Income requires that an enterprise report, by major components and as a single total, the change in its net assets from non-owner sources. The Company’s other comprehensive income (loss) and accumulated other comprehensive loss consists solely of cumulative currency translation adjustments resulting from the translation of the financial statements of its foreign subsidiary.

Foreign Currency Translation/Transactions. Assets and liabilities of the Company’s non-U.S. subsidiary that operates in a local currency environment, where that local currency is the functional currency, are translated into U.S. dollars at exchange rates in effect at the balance sheet date and the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at average exchange rates during the year. Transactional gains and losses from foreign currency transactions are recorded in other (income) loss, net.

 

Operating Segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Aemetis recognized two reportable geographic segments: “North America” and “India.”

The “North America” operating segment includes the Keyes Plant, the Riverbank Cellulosic Ethanol Facility, the Biogas Project, the Goodland Plant and the research and development facility in Minnesota.

The “India” operating segment includes the Company’s 50 million gallon per year capacity Kakinada Plant in India, the administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius.

Fair Value of Financial Instruments. Financial instruments include accounts receivable, accounts payable, accrued liabilities, current and non-current portion of subordinated debt, notes payable, and long-term debt. Due to the unique terms of our notes payable and long-term debt and the financial condition of the Company, the fair value of the debt is not readily determinable. The fair value, determined using level 3 inputs, of all other current financial instruments is estimated to approximate carrying value due to the short-term nature of these instruments.

Share-Based Compensation. The Company recognizes share-based compensation expense in accordance with ASC 718 Stock Compensation requiring the Company to recognize expenses related to the estimated fair value of the Company’s share-based compensation awards at the time the awards are granted, adjusted to reflect only those shares that are expected to vest.

Commitments and Contingencies. The Company records and/or discloses commitments and contingencies in accordance with ASC 450 Contingencies. ASC 450 applies to an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur.

Debt Modification Accounting. The Company evaluates amendments to its debt in accordance with ASC 470-50 Debt–Modification and Extinguishments for modification and extinguishment accounting. This evaluation includes comparing the net present value of cash flows of the new debt to the old debt to determine if changes greater than 10 percent occurred. In instances where the net present value of future cash flows changed more than 10 percent, the Company applies extinguishment accounting and determines the fair value of its debt based on factors available to the Company.

We have evaluated the 1% extension fee for extending the maturity date of the Third Eye Capital Notes to April 1, 2021 and Amendment No. 17 providing an option to extend to April 1, 2022 and certain waivers for financial covenants, in accordance with ASC 470-60 Troubled Debt Restructuring. For additional information regarding the 1% extension fee and Amendment No. 17, please see “Part I, Item 1. Financial Statements – Note 4. Debt.”

Convertible Instruments. The Company evaluates the impacts of convertible instruments based on the underlying conversion features. Convertible instruments are evaluated for treatment as derivatives that could be bifurcated and recorded separately. Any beneficial conversion feature is recorded based on the intrinsic value difference at the commitment date.

Recently Issued Accounting Pronouncements.

For a complete summary of the Company’s significant accounting policies, please refer to the Company’s audited financial statements and notes thereto for the years ended December 31, 2019 and 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2020. There were no new accounting pronouncements issued applicable to the Company during the three and nine months ended September 30, 2020.

 

2. Inventories

Inventories consist of the following:

 

	As of
	September 30, 2020	December 31, 2019
Raw materials	$1,678	$2,566
Work-in-progress	1,365	1,455
Finished goods	1,773	2,497
Total inventories	$4,816	$6,518

 

As of September 30, 2020 and December 31, 2019, the Company recognized a lower of cost or net realizable value impairment of $0.3 and $0.1 million respectively, related to inventory.

3. Property, Plant and Equipment

Property, plant and equipment consist of the following:

	September 30, 2020	December 31, 2019
Land	$4,088	$4,104
Plant and buildings	96,089	83,139
Furniture and fixtures	1,166	1,094
Machinery and equipment	4,389	4,252
Construction in progress	18,612	12,571
Property held for development	15,408	15,408
Finance lease right of use assets	2,988	-
Total gross property, plant & equipment	142,740	120,568
Less accumulated depreciation	(39,690)	(36,342)
Total net property, plant & equipment	$103,050	$84,226

  

Construction in progress contains incurred costs for the Biogas Project, Riverbank Project, and Zebrex equipment installation at the Keyes Plant. In the second quarter of 2020, CO2 Project commenced operations and was placed in service at that time. In the third quarter of 2020, two diary digesters commenced operations and were placed in service at that time. Depreciation on the components of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:

	Years
Plant and buildings	20 - 30
Machinery and equipment	5 - 10
Furniture and fixtures	3 - 5

 

For the three months ended September 30, 2020 and 2019, the Company recorded depreciation expense of $1.3 million and $1.1 million for each period. For the nine months ended September 30, 2020 and 2019, the Company recorded depreciation expense of $3.5 million and $3.3 million, respectively.

Management is required to evaluate these long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Management determined there was no impairment on the long-lived assets during the three and nine months ended September 30, 2020 and 2019.

 

4. Debt

Debt consists of the notes from our senior lender, Third Eye Capital, other working capital lenders and subordinated lenders as follows:

	September 30, 2020	December 31, 2019
Third Eye Capital term notes	$7,039	$7,024
Third Eye Capital revolving credit facility	75,605	62,869
Third Eye Capital revenue participation term notes	11,824	11,794
Third Eye Capital acquisition term notes	26,313	25,518
Third Eye Capital promissory note	1,840	2,815
Cilion shareholder seller notes payable	6,236	6,124
Subordinated notes	12,315	11,502
Term loan on Equipment purchase	5,652	-
EB-5 promissory notes	42,965	41,932
PPP loans	1,134	-
Unsecured working capital loans	2,540	2,631
GAFI Term and Revolving loans	32,883	30,216
Total debt	226,346	202,425
Less current portion of debt	59,336	22,740
Total long term debt	$167,010	$179,685

 

On July 6, 2012, Aemetis, Inc. and Aemetis Advanced Fuels Keyes, Inc. (“AAFK”), entered into an Amended and Restated Note Purchase Agreement with Third Eye Capital (the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement, Third Eye Capital extended credit in the form of (i) senior secured term loans in an aggregate principal amount of approximately $7.2 million to replace existing notes held by Third Eye Capital (the “Term Notes”); (ii) senior secured revolving loans in an aggregate principal amount of $18.0 million (the “Revolving Credit Facility”); (iii) senior secured term loans in the principal amount of $10.0 million to convert the prior revenue participation agreement to a note (the “Revenue Participation Term Notes”); and (iv) senior secured term loans in an aggregate principal amount of $15.0 million (the “Acquisition Term Notes”) used to fund the cash portion of the acquisition of Cilion, Inc. (the Term Notes, Revolving Credit Facility, Revenue Participation Term Notes and Acquisition Term Notes are referred to herein collectively as the “Original Third Eye Capital Notes”).

On March 27, 2018, Third Eye Capital agreed to Limited Waiver and Amendment No. 14 to the Note Purchase Agreement (“Amendment No. 14”) to: (i) extend the maturity date of the Third Eye Capital Notes by two years to April 1, 2020 in exchange for an amendment fee consisting of 6% (3% per year) of the outstanding note balance in the form of an increase in the fee payable in the event of a redemption of the Third Eye Capital Notes (as defined in the Note Purchase Agreement); (ii) provide that the maturity date may be further extended at our election to April 1, 2021 in exchange for an extension fee of 5%; (iii) provide for an optional waiver of the ratio of note indebtedness covenant until January 1, 2019 with the payment of a waiver fee of $0.25 million; and (iv) remove the redemption fee described in (i) above from the calculation of the ratio of note indebtedness covenant. In addition to the fee discussed in (i), as consideration for such amendment and waiver, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.5 million to be added to the outstanding principal balance of the Revolving Credit Facility.

On March 11, 2019, Third Eye Capital agreed to Limited Waiver and Amendment No. 15 to the Note Purchase Agreement (“Amendment No. 15”), to waive the ratio of note indebtedness covenant through December 31, 2019. As a consideration for this amendment, the Company also agreed to pay Third Eye Capital an amendment fee of $1.0 million to be added to the redemption fee which is due upon redemption of the Notes.

 

On November 11, 2019, Third Eye Capital agreed to Limited Waiver and Amendment No. 16 to the Note Purchase Agreement (“Amendment No. 16”), to waive the ratio of note indebtedness covenant for the quarters ended March 31, 2020, September 30, 2020, September 30, 2020 and December 31, 2020. As a consideration for this amendment, the Company also agreed to pay Third Eye Capital an amendment fee of $0.5 million to be added to the redemption fee which is due upon redemption of the Notes.

Based on Amendment No. 16, the ratio of note indebtedness covenant is waived for the quarters ended September 30, 2020 and December 31, 2020. Based on the Amendment No. 17, the ratio of note indebtedness covenant is waived for the quarters ended March 31, 2021 and June 30, 2021. On November 5, 2020, Third Eye Capital agreed to Amendment No. 18 to waive the ratio of note indebtedness covenant for the quarter ended September 30, 2021 for a fee of $50 thousand. According to ASC 470-10-45 debt covenant classification guidance, if it is probable that the Company will not be able to cure the default at measurement dates within the next 12 months, the related debt needs to be classified as current. As the Amendment No. 16 , Amendment No. 17, and Amendment No.18 waived the ratio of the note indebtedness covenant over the next four quarters, the notes are classified as long-term debt.

On February 27, 2019, a Promissory Note (the “February 2019 Note”, together with the Original Third Eye Capital Notes, the “Third Eye Capital Notes”) for $2.1 million was advanced by Third Eye Capital to Aemetis, Inc., as a short-term credit facility for working capital and other general corporate purposes with an interest rate of 14% per annum maturing on the earlier of (a) receipt of proceeds from any financing, refinancing, or other similar transaction, (b) extension of credit by payee, as lender or as agent on behalf of certain lenders, to the Company or its affiliates, or (c) April 30, 2019. In consideration of the February 2019 Note, $0.1 million of the total proceeds were paid to Third Eye Capital as financing charges. On April 30, 2019, the February 2019 Note was modified to remove the stated maturity date and instead will be due on demand by Third Eye Capital. In third quarter of 2019, the February 2019 Note was modified to include additional borrowings of $0.7 million. In first quarter of 2020, the February 2019 Note was modified to include additional borrowings of $0.6 million. As of September 30, 2020, the outstanding balance of principal and interest on the February 2019 Note was $1.8 million.

On April 1, 2020, the Company exercised the option to extend the maturity of Third Eye Capital Notes to April 1, 2021 for a fee of 1% of the outstanding note balance instead of agreed fee of 5% in the Amendment No.14. We have evaluated the reduction in extension fee to 1% in accordance with ASC 470-60 Troubled Debt Restructuring. According to the guidance, we considered the 1% extension fee to be a troubled debt restructuring. We assessed all the terms to confirm if there is a concession granted by the creditor. The maturity date of the Third Eye Capital Notes was extended to April 1, 2021 for a 1% fee, which was lower than the extension fee of 5% provided by Amendment No. 14 for a one-year extension. On August 11, 2020, Third Eye Capital agreed to Limited Waiver and Amendment No. 17 to the Note Purchase Agreement (“Amendment No. 17”), to (i) provide that the maturity date of the Third Eye Capital Notes may be further extended at our election to April 1, 2022 in exchange for an extension fee equal to 1% of the Note Indebtedness in respect to each Note, provided that such fee may be added to the outstanding principal balance of each Note on the effective date of each such extension, (ii) provide for a waiver of the ratio of note indebtedness covenant for the quarters ended March 31, 2021 and June 30, 2021. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.3 million in cash (the “Amendment No. 17 Fee”). We have evaluated the 1% extension fee and Amendment No. 17 in accordance with ASC 470-60 Troubled Debt Restructuring. According to the guidance, we considered 1% extension and Amendment No.17 Fee to be a troubled debt restructuring. In order to assess whether the creditor granted a concession, we calculated the post-restructuring effective interest rate by projecting cash flows on the new terms and calculated a discount rate equal to the carrying amount of pre-restructuring of debt, and by comparing this calculation to the terms of Amendment No. 15, we determined that Third Eye Capital provided a concession in accordance with the provisions of ASC 470-60 Troubled Debt Restructuring and thus applied troubled debt restructuring accounting, resulting in no gain or loss from the application of this accounting. Using the effective interest method of amortization, the 1% extension fee of $1.0 million and the Amendment No. 17 Fee of $0.3 million will be amortized over the stated remaining life of the Third Eye Capital Notes.

 

Terms of Third Eye Capital Notes