AEMETIS, INC - Quarter Report: 2020 June (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: June 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 July 31, 2020 was 20,795,891 shares.

 

 

AEMETIS, INC.

FORM 10-Q

Quarterly Period Ended June 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.	34
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	46
Item 4.	Controls and Procedures.	46
PART II--OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors.	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	48
Item 3.	Defaults Upon Senior Securities.	48
Item 4.	Mine Safety Disclosures.	48
Item 5.	Other Information.	48
Item 6.	Exhibits.	49
Signatures		50

 

 

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)

 

	June 30, 2020	December 31, 2019
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$3,410	$656
Accounts receivable	5,202	2,036
Inventories	7,290	6,518
Prepaid expenses	1,132	794
Other current assets	902	2,572
Total current assets	17,936	12,576
Property, plant and equipment, net	98,525	84,226
Operating lease right-of-use assets	2,906	557
Other assets	2,791	2,537
Total assets	$122,158	$99,896
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$16,367	$15,968
Current portion of long term debt	7,569	5,792
Short term borrowings	16,096	16,948
Mandatorily redeemable Series B convertible preferred stock	3,200	3,149
Accrued property taxes	4,972	4,095
Accrued contingent litigation fees	6,200	6,200
Current portion of operating lease liability	223	377
Other current liabilities	5,371	5,290
Total current liabilities	59,998	57,819
Long term liabilities:
Senior secured notes and revolving notes	116,477	107,205
EB-5 notes	36,000	36,500
GAFI secured and revolving notes	31,290	29,856
Other long term debt	12,037	6,124
Series A preferred units	24,301	14,077
Operating lease liability	2,730	200
Other long term liabilities	3,524	2,487
Total long term liabilities	226,359	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; 20,683 and 20,570 shares issued and outstanding each period, respectively	21	21
Additional paid-in capital	87,580	86,852
Accumulated deficit	(247,281)	(237,421)
Accumulated other comprehensive loss	(4,520)	(3,825)
Total stockholders' deficit	(164,199)	(154,372)
Total liabilities and stockholders' deficit	$122,158	$99,896

 

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

 

 

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

INCOME (LOSS)

(Unaudited, in thousands except for earnings per share)

 

	For the three months ended June 30,		For the six months ended June 30,
	2020	2019	2020	2019
Revenues	$47,824	$50,619	$87,304	$92,507
Cost of goods sold	33,765	47,346	73,678	89,585
Gross profit	14,059	3,273	13,626	2,922
Research and development expenses	21	90	138	123
Selling, general and administrative expenses	4,049	3,945	7,985	8,186
Operating income (loss)	9,989	(762)	5,503	(5,387)
Other (income) expense:
Interest expense
Interest rate expense	5,574	5,190	11,160	10,176
Debt related fees and amortization expense	614	1,396	1,904	2,619
Accretion of Series A preferred units	1,362	471	2,322	920
Loss contingency on litigation	-	6,200	-	6,200
Other (income) expense	303	(89)	240	(712)
Income (loss) before income taxes	2,136	(13,930)	(10,123)	(24,590)
Income tax expense (benefit)	(56)	-	(263)	7
Net income (loss)	$2,192	$(13,930)	$(9,860)	$(24,597)
Less: Net loss attributable to non-controlling interest	-	(994)	-	(1,932)
Net income (loss) attributable to Aemetis, Inc.	$2,192	$(12,936)	$(9,860)	$(22,665)
Other comprehensive income (loss)
Foreign currency translation gain (loss)	(27)	57	(695)	115
Comprehensive income (loss)	$2,165	$(13,873)	$(10,555)	$(24,482)
Net income (loss) per common share
Basic	$0.11	$(0.63)	$(0.48)	$(1.11)
Diluted	$0.10	$(0.63)	$(0.48)	$(1.11)
Weighted average shares outstanding
Basic	20,683	20,375	20,668	20,371
Diluted	21,152	20,375	20,668	20,371

 

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

 

 

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 (Unaudited, in thousands)

 

	For the six months ended June 30,
	2020	2019
Operating activities:
Net loss	$(9,860)	$(24,597)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation	635	486
Depreciation	2,262	2,234
Debt related fees and amortization expense	1,904	2,619
Intangibles and other amortization expense	24	24
Accretion of Series A preferred units	2,322	920
Deferred tax benefit	(263)	-
Change in fair value of stock appreciation rights	-	60
Changes in operating assets and liabilities:
Accounts receivable	(3,233)	(2,708)
Inventories	(1,016)	2,042
Prepaid expenses	(339)	351
Other assets	1,570	561
Accounts payable	721	2,704
Accrued interest expense and fees	10,433	8,301
Other liabilities	(302)	5,772
Net cash provided by (used in) operating activities	4,858	(1,231)
Investing activities:
Capital expenditures	(8,621)	(1,038)
Net cash used in investing activities	(8,621)	(1,038)
Financing activities:
Proceeds from borrowings	6,861	15,740
Repayments of borrowings	(7,524)	(14,065)
GAFI renewal fee payment	-	(500)
Payments on finance leases	(702)	-
Proceeds from Series A preferred units financing	7,902	250
Net cash provided by financing activities	6,537	1,425
Effect of exchange rate changes on cash and cash equivalents	(20)	6
Net change in cash and cash equivalents for period	2,754	(838)
Cash and cash equivalents at beginning of period	656	1,188
Cash and cash equivalents at end of period	$3,410	$350
Supplemental disclosures of cash flow information, cash paid:
Cash paid for interest, net of capitalized interest of $183 and $147	$539	$1,699
Income taxes paid	8	-
Supplemental disclosures of cash flow information, non-cash transactions:
Subordinated debt extension fees added to debt	340	340
Fair value of warrants issued to subordinated debt holders	93	67
TEC debt extension, waiver fees, promissory notes fees added to debt	1,076	1,102
Capital expenditures in accounts payable	2,132	1,882
Operating lease liabilities arising from obtaining right of use assets	2,632	1,181
Financing lease liabilities arising from obatining right of use assets	2,881	-
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 six months ended June 30, 2020
Description	Series B Preferred Stock		Common Stock				Accumulated Other	Total
					Additional	Accumulated	Comprehensive	Stockholders'
	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)

 

 

For the three and six months ended June 30, 2019
Description	Series B Preferred Stock		Common Stock				Accumulated Other		Total
					Additional	Accumulated	Comprehensive	Noncontrolling	Stockholders'
	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)

 

 

AEMETIS, INC.

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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

 

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 will be completed in August 2020. ABGL has signed participation agreements or fully executed leases with nearly 20 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 injection into the local utility pipeline operated by PG&E or to a renewable compressed natural gas (“RCNG”) truck loading station that will service local trucking fleets to displace diesel fuel. 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.

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 June 30, 2020, the consolidated condensed statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019, the consolidated condensed statements of cash flows for the six months ended June 30, 2020 and 2019, and the consolidated condensed statements of stockholders’ deficit for the three and six months ended June 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 six months ended June 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 six months ended June 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. At this point in time, 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 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 48% and 28% of revenue for three and six months ended June 30, 2020, respectively.

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

North America (in thousands)
	For the three months ended June 30,		For the six months ended June 30,
	2020	2019	2020	2019
Ethanol sales	$36,240	$29,808	$61,562	$56,997
Wet distiller's grains sales	7,466	8,733	15,840	17,336
Other sales	1,517	945	3,693	1,789
	$45,223	$39,486	$81,095	$76,122

 

 

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 June 30,		For the six months ended June 30,
	2020	2019	2020	2019
Biodiesel sales	$2,149	$10,797	$4,942	$15,144
Refined glycerin sales	370	336	460	1,235
PFAD sales	62	-	774	-
Other sales	20	-	33	6
	$2,601	$11,133	$6,209	$16,385

 

 

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 did not reserve any balance for allowances for doubtful accounts as of June 30, 2020 and December 31, 2019.

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 and the Riverbank Project and Biogas Project are being constructed and are not operating, hence we are not depreciating these assets yet. The CO2 Project was completed and commenced operations in the second quarter of 2020. Accordingly, any assets under the CO2 Project were capitalized in May 2020 and were depreciated starting May 2020. Otherwise, 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 may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an asset 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 June 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 $2.6 million as of June 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 of $1.36 million received for capital expenditures during the third quarter of 2019 was recorded as other long term liabilities as of June 30, 2020 and December 31, 2019.

Basic and Diluted Net Income (Loss) per Share. Basic net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (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 income for the three months ended June 30, 2020, potentially dilutive securities have been included in the diluted net income per share computations and any potentially anti-dilutive shares have been excluded and are shown below. As the Company incurred net losses for the six months ended June 30, 2020 and 2019 and three months ended June 30, 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 reconciles the number of shares utilized in the net income (loss) per share calculations for three and six months ended June 30, 2020 and 2019:

	Three months ended		Six months ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019
	(In thousands, except per share amounts)		(In thousands, except per share amounts)
Net income (loss)	$2,192	$(12,936)	$(9,860)	$(22,665)
Shares:
Weighted average shares outstanding—basic	20,683	20,375	20,668	20,371
Weighted average dilutive share equivalents from preferred shares	132	-	-	-
Weighted average dilutive share equivalents from stock options	337	-	-	-
Weighted average dilutive share equivalents from common warrants	-	-	-	-
Weighted average shares outstanding—diluted	21,152	20,375	20,668	20,371
Income (loss) per share—basic	$0.11	$(0.63)	$(0.48)	$(1.11)
Income (loss) per share—diluted	$0.10	$(0.63)	$(0.48)	$(1.11)

 

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

	As of
	June 30, 2020	June 30, 2019
Series B preferred	-	132
Common stock options and warrants	2,950	3,994
Debt with conversion feature at $30 per share of common stock	1,271	1,247
SARs conversion if stock issued at $1.02 per share to cover $2.1 million	-	2,062
Total number of potentially dilutive shares excluded from the diluted net income (loss) per share calculation	4,221	7,435

 

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 to April 1, 2021, in accordance with ASC 470-60 Troubled Debt Restructuring. For additional information regarding the 1% extension fee, 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 six months ended June 30, 2020.

Inventories consist of the following:

 

	As of
	June 30, 2020	December 31, 2019
Raw materials	$1,981	$2,566
Work-in-progress	1,324	1,455
Finished goods	3,985	2,497
Total inventories	$7,290	$6,518

 

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

Property, plant and equipment consist of the following:

	As of
	June 30, 2020	December 31, 2019
Land	$4,076	$4,104
Plant and buildings	86,559	83,139
Furniture and fixtures	1,095	1,094
Machinery and equipment	4,190	4,252
Construction in progress	22,603	12,571
Property held for development	15,408	15,408
Finance lease right of use assets	2,881	-
Total gross property, plant & equipment	136,812	120,568
Less accumulated depreciation	(38,287)	(36,342)
Total net property, plant & equipment	$98,525	$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. 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
Plat and Buildings	20-30
Machinery & Equipment	5-7
Furniture & Fixtures	3-5

 

For the three months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $1.2 million and $1.1 million for each period. For the six months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $2.3 million and $2.2 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 six months ended June 30, 2020 and 2019.

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

	June 30, 2020	December 31, 2019
Third Eye Capital term notes	$7,038	$7,024
Third Eye Capital revolving credit facility	71,308	62,869
Third Eye Capital revenue participation term notes	11,821	11,794
Third Eye Capital acquisition term notes	26,310	25,518
Third Eye Capital promissory note	2,231	2,815
Cilion shareholder seller notes payable	6,199	6,124
Subordinated notes	11,988	11,502
Term loan on Equipment purchase	5,652	-
EB-5 promissory notes	42,246	41,932
PPP loans	1,134	-
Unsecured working capital loans	1,370	2,631
GAFI Term and Revolving loans	32,172	30,216
Total debt	219,469	202,425
Less current portion of debt	23,665	22,740
Total long term debt	$195,804	$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.

Based on the terms of Amendment No. 14, on April 1, 2020, the Company exercised option to extend the maturity to April 1, 2021 for a reduced fee of 1% on the outstanding debt which was added to the outstanding balance of the notes on April 1, 2020.

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, June 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.

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 may be further extended at our election to two 1-year terms 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 or $0.4 million worth of shares of the Company issued at the 10-day weighted average price. We will evaluate the Amendment No. 17 in accordance with ASC 470-50 Debt – Modification and Extinguishment.

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 above, the ratio of note indebtedness covenant is waived for the quarters ended March 31, 2021 and June 30, 2021. 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 and Amendment No. 17 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 June 30, 2020, the outstanding balance of principal and interest on the February 2019 Note was $2.2 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 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. 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 will be amortized over the stated remaining life of the Third Eye Capital Notes.

Terms of Third Eye Capital Notes

 

 

The Third Eye Capital Notes contain various covenants, including but not limited to, debt to plant value ratio, minimum production requirements, and restrictions on capital expenditures. The terms of the Third Eye Capital Notes allow the lender to accelerate the maturity in the occurrence of any event that could reasonably be expected to have a material adverse effect, such as any change in the business, operations, or financial condition. The terms of the notes allow interest to be capitalized.

The Third Eye Capital Notes are secured by first priority liens on all real and personal property of, and assignment of proceeds from all government grants and guarantees from Aemetis, Inc. The Third Eye Capital Notes all contain cross-collateral and cross-default provisions. McAfee Capital, LLC (“McAfee Capital”), owned by Eric McAfee, the Company’s Chairman and CEO, provided a guaranty of payment and performance secured by all of its Company shares. In addition, Eric McAfee provided a blanket lien on substantially all of his personal assets, and McAfee Capital provided a guarantee in the amount of $8.0 million.

*The note maturity date can be extended by the Company to April 2022. As a condition to any such extension, the Company would be required to pay a fee of 1% of the carrying value of the debt which can be paid in cash or added to the outstanding debt. As a result of this ability to extend the maturity at the Company’s will, the Third Eye Capital Notes are classified as non-current debt.

Cilion shareholder seller notes payable. In connection with the Company’s merger with Cilion, Inc., (“Cilion”) on July 6, 2012, the Company issued $5.0 million in notes payable to Cilion shareholders as merger compensation subordinated to the senior secured Third Eye Capital Notes. The liability bears interest at 3% per annum and is due and payable after the Third Eye Capital Notes have been paid in full. As of June 30, 2020, Aemetis Facility Keyes, Inc. had $6.2 million in principal and interest outstanding under the Cilion shareholder seller notes payable.

Subordinated Notes. On January 6 and January 9, 2012, AAFK entered into Note and Warrant Purchase Agreements with two accredited investors (the “Note and Warrant Purchase Agreements”) pursuant to which it issued $0.9 million and $2.5 million in original notes to the investors (the “Subordinated Notes”). The Subordinated Notes mature every six months. Upon maturity, the Subordinated Notes are generally extended with a fee of 10% added to the balance outstanding plus issuance of warrants exercisable at $0.01 with a two-year term. Interest accrues at 10% and is due at maturity. Neither AAFK nor Aemetis may make any principal payments under the Subordinated Notes until all loans made by Third Eye Capital to AAFK are paid in full.

On July 1, 2020, the Subordinated Notes were amended to extend the maturity date until the earlier of (i) December 31, 2020; (ii) completion of an equity financing by AAFK or Aemetis in an amount of not less than $25.0 million; or (iii) after the occurrence of an Event of Default (as defined in the Note and Warrant Purchase Agreements), including failure to pay interest or principal when due and breaches of note covenants. A 10% cash extension fee was paid by adding the fee to the balance of the new note and warrants to purchase 113 thousand shares of common stock were granted with a term of two years and an exercise price of $0.01 per share. We will evaluate the July 1, 2020 amendment and the refinancing terms of the Subordinated Notes in accordance with ASC 470-50 Debt – Modification and Extinguishment.

At June 30, 2020 and December 31, 2019, the Company had, in aggregate, $12.0 million and $11.5 million in principal and interest outstanding respectively, under the Subordinated Notes.

 

EB-5 promissory notes. EB-5 is a U.S. government program authorized by the Immigration and Nationality Act designed to foster employment-based visa preference for immigrant investors to encourage the flow of capital into the U.S. economy and to promote employment of U.S. workers. The Company entered into a Note Purchase Agreement dated March 4, 2011 (as further amended on January 19, 2012 and July 24, 2012) with Advanced BioEnergy, LP, a California limited partnership authorized as a Regional Center to receive EB-5 investments, for the issuance of up to 72 subordinated convertible promissory notes (the “EB-5 Notes”) bearing interest at 2-3%. Each note was issued in the principal amount of $0.5 million and due and payable four years from the date of each note, for a total aggregate principal amount of up to $36.0 million (the “EB-5 Phase I funding”). The original maturity date on the promissory notes can be extended automatically for a one or two-year period initially and is eligible for further one-year automatic extensions as long as there is no notice of non-extension from investors and the investors’ immigration process is in progress. On February 27, 2019, Advanced BioEnergy, LP, and the Company entered into an Amendment to the EB-5 Notes which restated the original maturity date on the promissory notes with automatic six-month extensions as long as the investors’ immigration processes are in progress. Except for six early investor EB-5 Notes, the Company was granted 12 months from the date of the completion of immigration process to redeem these EB-5 Notes. Accordingly, the notes have been recognized as long-term debt while the five early investor notes and one investor who obtained the Green Card approval have been classified as current debt. The EB-5 Notes are convertible after three years at a conversion price of $30 per share.

Advanced BioEnergy, LP arranges investments with foreign investors, who each make loans to the Keyes Plant in increments of $0.5 million. The Company has sold an aggregate principal amount of $36.0 million of EB-5 Notes under the EB-5 Phase I funding since 2012 to the date of this filing. As of June 30, 2020, $35.0 million has been released from the escrow amount to the Company, with $0.5 million remaining in escrow and $0.5 million to be funded to escrow. As of June 30, 2020, $35.0 million in principal and $3.1 million in accrued interest was outstanding on the EB-5 Notes sold under the EB-5 Phase I funding.

On October 16, 2016, the Company launched its EB-5 Phase II funding, with plans to issue $50.0 million in additional EB-5 Notes on substantially similar terms and conditions as those issued under the Company’s EB-5 Phase I funding, to refinance indebtedness and capital expenditures of Aemetis, Inc. and GAFI (the “EB-5 Phase II funding”). On November 21, 2019, the minimum investment was raised from $0.5 million per investor to $0.9 million per investor. The Company entered into a Note Purchase Agreement dated with Advanced BioEnergy II, LP, a California limited partnership authorized as a Regional Center to receive EB-5 Phase II funding investments, for the issuance of up to 100 EB-5 Notes bearing interest at 3%. On May 1, 2020 Supplement No. 3 amended the offering documents and lowered the total eligible new EB-5 Phase II funding investors to 60. Eight EB-5 investors have already funded at the $0.5 million per investor amount, so 52 new EB-5 Phase II funding investors are eligible at the new $0.9 million per investor amount under the current offering. Job creation studies show additional investors may be possible to increase the total offering amount in the future. Each new note will be issued in the principal amount of $0.9 million and due and payable five years from the date of each note, for a total aggregate principal amount of up to $50.8 million.

Advanced BioEnergy II, LP arranges investments with foreign investors, who each make loans to the Riverbank Cellulosic Ethanol Facility in increments of $0.9 million after November 21, 2019. The Company has sold an aggregate principal amount of $4.0 million of EB-5 Notes under the EB-5 Phase II funding since 2016 to the date of this filing. As of June 30, 2020, $4.0 million was released from escrow to the Company and $46.8 million remains to be funded to escrow. As of June 30, 2020, $4.1 million in principal and interest was outstanding on the EB-5 Notes under the EB-5 Phase II funding.

 

 

Working capital loans. On April 16, 2017, the Company entered into an operating agreement with Gemini Edibles and Fats India Private Limited (“Gemini”). Under this agreement, Gemini agreed to provide the Company with working capital, on an as needed basis, to fund the purchase of feedstock and other raw materials for the Kakinada Plant. Working capital cash advances bear interest at 12% and working capital can be induced through trading of feedstock or finished goods by Gemini which does not have any interest accrual. In return, the Company agreed to pay Gemini an amount equal to 30% of the plant’s monthly net operating profit and recognized these as operational support charges in the financials. In the event that the Company’s biodiesel facility operates at a loss, Gemini owes the Company 30% of the losses as operational support charges. Either party can terminate the agreement at any time without penalty. Additionally, Gemini received a first priority lien on the assets of the Kakinada Plant. During the six months ended June 30, 2020, we have accrued no interest on Gemini balance as the investment was for feedstock purchase and finished goods trade. During the six months ended June 30, 2020 and 2019, the Company made principal payments to Gemini of approximately $5.7 million and $13.7 million, respectively. As of June 30, 2020 and December 31, 2019, the Company had approximately $1.4 million and $2.0 million outstanding under this agreement, respectively.

In November 2008, the Company entered into an operating agreement with Secunderabad Oils Limited (“Secunderabad Oils”). On July 15, 2017, the agreement with Secunderabad Oils was amended to provide the working capital funds for British Petroleum business operations only in the form of inter-corporate deposit for an amount of approximately $2.3 million over a 95 days period at the rate of 14.75% per annum interest rate. The term of the agreement continues until either party terminates it. Secunderabad Oils has a second priority lien on the assets of the Company’s Kakinada Plant after this agreement. On April 15, 2018, the agreement was amended to purchase the raw material for business operations at 12% per annum interest rate. During the six months ended June 30, 2020 and 2019, the Company made principal and interest payments to Secunderabad Oils of approximately $0.6 million and $0.5 million, respectively. As of June 30, 2020 and December 31, 2019, the Company had none and $0.6 million outstanding under this agreement, respectively.

GAFI Term loan and Revolving loan. On July 10, 2017, GAFI entered into a Note Purchase Agreement (“GAFI Note Purchase Agreement”) with Third Eye Capital (“Noteholders”). Pursuant to the GAFI Note Purchase Agreement, the Noteholders agreed, subject to the terms and conditions of the GAFI Note Purchase Agreement and relying on each of the representations and warranties set forth therein, to make (i) a single term loan to GAFI in an aggregate amount of $15 million (“GAFI Term Loan”) and (ii) revolving advances not to exceed ten million dollars in the aggregate (“GAFI Revolving Loan”). The interest rate per annum applicable to the GAFI Term Loan is equal to ten percent (10%). The interest rate per annum applicable to the GAFI Revolving Loans is the greater of Prime Rate plus seven and three quarters percent (7.75%) and twelve percent (12.00%). The applicable interest rate as of June 30, 2020 was 12.00%. The maturity date of the GAFI Term Loan and GAFI Revolving Loan (“GAFI Loan Maturity Date”) was July 10, 2020, provided that the GAFI Loan Maturity Date may be extended at the option of Aemetis for up to one-year period upon prior written notice and upon satisfaction of certain conditions and the payment of a renewal fee for such extension. The Company exercised the option to extend the GAFI Loan Maturity Date for a fee of $0.5 million and the current GAFI Loan Maturity Date is July 10, 2021. An initial advance under the GAFI Revolving Loan was made for $2.2 million as a prepayment of interest on the GAFI Term Loan for the first eighteen months of interest payments. In addition, a fee of $1.0 million was paid in consideration to Noteholders.

On June 28, 2018, GAFI entered into Amendment No. 1 to the GAFI Term Loan with Third Eye Capital for an additional amount of $1.5 million with a fee of $75 thousand added to the loan from Third Eye Capital at a 10% interest rate. On December 20, 2018, $1.6 million from Amendment No. 1 was repaid. Pursuant to Amendment No. 1, Aemetis, Inc. entered into a Stock Appreciation Rights Agreement to issue 1,050,000 Stock Appreciation Rights (“SARs”) to Third Eye Capital on August 23, 2018, with an exercise date of one year from the issuance date with a call option for the Company at $2.00 per share during the first 11 months of the agreement either to pay $2.1 million in cash or issue common stock worth $2.1 million based on the 30-day weighted average price of the stock on the call date, and a put option for Third Eye Capital at $1.00 per share during the 11th month of the agreement where the Company can redeem the SARs for $1.1 million in cash. In the event that none of the above options is exercised, the SARs will be automatically exercised one year from the issuance date based upon the 30-day weighted average stock price and paid in cash and cash equivalents. On July 22, 2019, Third Eye Capital exercised the put option at $1.00 per share for $1.1 million. The exercise value of the SARs of $1.1 million was added to the GAFI Term Loan and the SARs fair value liability was released.

 

 

On December 3, 2018, GAFI entered into Amendment No. 2 to the GAFI Term Loan with Third Eye Capital for an additional amount of $3.5 million from Third Eye Capital at a 10% interest rate. GAFI borrowed $1.8 million against this Amendment No. 2 with a $175 thousand fee added to the loan and $0.2 million was withheld from the $1.8 million for interest payments. $1.5 million is available to draw under GAFI Amendment No. 2 for the CO2 Project (“CO2 Term Loan”). Among other requirements, the Company is also required to make the following mandatory repayments of the CO2 Term Loan: (i) on a monthly basis, an amount equal to 75% of any payments received by the Company for CO2 produced by Linde LLC, (ii) an amount equal to 100% of each monthly payment received by the Company for land use by Linde for CO2 plant, (iii) on a monthly basis, an amount equal to the product of: $0.01 multiplied by the number of bushels of corn grain used in the ethanol production at the Keyes Plant. Based on the mandatory payments, an amount of $0.9 million is estimated to be paid in the next 12 months and is classified as current debt as of June 30, 2020.

As of June 30, 2020, GAFI had $21.0 million outstanding on the GAFI Term Loan and $11.1 million on the GAFI Revolving Loan respectively.

Payroll Protection Program. On May 5, 2020, certain wholly owned subsidiaries of the Company received loan proceeds of approximately $1.1 million, (“PPP Loans”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides loans to qualifying businesses for payroll expenses of the qualifying business. The PPP Loan and accrued interest are forgivable after twenty-four weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the twenty-four-week period. The Company anticipates that it will utilize the proceeds in accordance with the PPP guidelines and repay amounts that are not forgiven or utilized. In order to obtain full or partial forgiveness of the PPP Loan, the Company must request forgiveness and must provide satisfactory documentation in accordance with applicable Small Business Administration (“SBA”) guidelines.

The PPP Loans are evidenced by promissory notes, dated May 1, 2020 and April 30, 2020 (the “Notes”), between the Company, as Borrower, and Bank of America, N.A., as Lender (the “Lender”). The interest rate on the Note is 1.00% per annum. No payments of principal or interest are due during the six-month period beginning on the funding date (the “Deferral Period”). If the SBA does not confirm forgiveness or only partly confirms forgiveness of the PPP Loans, or Borrower fails to apply for loan forgiveness, the Borrower will be obligated to repay to the Bank the total outstanding balance remaining due under the PPP Loans, including principal and interest and in such case, the Lender will establish the terms for repayment of the Loan in a separate letter to be provided to the Borrower in which the letter will set forth the loan balance, the amount of each monthly payment, the interest rate (not in excess of a fixed rate of one percent (1.00%) per annum), the term of the PPP Loans, and the maturity date, which, if not established by the Lender, shall be two (2) years from the funding date of the PPP Loans.

 

 

Scheduled debt repayments for the Company’s loan obligations follow:

Twelve months ended June 30,	Debt Repayments
2021	$23,665
2022	171,214
2023	14,935
2024	6,634
2025	2,436
Thereafter	1,403
Total debt	220,287
Debt issuance costs	(818)
Total debt, net of debt issuance costs	$219,469

5. Commitments and Contingencies

Leases

We have identified assets as the corporate office, warehouse, monitoring equipment and laboratory facilities over which we have control and obtain economic benefits fully. We classified these identified assets as operating leases after assessing the terms under classification guidance. We have entered into several leases for trailers and carbon units with purchase option at the end of the term. We have concluded that it is reasonably certain that we would exercise the purchase option at the end of the term, hence the leases were classified as finance leases. All of our leases have remaining term of less than a year to 8 years.

When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on weighted average baseline rates commensurate with the Company’s secured borrowing rate over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.

The components of lease expense and sublease income was as follows:

	Three months ended June 30,		Six months ended June 30,
	2020	2019	2020	2019
Operating lease cost
Operating lease expense	$183	$143	$360	$324
Short term lease expense	15	12	29	53
Variable lease expense	26	17	60	49
Sub lease income	-	(51)	-	(68)
Total operating lease cost	$224	$121	$449	$358
Finance lease cost
Amortization of right-of-use assets	$61	$-	$61	$-
Interest on lease liabilities	18	-	18	-
Total finance lease cost	$79	$-	$79	$-