AEMETIS, INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM 10-K
———————
☑
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2019
Commission file number: 000-51354
AEMETIS, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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26-1407544
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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20400 Stevens Creek Blvd., Suite 700
Cupertino, CA 95014
(Address of principal executive offices)
Registrant’s telephone number (including area code):
(408)
213-0940
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, Par Value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
No
☑
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
☐
No
☑
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or
Section 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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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☐
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Accelerated filer
☐
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Non-accelerated filer
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☐
(Do not check if a
smaller reporting company)
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Smaller reporting company
☑
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Emerging growth company
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☐
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☑
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was approximately
$11,265,680 as of June 30, 2019 based on the average bid and asked
price on the NASDAQ Global Market reported for such date. This
calculation does not reflect a determination that certain persons
are affiliates of the registrant for any other
purpose.
The number of shares outstanding of the registrant’s Common
Stock on February 29, 2020 was 20,571,187 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the Registrant’s 2020 Annual
Meeting of Stockholders are incorporated by reference in
Part III of this Form 10-K.
TABLE OF CONTENTS
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Special Note Regarding Forward-Looking Statements
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46
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80
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P
ART
I
S
PECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
On one
or more occasions, we may make forward-looking statements in this
Annual Report on Form 10-K, 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 Annual Report
on Form 10-K 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”)
.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
We obtained the market data used in this report from internal
company reports and industry publications. Industry publications
generally state that the information contained in those
publications has been obtained from sources believed to be
reliable, but their accuracy and completeness are not guaranteed,
and their reliability cannot be assured. Although we believe market
data used in this Form 10-K is reliable, it has not been
independently verified.
Unless the context requires otherwise, references to
“we,” “us,” “our,” and
“the Company” refer specifically to Aemetis, Inc. and
its subsidiaries.
I
tem 1.
Business
General
We are
an international renewable fuels and biochemicals company focused
on the production of advanced renewable fuels and chemicals through
the acquisition, development and commercialization of innovative
technologies that replace traditional petroleum-based products
primarily through the conversion of first-generation ethanol and
biodiesel plants into advanced biorefineries.
We operate in two reportable geographic segments:
“North America” and “India.” For revenue
and other information regarding our operating segments, see Note 12
- Segment Information, of the Notes to Consolidated Financial
Statements in Part II, Item 8 of this Form
10-K.
We were incorporated in Nevada in 2006.
We own
and operate a 60 million gallon per year ethanol production
facility located in Keyes, California (the “Keyes
Plant”). In addition to low carbon renewable fuel ethanol,
the Keyes Plant produces Wet Distillers Grains (“WDG”),
Distillers Corn Oil (“DCO”), and Condensed Distillers
Solubles (“CDS”), all of which are sold to local
dairies and feedlots as animal feed. The primary feedstock used for
the production of ethanol at the Keyes Plant is number two yellow
dent corn. The corn is procured by J.D. Heiskell from various
Midwestern grain facilities and shipped via Union Pacific Rail Road
to an unloading facility adjacent to the Keyes Plant.
During
the third quarter of 2017, we entered into an agreement with a
major industrial gas company, The Messer Group
(“Messer”), to sell carbon dioxide
(“CO
2
”) produced
at the Keyes Plant to Messer for conversion into liquid
CO
2
. In
the fourth quarter of 2018, we finished purchasing a 5.2-acre
parcel of land next to the Keyes Plant and leased the land to
Messer to build a gas compression plant and piping structure to
connect to the CO
2
produced at the
adjacent Keyes Plant (the “CO
2
Project”).
The Aemetis portion of the CO
2
Project
construction was completed in January 2020, and we expect to
commence operations and revenue from this project in the second
quarter of 2020.
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 waste
biomass – principally agricultural waste – into
ultra-low carbon intensity renewable cellulosic ethanol. By
producing ultra-low carbon renewable cellulosic ethanol, we expect
to capture higher value D3 cellulosic renewable identification
numbers (“RINs”) and California’s Low Carbon Fuel
Standard (“LCFS”) credits.
3
During
2018, Aemetis Biogas, LLC (“ABGL”) was formed to
construct bio-methane digesters at local dairies near the Keyes
Plant, many of whom are already customers of the WDG produced at
the Keyes Plant. The digesters are connected by a pipeline to a gas
cleanup and compression facility to produce Renewable Natural Gas
(“RNG”). ABGL has signed participation agreements
with over a dozen local dairies near the Keyes Plant in order to
capture their methane, which would otherwise be released into the
atmosphere, primarily from manure wastewater lagoons. We plan to
capture methane from multiple dairies and pipe the gas to a
centralized location at our Keyes Plant. The impurities of the
methane will then be removed and cleaned into bio-methane for
injection into the local utility pipeline or to a renewable
compressed natural gas (“RCNG”) truck loading station
that will service local trucking fleets to displace diesel
fuel. The bio-methane can also be used in our Keyes Plant to
displace petroleum-based natural gas. The environmental benefits of
the ABGL project are significant because dairy biogas has a
negative carbon intensity (“CI”) under the California
LCFS and will also receive D3 RINs under the federal Renewable Fuel
Standard (“RFS”). ABGL has constructed the first two
digesters, and has begun construction of our pipeline in the first
quarter 2020 with an expected operational date during the second
quarter of 2020.
During
2017, Goodland Advanced Fuels, Inc. (“GAFI”) was formed
to acquire land, buildings and process equipment in Goodland,
Kansas for the construction and development of a next generation
biofuel facility for $15.4 million. GAFI entered into a Note
Purchase Agreement with Third Eye Capital Corporation (“Third
Eye Capital”). GAFI, the Company and its subsidiary Aemetis
Advanced Product Keyes (“AAPK”) also entered into
separate Intercompany Revolving Notes, pursuant to which GAFI may
lend a portion of the proceeds of the revolving loan under the Note
Purchase Agreement to AAPK. On December 31, 2019, Aemetis exercised
an option it was granted in connection with the foregoing to
purchase all of the capital stock of GAFI and has future plans to
construct an advanced biofuels facility at the Goodland site. Prior
to December 31, 2019, GAFI was consolidated into the financial
statements as a variable interest entity.
We
entered into an agreement to purchase equipment from Mitsubishi on
August 24
th
, 2018. We began the
equipment installation in the first quarter of 2020. The agreement
allowed for deferred payments of the equipment until the unit
begins operations in the second quarter of 2020. The Mitsubishi
Zebrex system allows for the progressive electrification of the
Keyes facility by decreasing the natural gas usage at the facility.
The Zebrex unit does this by decreasing steam usage in the
distillation section of the Keyes facility. This project decreases
the carbon intensity of the Keyes ethanol facility, allowing
Aemetis to realize a higher price for the ethanol
sold.
We also
own and operate a biodiesel production facility in Kakinada, India
(the “Kakinada Plant”) with a nameplate capacity of 150
thousand metric tons per year, or about 50 million gallons per
year. We believe the Kakinada Plant is one of the largest biodiesel
production facilities in India on a nameplate capacity basis. The
Kakinada Plant is capable of processing a variety of vegetable oils
and animal fat waste feedstocks into biodiesel that meet
international product standards. The Kakinada Plant also distills
the crude glycerin byproduct from the biodiesel refining process
into refined glycerin, which is sold to the pharmaceutical,
personal care, paint, adhesive and other industries.
Strategy
Key
elements of our strategy include:
North America
Leverage technology for the development and
production of additional advanced biofuels and renewable
chemicals
. We continue to evaluate new technology and
develop technology under our existing patents, and are conducting
research and development to produce renewable chemicals and
advanced biofuels from renewable feedstocks. Our objective is to
continue to commercialize our portfolio of technologies and expand
the adoption of these advanced biofuels and bio-chemicals
technologies.
We hold
certain exclusive rights to the LanzaTech and InEnTec technologies
(the “LanzaTech and InEnTec Technologies”) for the
conversion agricultural orchard , forest, dairy, and construction
and demolition waste into an ultra-low carbon renewable fuel
referred to in the biofuels industry as “cellulosic
ethanol”. We intend to utilize this technology to produce
cellulosic ethanol from agricultural biomass waste abundantly
available from orchard waste wood and nutshells in the California
Central Valley at the Riverbank Cellulosic Ethanol Facility. Our
planned first phase has an estimated twelve million gallons per
year nameplate capacity. We intend to expand production facilities
to an estimated 36 million gallons per year nameplate capacity, and
build additional plants in California to utilize the estimated 1.6
tons of waste orchard wood, as well as other waste wood and
nutshell feedstocks.
Diversify and expand revenue and cash flow by
continuing to develop and adopt value-added by-product processing
systems and optimize other systems in our existing plants
.
In April 2012, we installed a DCO extraction unit at the Keyes
Plant and began extracting corn oil for sale into the livestock
feed market. During 2014, we installed a second oil extraction
system to further improve corn oil yields from this process. During
2017, we entered into agreements to sell substantially all of the
CO
2
produced at the Keyes Plant to Messer, who is building a liquid
CO
2
capture plant adjacent to the Keyes Plant that is expected to begin
operations in the second quarter of 2020. We have plans to install
mechanical vapor recovery (“MVR”) technology that
allows for the compression of process vapor to steam resulting in
reduction of water usage and energy consumption. Additionally, we
have developed the Aemetis Integrated Microgrid Solutions (AIMS)
that allows for the displacement of natural gas electricity with
carbon-free electricity, which began construction [at our partner
dairy locations] in the first quarter of 2020. We continue to
evaluate and, as allowed by available financing and free cash flow
from operations, adopt additional value-added processes that
decrease costs and increase the value of the ethanol, WDG, DCO and
CO
2
produced at the Keyes Plant.
4
Leverage our position as a plant operator to
develop additional streams of revenues and profitability
. In
December 2018, we leveraged our relationship with
California’s Central Valley dairy farmers by signing leases
and raising funds to construct the ABGL Central Dairy Digester
Cluster, constructing dairy digesters that collect methane which
will be conveyed by pipeline to our Keyes Plant. We have
constructed our first two digesters, and will begin construction of
our pipeline in the first quarter of 2020. In addition, we have
signed agreements with approximately 20 additional dairies to
construct additional dairy digesters. Additionally, we continue to
evaluate technologies from our existing and planned operations for
the development of the property in Goodland, Kansas.
Acquire, license our technologies to, or joint
venture with other ethanol and biodiesel plants
. There are
approximately 200 ethanol plants and more than one hundred
biodiesel plants that are operational in the U.S., as well as
biofuels plants in Brazil, Argentina, India and elsewhere in the
world that could be upgraded to expand revenues and improve their
cash flow using technology commercially deployed or licensed by us.
After developing and commercially demonstrating technologies at the
Keyes, Kakinada and/or new Riverbank plants, we will evaluate on an
opportunistic basis the benefit of acquiring ownership stakes in
other biofuel production facilities and entering into joint venture
or licensing agreements with other ethanol, renewable diesel or
renewable jet fuel facilities.
Evaluate and pursue technology acquisition
opportunities
. We intend to evaluate and pursue
opportunities to acquire technologies and processes that result in
accretive value opportunities as financial resources and business
prospects make the acquisition of these technologies and processes
advisable. In addition, we may also seek to acquire companies,
enter into licensing agreements or form joint ventures with
companies that offer prospects for the adoption of technologies
that would be accretive to earnings.
India
Capitalize on recent policy changes by the
Government of India.
We plan to continue to pursue the
traditional bulk, fleet, industrial, retail, and transportation
biodiesel markets in India, which we believe have become more
economically attractive as a result of potential changes to
government tax structures and policies, as well as new marketing
channels that may open as a result changes to government policy
changes. The rationalization of indirect taxation by the
introduction of Goods and Services Tax (the “GST”), the
introduction of biodiesel sales under government oil marketing
company (“Government Oil Marketing Company”) contracts
and the execution of contracts with major oil consumers are
expected to drive revenue and margins in our India
segment.
Pursue tender offers from Government Oil
Marketing Companies.
In 2019, under the Indian government
mandate of mixing biodiesel with diesel, the Kakinada Plant won the
tender to supply biodiesel to Government Oil Marketing Companies
such as Hindustan Petroleum, Bharat Petroleum, and Indian Oil
Corporation and began supplying biodiesel in May 2019. These
tenders open annually, usually in December, soliciting bids for the
following year. We plan to continue to pursue these tender offers
made by the Government Oil Market Companies on economically
reasonable terms.
Diversify our feedstocks from India.
We
designed our Kakinada Plant with the capability to produce
biodiesel from multiple feedstocks. In 2009, we began to produce
biodiesel from non-refined palm oil (“NRPO”). Between
2014 and 2019, we further diversified our feedstock to include
animal oils and fats, which we used for the production of biodiesel
to be sold into the European markets, refined, bleached &
deodorized Palm Stearin, crude palm stearin, and RBD palm stearin.
The byproduct of using RBD palm stearin is Palm Fatty Acid
Distiller (“PFAD”), which can be further processed into
biodiesel and sold, or sold directly into the market starting in
the third quarter of 2019. Additionally, the Kakinada Plant is
capable of producing biodiesel from used cooking oil
(“UCO”); however, the importation of UCO is not
currently allowed in India, and as a result, we are looking for a
local supply source of UCO to expand our feedstock diversity. In
2018, we completed a pretreatment unit at the Kakinada Plant to
convert up to 5% high free fatty acid (“FFA”)
feedstocks into oil that can be used to produce biodiesel, which
was further upgraded in 2019 to convert up to 20% high FFA
feedstocks, both of which are available at lower cost than our
traditional feedstocks.
Develop and commercially deploy technologies
to produce high-margin products.
We plan to continue
investing in the conversion of lower quality, waste oils into
higher value biofuels, including renewable diesel. Additionally, we
continue to evaluate improvements to the throughput capacity and
efficiency of the plant. We plan to invest in those areas that
allow for more efficient and higher throughput for the processing
of biodiesel and refined glycerin. The technologies for these
conversion process may be licensed from third parties or internally
developed.
Evaluate and pursue technology acquisition
opportunities
. We intend to evaluate and pursue
opportunities to acquire technologies and processes that result in
accretive earnings opportunities as financial resources and
business prospects make the acquisition of these technologies and
processes advisable. In addition, we may also seek to acquire
companies, or enter into licensing agreements or form joint
ventures with companies that offer prospects for the adoption of
accretive earnings business opportunities.
5
2019 Highlights
North America
During
2019, we produced four products at the Keyes
Plant: denatured fuel ethanol, WDG, DCO, and
CDS. We sold 100% of the ethanol and WDG produced to
J.D. Heiskell pursuant to a Purchase Agreement established with
J.D. Heiskell (the “Heiskell Purchase
Agreement”). J.D. Heiskell in turn sells 100% of
our ethanol to Kinergy Marketing LLC (“Kinergy”) and
100% of our WDG to A.L. Gilbert Co. (“A.L. Gilbert”), a
local feed and grain business. We sell DCO directly to local animal
feedlots as well as other feed mills for use in various animal feed
products. Smaller amounts of CDS were sold to various local third
parties as an animal feed supplement.
The following table sets forth information about our production and
sales of ethanol and WDG in 2019 and 2018:
|
|
2019
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2018
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%
Change
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Ethanol
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Gallons Sold (in
thousands)
|
64,708
|
65,596
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-1.4
%
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Average Sales
Price/Gallon
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$
1.77
|
$
1.74
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1.7
%
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WDG
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Tons Sold (in
thousands)
|
428
|
424
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0.9
%
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Average Sales
Price/Ton
|
$
80.65
|
$
76.38
|
5.6
%
|
Ethanol
pricing for sales to J.D. Heiskell is determined pursuant to a
marketing agreement between Kinergy and us, and is generally based
on daily and monthly pricing for ethanol delivered to the San
Francisco Bay Area as published by the Oil Price Information
Service (“OPIS”), as well as quarterly contracts
negotiated by Kinergy with numerous fuel blenders. The
price for WDG is determined monthly, and depending on market
conditions quarterly, pursuant to a marketing agreement between
A.L. Gilbert and us, and is generally determined in reference to
the local price of dry distillers grains (“DDG”), corn,
and other protein feedstuffs.
India
In 2019, we primarily produced two products at the Kakinada Plant:
biodiesel and refined glycerin produced from further processing of
the crude glycerin produced as a by-product of the production of
biodiesel. After the 2019 pretreatment unit upgrade, we can convert
high-FFA oil into a renewable oil feedstock that that may be
converted into biodiesel and sold to biodiesel market plants in
India or exported to foreign plants to use for the production of
biodiesel, renewable diesel and/or jet fuel.
The byproduct
of processing high-FFA oil into biodiesel is PFAD, which can be
processed further into biodiesel or sold directly into the market
starting in the third quarter of 2019.
The following table sets forth information about our production and
sales of biodiesel and refined glycerin in 2019 and
2018:
|
|
2019
|
2018
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%
Change
|
|
Biodiesel
|
|
|
|
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Tons sold
(1)
|
46,971
|
19,846
|
136.7
%
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Average Sales
Price/Ton
|
$
904
|
$
857
|
5.5
%
|
|
Refined
Glycerin
|
|
|
|
|
Tons
sold
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5,173
|
4,748
|
9.0
%
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Average
Sales Price/Ton
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$
543
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$
941
|
-42.3
%
|
(1)
1 metric ton is
equal to 1,000 kilograms (approximately 2,204 pounds).
On
January 25, 2018, Goods and Services Tax (“GST”) was
reduced from 18% to 12%, which favorably impacted revenues in 2018
and 2019.
6
Competition
North America
According
to the U.S. Energy Information Agency (the “EIA”),
there were approximately 200 operating commercial ethanol
production facilities in the U.S. with a combined nameplate
production of approximately 17 billion gallons per year at the end
of 2019. The EIA short-term U.S. ethanol production forecast for
2020 is approximately 16.2 billion gallons. The production of
ethanol is a commodity-based business where producers compete on
the basis of price. We sell ethanol into the Northern California
market, which currently has capacity to supply about 220 million
gallons annually from plants located within California. However,
since insufficient production capacity exists in California to
supply the state’s total fuel ethanol consumption (in excess
of 1.5 billion gallons annually), we compete with ethanol
transported into California from Midwestern producers. Similarly,
our co-products are, principally WDG and DCO, sold into local
California markets and compete with DDG and corn oil imported into
the California markets as well as with alternative feed
products.
India
With respect to biodiesel sold as fuel, we compete primarily with
the producers of petroleum diesel, consisting of the three
Government Oil Marketing Companies
:
Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum,
and two private oil companies: Reliance Petroleum and Essar Oil,
all of whom have significantly larger market shares than we do and
control a significant share of the distribution network. These
competitors also purchase our product for blending and further
sales to their customers. We compete primarily on the basis of
price, quality and reliable delivery, since our plant can produce
distilled biodiesel and we have historically been a more reliable
and high-quality supplier than some other biodiesel producers in
India.
With respect to biodiesel sold directly to fleets and other
customers, we supply logistics companies that operate fleets of
trucks, ocean port facilities with extensive trucking activities,
beverage distributors, cement ready-mix suppliers, mining
companies, infrastructure companies, and other companies that use
diesel for transportation.
With respect to crude and refined glycerin, we compete with other
glycerin producers and refiners selling products into the personal
care, paints and adhesive markets primarily on the basis of price
and product quality.
Customers
North America
All of our ethanol and WDG are sold to J.D. Heiskell pursuant to
the Heiskell Purchase Agreement. J.D. Heiskell in turn sells all of
our ethanol to Kinergy and all of our WDG to A.L. Gilbert. Kinergy
markets and sells our ethanol to petroleum refiners and blenders in
Northern California. A.L. Gilbert markets and sells our WDG to
approximately 100 dairy and feeding operators in Northern
California.
India
During 2019, we derived 89%, 6%, and 5% of our sales from
biodiesel, refined glycerin, and other sales respectively. Three of
our biodiesel customers accounted for more than 10% of our
consolidated India segment revenues at 33%, 15% and 13%.
Approximately 48% of the biodiesel revenue of our consolidated
India segment revenues came from supplying Government Oil Marketing
Companies under the 2019 tender contract. None of our refined
glycerin customers accounted for more than 10% of our consolidated
India segment revenues in 2019. During 2018, we derived 79% and 21%
of our sales from biodiesel and refined glycerin respectively. Two
of our biodiesel customers accounted for more than 10% of our
consolidated India segment revenues at 53% and 13%. None of our
refined glycerin customers accounted for more than 10% of our
consolidated India segment revenues in 2018.
Pricing
North America
Ethanol pricing for the ethanol we sell to J.D. Heiskell is
determined pursuant to a marketing agreement between Kinergy and us
and is generally based on daily and monthly pricing for ethanol
delivered to the San Francisco Bay Area in California, as published
by OPIS, as well as the terms of quarterly contracts negotiated by
Kinergy with local fuel blenders and available premiums for fuel
with low carbon intensity as provided by California’s LCFS.
The price for WDG is determined monthly pursuant to a marketing
agreement between A.L. Gilbert and us and is generally determined
in reference to the price of DDG, corn and other protein
feedstuffs, based on local pricing in California’s Central
Valley.
India
In India, the price of biodiesel is based on the price of petroleum
diesel, which floats with changes in the price determined by the
international markets. In 2019, India changed to a daily dynamic
pricing model where diesel prices are changed on daily basis by the
Government Oil Marketing Companies. Biodiesel sold into Europe is
based on the spot market price, but a recent Indian government ban
on exports closed this market for the Company for the time being.
We sell our biodiesel primarily to Government Oil Marketing
Companies, transport companies, resellers, distributors and private
refiners on an as-needed basis. We have no long-term sales
contracts.
Our biodiesel pricing is related to the price of
petroleum diesel, and the increase in the price of petroleum diesel
is expected to favorably impact the profitability of our India
operations.
7
Raw Materials and Suppliers
North America
We
entered into a Corn Procurement and Working Capital Agreement with
J.D. Heiskell in March 2011, which we amended in May 2013 (the
“Heiskell Supply Agreement”). Under the Heiskell Supply
Agreement, we agreed to procure number two yellow dent corn from
J.D. Heiskell, with the ability to obtain corn from other sources
subject to certain conditions. However, in 2018 and 2019, all of
our corn supply was purchased from J.D. Heiskell pursuant to the
Heiskell Supply Agreement. Title to the corn and risk of loss pass
to us when the corn is deposited into our weigh scale. The
agreement is automatically renewed for additional one-year terms.
The current term is set to expire on December 31, 2020, with
automatic renewals for additional one-year terms.
India
In 2019, a significant amount of our biodiesel was derived from
processing RBD palm stearin, which was sourced locally.
The
byproduct of using RBD palm stearin is PFAD, which can be processed
further into biodiesel or sold directly into the market starting in
the third quarter of 2019. In addition, PFAD can be sold into the
market as a product starting in the third quarter of 2019.
In 2018, a significant amount of our
biodiesel was derived from processing crude palm stearin, which was
imported from Indonesia, and the remaining portion was derived from
refining feedstocks based on animal fats. In addition to feedstock,
the Kakinada Plant requires quantities of methanol and chemical
catalysts for use in the biodiesel production process. These
chemicals are also readily available and sourced from a number of
suppliers surrounding the Kakinada Plant. We are not dependent on
sole source or limited source suppliers for any of our raw
materials or chemicals.
Sales and Marketing
North America
As part of our obligations under the
Heiskell Supply
Agreement
, we entered into the
Heiskell Purchase Agreement, pursuant to which we granted J.D.
Heiskell exclusive rights to purchase 100% of the ethanol and WDG
we produce at prices based upon the price established by the
marketing agreements with Kinergy and A.L. Gilbert. In turn, J.D.
Heiskell agreed to resell all the ethanol to Kinergy (or any other
purchaser we designate) and all of the WDG to A.L.
Gilbert.
In March 2011, we entered into a WDG Purchase and Sale Agreement
with A.L. Gilbert, pursuant to which A.L. Gilbert agreed to market,
on an exclusive basis, all of the WDG we produce.
The
current term is set to expire on December 31, 2020 with automatic
one-year renewals.
In
October 2010, we
entered into an
exclusive marketing agreement with Kinergy to market and sell our
ethanol.
The current term is set to expire on August 31,
2020 with automatic one-year renewals.
We sell
our DCO and CDS directly to local third-party animal
feedlots.
India
We sell our biodiesel and refined glycerin to (i) end-users
utilizing our own sales force and independent sales agents, (ii)
brokers who resell the product to end-users and (iii) Government
Oil Marketing Companies. We pay a sales commission on sales
arranged by independent sales agents.
Commodity Risk Management Practices
North America
The cost of corn and the price of ethanol are volatile and the
correlation of the pricing of these commodities form the basis for
the profit margin at our Keyes Plant. We are, therefore, exposed to
commodity price risk. Our risk management strategy is to operate in
the physical market by purchasing corn and selling ethanol on a
daily basis at the then prevailing market price. We monitor these
prices daily to test for an overall positive variable contribution
margin. We periodically explore and utilize methods of mitigating
the volatility of our commodity prices. During 2018 and 2019, we
offered three-month WDG contracts to our customers, which we offset
with the purchase of corn basis, allowing us to fix a portion of
the margin at the Keyes Plant. We continued with three-month WDG
contracts to our customers in 2020.
8
India
The cost of crude palm stearin and the price of biodiesel are
volatile and are generally uncorrelated. We therefore are exposed
to ongoing and substantial commodity price risk at our Kakinada
plant. Our risk management strategy is to produce biodiesel in
India only when we believe we can generate positive gross margins
and to idle the Kakinada Plant during periods of low or negative
gross margins. Additionally, we are pursuing relationships with
large oil companies and trading partners pursuant to which we may
match the procurement of feedstocks with the production of biofuels
for sales that provide a fixed margin.
In addition, to minimize our commodity risk, we modified the
processes within our facility to utilize lower cost crude palm
stearin and palm based products with high FFA content, which
enables us to reduce our feedstock costs. The price of our
biodiesel is generally indexed to the local price of petroleum
diesel, which
floats with changes in the price determined by
the international markets
.
We have in the past, and we may in the future, use forward purchase
contracts and other hedging strategies. However, the extent to
which we engage in these risk management strategies may vary
substantially from time to time depending on market conditions and
other factors.
Research and Development
Our research and development efforts consist of developing,
evaluating, and commercializing technologies and expanding the
production of cellulosic ethanol and other renewable bio-chemicals
in the United States and India. The objective of this development
activity is to bring efficient conversion technologies using waste
feedstocks to produce biofuels and biochemicals on a large-scale,
commercial basis. Some of our innovations are protected by issued
or pending patents. We are developing additional technology and
expect to file additional patents that will further strengthen our
intellectual property portfolio. We expect to continue to file and
protect patents related to our business and future
plans.
In 2018, in cooperation with a federally funded agency, we secured
a grant from the California Energy Commission to optimize and
demonstrate the effectiveness of ionic liquids technologies for
breaking down biomass to produce cellulosic ethanol. After
completion of technology development and pilot testing, this
technology may be applied to upgrade the Keyes Plant to add waste
wood as a feedstock, thereby lowering feedstock costs and
increasing the value of the ethanol produced by the
plant.
Research and development expense was $0.2 million respectively, in
the years ended December 31, 2019 and 2018.
Patents and Trademarks
We
filed a number of trademark applications within the U.S. We
do not consider the success of our business, as a whole, to be
dependent on these trademarks. In addition, we hold nine
awarded patents in the United States. Our patents cover
processes to break down plant biomass and a technology to convert
carbon chain chemical structures. We intend to develop,
maintain and secure further intellectual property rights and pursue
new patents to expand upon our current patent base. In December
2018, the Company wrote off $0.9 million of patents associated with
the Z-microbe
TM
and enzymatic
processes to facilitate the degradation of certain plant biomass as
the Company no longer plans to commercially develop the
technologies itself and to free up resources to pursue other
technologies.
We have
acquired exclusive rights to patented technology in support of the
development and commercialization of our products, and we also rely
on trade secrets and proprietary technology in developing potential
products. We continue to place significant emphasis on
securing global intellectual property rights and we are pursuing
new patents to expand upon our strong foundation for
commercializing products in development.
We have received, and may receive in the future, claims of
infringement of other parties’ proprietary rights. See
“Item 3. Legal Proceedings”. Infringement or other
claims could be asserted or prosecuted against us in the future,
which could harm our business. Any such claims, with or without
merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause delays in
the development of our products, or require us to develop
non-infringing technology or enter into royalty or licensing
arrangements. Such royalty or licensing arrangements, if required,
may require us to license back our technology or may not be
available on terms acceptable to us, or at all.
Environmental and Regulatory Matters
North America
The EPA
finalized the 2020 volume requirements and associated
percentage standards that apply under the RFS for cellulosic
biofuel, biomass-based diesel, advanced biofuel, and total
renewable fuel.
The
final volumes requirements are set forth below and represent
continued growth over historic levels. The final percentage
standards meet or exceed the volume targets specified by
Congress for total renewable fuel, biomass-based diesel and
advanced biofuel.
|
|
Renewable Fuel Volume Requirements for 2016-2020
|
||||
|
Year
|
2016
|
2017
|
2018
|
2019
|
2020
|
|
Cellulosic
biofuel (million gallons)
|
230
|
311
|
288
|
418
|
590
|
|
Biomass-based
diesel (billion gallons)
|
1.9
|
2.0
|
2.1
|
2.1
|
2.43
|
|
Advanced
biofuel (billion gallons)
|
3.61
|
4.28
|
4.29
|
4.92
|
5.09
|
|
Renewable
fuel (billion gallons)
|
18.11
|
19.28
|
19.29
|
19.92
|
20.09
|
Source: Environmental Protection Agency – 40 CFR - Parts 79
and 80 – 12/19/2019
9
We are subject to federal, state and local environmental laws,
regulations and permit conditions, including those relating to the
discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of
hazardous materials, and the health and safety of our employees.
These laws, regulations and permits may, from time to time, require
us to incur significant capital costs. These include, but are not
limited to, testing and monitoring plant emissions, and where
necessary, obtaining and maintaining mitigation processes to comply
with regulations. They may also require us to make operational
changes to limit actual or potential impacts to the environment. A
significant violation of these laws, regulations, permits or
license conditions could result in substantial fines, criminal
sanctions, permit revocations and/or facility shutdowns. In
addition, environmental laws and regulations change over time, and
any such changes, more vigorous enforcement policies or the
discovery of currently unknown conditions may require substantial
additional environmental expenditures.
We are also subject to potential liability for the investigation
and cleanup of environmental contamination at each of the
properties that we own or operate and at off-site locations where
we arrange for the disposal of hazardous wastes. If significant
contamination is identified at our properties in the future, costs
to investigate and remediate this contamination as well as costs to
investigate or remediate associated damage could be significant. If
any of these sites are subject to investigation and/or remediation
requirements, we may be responsible under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”) or other environmental laws for all or part
of the costs of such investigation and/or remediation, and for
damage to natural resources. We may also be subject to related
claims by private parties alleging property damage or personal
injury due to exposure to hazardous or other materials at or from
such properties. While costs to address contamination or related
third-party claims could be significant, based upon currently
available information, we are not aware of any such material
contamination or third-party claims. Based on our current
assessment of the environmental and regulatory risks, we have not
accrued any amounts for environmental matters as of December 31,
2019. The ultimate costs of any liabilities that may be identified
or the discovery of additional contaminants could materially
adversely impact our results of operation or financial
condition.
In addition, the production and transportation of our products may
result in spills or releases of hazardous substances, which could
result in claims from governmental authorities or third parties
relating to actual or alleged personal injury, property damage, or
damage to natural resources. We maintain insurance coverage against
some, but not all, potential losses caused by our operations. Our
general and umbrella liability policy coverage includes, but is not
limited to, physical damage to assets, employer’s liability,
comprehensive general liability, automobile liability and
workers’ compensation. We do not carry environmental
insurance. We believe that our insurance is adequate for our
industry, but losses could occur for uninsurable or uninsured risks
or in amounts in excess of existing insurance coverage. The
occurrence of events which result in significant personal injury or
damage to our property, natural resources or third parties that is
not covered by insurance could have a material adverse impact on
our results of operations and financial condition.
Our air emissions are subject to the federal Clean Air Act, and
similar state laws, which generally require us to obtain and
maintain air emission permits for our ongoing operations as well as
for any expansion of existing facilities or any new facilities.
Obtaining and maintaining those permits requires us to incur costs,
and any future more stringent standards may result in increased
costs and may limit or interfere with our operating flexibility.
These costs could have a material adverse effect on our financial
condition and results of operations. Because other ethanol
manufacturers in the U.S. are and will continue to be subject to
similar laws and restrictions, we do not currently believe that our
costs to comply with current or future environmental laws and
regulations will adversely affect our competitive position with
other U.S. ethanol producers. However, because ethanol is produced
and traded internationally, these costs could adversely affect us
in our efforts to compete with foreign producers who are not
subject to such stringent requirements.
New laws or regulations relating to the production, disposal or
emission of carbon dioxide and other greenhouse gases may require
us to incur significant additional costs with respect to ethanol
plants that we build or acquire. We currently conduct our North
American commercial activities exclusively in California
.
Climate change and greenhouse gas emission (“GHG”)
reduction legislation is a topic of consideration by the U.S.
Congress and California State Legislature, which may significantly
impact the biofuels industry’s emissions regulations, as will
the RFS, California’s LCFS, and other potentially significant
changes in existing transportation fuels regulations.
India
We are subject to national, state and local environmental laws,
regulations and permits, including with respect to the generation,
storage, handling, use, transportation and disposal of hazardous
materials, and the health and safety of our employees. These laws
may require us to make operational changes to limit actual or
potential impacts to the environment. A violation of these laws,
regulations or permits can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations and/or
facility shutdowns. In addition, environmental laws and regulations
(and interpretations thereof) change over time, and any such
changes, more vigorous enforcement policies or the discovery of
currently unknown conditions may require substantial additional
environmental expenditures.
Employees
At December 31, 2019, we had a total of 160 employees, comprised of
14 full-time employees in our corporate offices, 37 full-time
equivalent employees at the Keyes Plant, and 109 full-time
equivalent employees in India.
We
believe that our employees are highly skilled, and our success will
depend in part upon our ability to retain our employees and attract
new qualified employees, many of whom are in great demand. We have
never had a work stoppage or strike, and no employees are presently
represented by a labor union or covered by a collective bargaining
agreement.
We believe relations with
our employees are positive.
10
Available Information
We file
reports with the Securities and Exchange Commission
(“SEC”). We make available on our website under
“Investor Relations,” free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports as soon as
reasonably practicable after we electronically file such materials
with or furnish them to the SEC. Our website address is
www.aemetis.com. Our website address is provided as an inactive
textual reference only, and the contents of that website are not
incorporated in or otherwise to be regarded as part of this report.
You can also read and copy any materials we file with the SEC at
the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may also obtain additional information
about the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
(www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC, including us.
I
tem 1A. Risk Factors
We
operate in an evolving industry that presents numerous risks beyond
our control that are driven by factors that cannot be predicted.
Should any of the risks described in this section or in the
documents incorporated by reference in this report actually occur,
our business, results of operations, financial condition, or stock
price could be materially and adversely affected. Investors should
carefully consider the risk factors discussed below, in addition to
the other information in this report, before making any investment
in our securities.
Risks Related to our Overall Business
We are currently not profitable and historically, we have
incurred significant losses. If we incur continued
losses, we may have to curtail our operations, which may prevent us
from successfully operating and expanding our
business.
Historically,
we have relied upon cash from debt and equity financing activities
to fund substantially all of the cash requirements of our
activities. As of December 31, 2019, we had an
accumulated deficit of approximately $237.4 million. For our fiscal
years ended December 31, 2019 and 2018, we reported a net loss of
$39.5 million and $36.3 million, respectively. We may incur losses
for an indeterminate period of time and may not achieve consistent
profitability.
We expect to
rely on cash on hand, if any, generated from our operations,
borrowing availability, if any, under our lines of credit and
proceeds from future financing activities, if any, to fund all of
the cash requirements of our business. In some market
environments, we may have limited access to incremental financing,
which could defer or cancel growth projects, reduce business
activity or cause us to default on our existing debt agreements if
we are unable to meet our payment schedules.
An extended
period of losses or negative cash flow may prevent us from
successfully operating and expanding our
business.
Our indebtedness and interest expense could limit cash flow and
adversely affect operations and our ability to make full payment on
outstanding debt.
For the
year ended December 31, 2019, we recognized $21.1 million in
interest rate expense (excludes debt related fees and amortization
expense). Our high levels of interest expense pose potential risks
such as:
●
Any cash flows
after covering the operations if any are used to pay principal and
interest on debt, thereby reducing the funds available for working
capital, capital expenditures, acquisitions, research and
development and other general corporate purposes;
●
Insufficient cash
flows from operations may force us to sell assets, or seek
additional capital, which we may not be able to accomplish on
favorable terms, if at all; and
●
The level of
indebtedness may make us more vulnerable to economic or industry
downturns.
In July
2017, we entered into a limited guaranty with Third Eye Capital in
connection with a note purchase agreement entered into by GAFI and
Third Eye Capital (the “GAFI Debt”). We exercised our
option to acquire the all capital stock of GAFI on December 31,
2019. As of December 31, 2019, GAFI’s outstanding balance of
principal, interest and fees on the GAFI Debt equaled $30.6
million, excluding debt discounts. Any inability to repay the
GAFI Debt to Third Eye Capital would limit our cash flow and
adversely affect our operations.
11
Our business is dependent on external financing and cash from
operations to service debt and provide future growth.
The
adoption of new technologies at our ethanol and biodiesel plants,
the development of the Riverbank Cellulosic Ethanol Facility and
bio-methane digesters at local dairies near our Keyes Plant, and
our working capital requirements are financed in part through debt
or debt-like facilities. We may need to seek additional
financing to continue or grow our operations. However,
generally unfavorable credit market conditions may make it
difficult to obtain necessary capital or additional debt financing
on commercially viable terms or at all. If we are unable
to pay our debt, we may be forced to delay or cancel capital
expenditures, sell assets, restructure our indebtedness, seek
additional financing, or file for bankruptcy
protection. Debt levels or debt service requirements may
limit our ability to borrow additional capital, make us vulnerable
to increases in prevailing interest rates, subject our assets to
liens, limit our ability to adjust to changing market conditions,
or place us at a competitive disadvantage to our
competitors. Should we be unable to generate enough cash
from our operations or secure additional financing to fund our
operations and debt service requirements, we may be required to
postpone or cancel growth projects, reduce our operations, or may
be unable to meet our debt repayment schedules. Any one
of these events would likely have a material adverse effect on our
operations and financial position.
There
can be no assurance that our existing cash flow from operations
will be sufficient to sustain operations and to the extent that we
are dependent on credit facilities to fund operations or service
debt, there can be no assurances that we will be successful at
securing funding from our senior lender or significant
shareholders. Should we require additional financing, there can be
no assurances that the additional financing will be available on
terms satisfactory to us. Our ability to identify and
enter into commercial arrangements with feedstock suppliers in
India depends on maintaining our operations agreement with Gemini
Edibles and Fats India Private Limited (“Gemini”) and
Secunderabad Oils Limited (“SOL”), who are currently
providing us with working capital for our Kakinada
Plant. If we are unable to maintain this strategic
relationship, our business may be negatively
affected. In addition, the ability of Gemini and SOL to
continue to provide us with working capital depends in part on the
financial strength of them and their banking
relationships. If Gemini and SOL are unable or unwilling
to continue to provide us with working capital, our business may be
negatively affected. Our ability to enter into
commercial arrangements with feedstock suppliers in California
depends on maintaining our operations agreement with J.D. Heiskell,
who is currently providing us with working capital for our Keyes
Plant. If we are unable to maintain this strategic
relationship, our business may be negatively
affected. In addition, the ability of J.D. Heiskell to
continue to provide us with working capital depends in part on the
financial strength of J.D. Heiskell and its banking
relationships. If J.D. Heiskell is unable or unwilling
to continue to provide us with working capital, our business may be
negatively affected. Our consolidated financial statements do not
include any adjustments to the classification or carrying values of
our assets or liabilities that might be necessary as a result of
the outcome of this uncertainty.
We may be unable to repay or refinance our Third Eye Capital
Notes upon maturity.
Under
our note facilities with Third Eye Capital, we owe approximately
$141.4 million, including the GAFI Debt and excluding debt
discounts, as of December 31, 2019. Our indebtedness and interest
payments under these note facilities are currently substantial and
may adversely affect our cash flow, cash position and stock
price. The current maturity date of these notes
is 2020, which can be further extended to 2021 upon payment of
certain fees. We have been able to extend our
indebtedness in the past, but we may not be able to continue to
extend the maturity of these notes. We may not have
sufficient cash available at the time of maturity to repay this
indebtedness. We have default covenants that may
accelerate the maturities of these notes. We may not
have sufficient assets or cash flow available to support
refinancing these notes at market rates or on terms that are
satisfactory to us. If we are unable to extend the
maturity of the notes or refinance on terms satisfactory to us, we
may be forced to refinance on terms that are materially less
favorable, seek funds through other means such as a sale of some of
our assets or otherwise significantly alter our operating plan, any
of which could have a material adverse effect on our business,
financial condition and results of operations. Additionally,
if we are unable to amend our current note purchase agreement with
Third Eye Capital, our ability to pay dividends could be
restrained.
We are
dependent upon our working capital agreements with J.D. Heiskell,
Gemini Edibles and Fats India Private Limited and Secunderabad Oils
Limited.
Our
ability to operate our Keyes Plant depends on maintaining our
working capital agreement with J.D. Heiskell, and our ability to
operate the Kakinada Plant depends on maintaining our working
capital agreements with Gemini and SOL. The Heiskell Agreement
provides for an initial term of one year with automatic one-year
renewals; provided, however, that J.D. Heiskell may terminate the
agreement by notice 90 days prior to the end of the initial term or
any renewal term. The current term extends through
December 31, 2020. In addition, the agreement may be
terminated at any time upon an event of default, such as payment
default, bankruptcy, acts of fraud or material breach under one of
our related agreements with J.D. Heiskell. The Gemini
and SOL agreement may be terminated at any time by either party
upon written notice. If we are unable to maintain these
strategic relationships, we will be required to locate alternative
sources of working capital and corn or milo supply, which we may be
unable to do in a timely manner or at all. If we are
unable to maintain our current working capital arrangements or
locate alternative sources of working capital, our ability to
operate our plants will be negatively affected.
12
Disruptions in ethanol production infrastructure may adversely
affect our business, results of operations and financial
condition.
Our
business depends on the continuing availability of rail, road,
port, and storage and distribution infrastructure. In particular,
due to limited storage capacity at the Keyes Plant and other
considerations related to production efficiencies, the Keyes Plant
depends on just-in-time delivery of corn and milo. The delivery and
transformation of feedstock requires a significant and
uninterrupted supply of corn and milo, principally delivered by
rail, as well as other raw materials and energy, primarily
electricity and natural gas. The prices of rail, electricity and
natural gas have fluctuated significantly in the past and may
fluctuate significantly in the future. The national rail system, as
well as local electricity and gas utilities, may not be able to
reliably supply the rail logistics, electricity and natural gas
that the Keyes Plant will need or may not be able to supply those
resources on acceptable terms. Any disruptions in the ethanol
production infrastructure, whether caused by labor difficulties,
earthquakes, storms, other natural disasters, or human error or
malfeasance or other reasons, could prevent timely deliveries of
corn, milo or other raw materials and energy and may require the
Keyes Plant to halt production, which could have a material adverse
effect on our business, results of operations and financial
condition.
Our results from operations are primarily dependent on the spread
between the feedstock and energy we purchase and the fuel, animal
feed and other products we sell.
The
results of our ethanol production business in the U.S. are
significantly affected by the spread between the cost of the corn
and natural gas that we purchase and the price of the ethanol, WDG
and DCO that we sell. Similarly, in India our biodiesel business is
primarily dependent on the price difference between the costs of
the feedstock we purchase (principally NRPO and crude glycerin) and
the products we sell (principally distilled biodiesel and refined
glycerin). The markets for ethanol, biodiesel, WDG, DCO
and glycerin are highly volatile and subject to significant
fluctuations. Any decrease in the spread between prices
of the commodities we buy and sell, whether as a result of an
increase in feedstock prices or a reduction in ethanol or biodiesel
prices, would adversely affect our financial performance and cash
flow and may cause us to suspend production at either of our
plants.
The price of ethanol is volatile and subject to large
fluctuations, and increased ethanol production may cause a decline
in ethanol prices or prevent ethanol prices from rising, either of
which could adversely impact our results of operations, cash flows
and financial condition.
The
market price of ethanol is volatile and subject to large
fluctuations. The market price of ethanol is dependent upon many
factors, including the supply of ethanol and the demand for
gasoline, which is in turn dependent upon the price of petroleum,
which is also highly volatile and difficult to
forecast. Fluctuations in the market price of ethanol
may cause our profitability or losses to fluctuate
significantly. In addition, domestic ethanol production
capacity increased significantly in the last
decade. Demand for ethanol may not increase
commensurately with increases in supply, which could lead to lower
ethanol prices. Demand for ethanol could be impaired due to a
number of factors, including regulatory developments and reduced
United States gasoline consumption. Reduced gasoline consumption
has occurred in the past and could occur in the future as a result
of increased gasoline or oil prices.
Decreasing gasoline prices
may negatively impact the selling price of ethanol which could
reduce our ability to operate profitably
.
The
price of ethanol tends to change in relation to the price of
gasoline. Recently, as a result of a number of factors including
the current world economy, the price of gasoline has decreased. In
correlation to the decrease in the price of gasoline, the price of
ethanol has also decreased. Decreases in the price of ethanol
reduce our revenue. Our profitability depends on a favorable spread
between our corn and natural gas costs and the price we receive for
our ethanol. If ethanol prices fall during times when corn and/or
natural gas prices are high, we may not be able to operate
profitably.
We may be unable to execute our business plan.
The
value of our long-lived assets is based on our ability to execute
our business plan and generate sufficient cash flow to justify the
carrying value of our assets. Should we fall short of
our cash flow projections, we may be required to write down the
value of these assets under accounting rules and further reduce the
value of our assets. We can make no assurances that
future cash flows will develop and provide us with sufficient cash
to maintain the value of these assets, thus avoiding future
impairment to our asset carrying values. As a result, we
may need to write down the carrying value of our long-lived
assets.
In
addition, we intend to modify or adapt third party technologies at
the Keyes Plant and at the Kakinada Plant to accommodate
alternative feedstocks and improve operations. After we
design and engineer a specific integrated upgrade to either or both
plants to allow us to produce products other than their existing
products, we may not receive permission from the regulatory
agencies to install the process at one or both
plants. Additionally, even if we are able to install and
begin operations of an integrated advanced fuels and/or
bio-chemical plant, we cannot assure you that the technology will
work and produce cost effective products because we have never
designed, engineered nor built this technology into an existing
bio-refinery. Similarly, our plans to develop the
Riverbank Cellulosic Ethanol Facility, construct a bio-methane
digester, pipeline and gas cleanup system near our Keyes plan, to
add a CO
2
conversion unit,
the integrated microgrid, the MVR project, or the Mitsubishi
dehydration system at the Keyes Plant may not be successful as a
result of financing, issues in the design or construction process,
or our ability to sell liquid CO
2
at cost effective
prices or achieve the anticipated energy savings. Any inability to
execute our business plan may have a material adverse effect on our
operations, financial position, ability to pay dividends, and
ability to continue as a going concern.
13
We may not be able to recover the costs of our substantial
investments in capital improvements and additions, and the actual
cost of such improvements and additions may be significantly higher
than we anticipate.
Our
strategy calls for continued investment in capital improvements and
additions. For example, we are currently developing the Riverbank
Cellulosic Ethanol Facility in Riverbank, CA to utilize the
licensed LanzaTech and InEnTec Technologies to convert local
California surplus biomass into ultra-low carbon renewable
cellulosic ethanol, constructing a network of biogas digesters,
pipelines and gas cleanup systems near our Keyes Plant to convert
dairy waste gas into renewable bio-methane and evaluating the
Goodland facility in Goodland, KS for construction of an additional
cellulosic ethanol facility. The construction of these capital
improvements and additions involve numerous regulatory,
environmental, political and legal uncertainties, many of which are
beyond our control and may require the expenditure of significant
amounts of capital, which may exceed our estimates. These projects
may not be completed at the planned cost, on schedule or at all.
The construction of new ethanol and other biofuel facilities is
subject to construction cost overruns due to labor costs, costs of
equipment and materials such as steel, labor shortages or weather
or other delays, inflation or other factors, which could be
material. In addition, the construction of these facilities is
typically subject to the receipt of approvals and permits from
various regulatory agencies. Those agencies may not approve the
projects in a timely manner, if at all, or may impose restrictions
or conditions on the projects that could potentially prevent a
project from proceeding, lengthen its expected completion schedule
and/or increase its anticipated cost. Moreover, our revenues and
cash flows may not increase immediately upon the expenditure of
funds on a particular project. For instance, if we expand an
existing facility or construct a new facility, the construction may
occur over an extended period of time, and we may not receive any
material increases in revenues or cash flows until the project is
completed. As a result, the new facilities may not be able to
achieve our expected investment return, which could adversely
affect our results of operations.
We are dependent on, and
vulnerable to any difficulties of, our principal suppliers and
customers.
We buy
all of the feedstock for the Keyes Plant from one supplier, J.D.
Heiskell. Under the Heiskell Supply Agreement, we are
only permitted to purchase feedstock from other suppliers upon the
satisfaction of certain conditions. In addition, we have
contracted to sell all of the WDG, CDS, corn oil and ethanol we
produce at the Keyes Plant to J.D. Heiskell. J.D.
Heiskell, in turn, sells all ethanol produced at the Keyes Plant to
Kinergy and all WDG and syrup to A.L. Gilbert. If J.D.
Heiskell were to fail to deliver adequate feedstock to the Keyes
Plant or fail to purchase all the product we produce, if Kinergy
were to fail to purchase all of the ethanol we produce, if A.L.
Gilbert were to fail to purchase all of the WDG and syrup we
produce, or if any of them were otherwise to default on our
agreements with them or fail to perform as expected, we may be
unable to find replacement suppliers or purchasers, or both, in a
reasonable time or on favorable terms, any of which could
materially adversely affect our results of operations and financial
condition.
We may not receive the funds we expect under our EB-5
program.
Our
EB-5 Phase I program allows for the issuance of up to 72
subordinated convertible promissory notes, each in the amount of
$0.5 million due and payable four years from the date of the note
for a total aggregate principal amount of up to $36.0 million. As
of December 31, 2019, $35.5 million have been raised through the
EB-5 program, of which $35.0 million have been released from
escrow, $0.5 million are held in escrow pending approval by the
USCIS, and $0.5 million remain to be funded to escrow.
Additionally, the USCIS could deny approval of the loans, and then
we would not receive some or all of the subscribed funds. If the
USCIS takes longer to approve the release of funds in escrow, or
does not approve the loans at all, it would have a material adverse
effect on our cash flows available for operations, and thus could
have a material adverse effect on our results of
operations.
On
October 16, 2016, we launched our EB-5 Phase II program, allowing
for the issuance of up to 100 subordinated convertible promissory
notes, on substantially similar terms and conditions as those
issued under our EB-5 Phase I program, for a total aggregate
principal amount of up to $50.0 million. On November 21, 2019, the
minimum investment was raised from $500,000 per investor to
$900,000 per investor. As of December 31, 2019, $4.0 million have
been raised through the EB-5 Phase II program, all of which have
been released from escrow.
There
can be no assurance that we will be able to successfully raise
additional funds under our EB-5 Phase II program or that such
funds, if raised, will be approved by USCIS. If we are unable to
raise, receive approval for, or receive any funds under our EB-5
Phase II program, our business may be negatively
affected.
We face competition for our
bio-chemical and transportation fuels products from providers of
petroleum-based products and from other companies seeking to
provide alternatives to these products, many of whom have greater
resources and experience than we do, and if we cannot compete
effectively against these companies we may not be
successful.
Our
renewable products compete with both the traditional, largely
petroleum-based bio-chemical and fuels products that are currently
being used in our target markets and with the alternatives to these
existing products that established enterprises and new companies
are seeking to produce. The oil companies, large
chemical companies and well-established agricultural products
companies with whom we compete are much larger than we are, and
have, in many cases, well developed distribution systems and
networks for their products.
In the
transportation fuels market, we compete with independent and
integrated oil refiners, advanced biofuels companies, traditional
biofuel companies and biodiesel companies. Refiners compete with us
by selling traditional fuel products and some are also pursuing
hydrocarbon fuel production using non-renewable feedstocks, such as
natural gas and coal, as well as processes using renewable
feedstocks, such as vegetable oil and biomass. We also expect to
compete with companies that are developing the capacity to produce
diesel and other transportation fuels from renewable resources in
other ways.
14
With
the emergence of many new companies seeking to produce chemicals
and fuels from alternative sources, we may face increasing
competition from alternative fuels and chemicals companies. As they
emerge, some of these companies may be able to establish production
capacity and commercial partnerships to compete with us. If we are
unable to establish production and sales channels that allow us to
offer comparable products at attractive prices, we may not be able
to compete effectively with these companies.
We also face competition from international suppliers.
Ethanol can be imported into the United States duty-free from some
countries, which may undermine the domestic ethanol
industry.
Currently,
international suppliers produce ethanol primarily from sugar cane
and as such, p
roduction costs for ethanol in these countries
can be significantly less than those in the United States and the
import of lower price or lower carbon value ethanol from these
countries may reduce the demand for domestic ethanol and depress
the price at which we sell our ethanol.
The high concentration of our sales within the ethanol
production industry could result in a significant reduction in
sales and negatively affect our profitability if demand for ethanol
declines.
We
expect our U.S. operations to be substantially focused on the
production of ethanol and its co-products for the foreseeable
future. We may be unable to shift our business focus away from the
production of ethanol to other renewable fuels or competing
products. Accordingly, an industry shift away from ethanol or the
emergence of new competing products may reduce the demand for
ethanol, which could materially and adversely affect our sales and
profitability.
Our operations are subject to environmental, health, and
safety laws, regulations, and liabilities.
Our
operations are subject to various federal, state and local
environmental laws and regulations, including those relating to the
discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of
hazardous materials, access to and impacts on water supply, and the
health and safety of our employees. In addition, our
operations and sales in India subject us to risks associated with
foreign laws, policies and regulations. Some of these
laws and regulations require our facilities to operate under
permits or licenses that are subject to renewal or
modification. These laws, regulations and permits can
require expensive emissions testing and pollution control equipment
or operational changes to limit actual or potential impacts to the
environment. Violations of these laws, regulations or permit,
or license conditions can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations and
facility shutdowns. We may not be at all times in
compliance with these laws, regulations, permits or licenses or we
may not have all permits or licenses required to operate our
business. We may be subject to legal actions brought by
environmental advocacy groups and other parties for actual or
alleged violations of environmental laws, permits or
licenses. In addition, we may be required to make
significant capital expenditures on an ongoing basis to comply with
increasingly stringent environmental laws, regulations, and permit
and license requirements.
We may
be liable for the investigation and cleanup of environmental
contamination at our facilities and at off-site locations where we
arrange for the disposal of hazardous substances. If
hazardous substances have been or are disposed of or released at
sites that undergo investigation or remediation by regulatory
agencies, we may be responsible under CERCLA or other environmental
laws for all or part of the costs of investigation and remediation,
and for damage to natural resources. We also may be
subject to related claims by private parties alleging property
damage and personal injury due to exposure to hazardous or other
materials at or from those properties. Some of these matters may
require us to expend significant amounts for investigation, cleanup
or other costs.
New
laws, new interpretations of existing laws, increased governmental
enforcement of environmental laws or other developments could
require us to make additional significant
expenditures. Continued government and public emphasis
on environmental issues can be expected to result in increased
future investments for environmental controls at our production
facilities. Environmental laws and regulations
applicable to our operations now or in the future, more vigorous
enforcement policies and discovery of currently unknown conditions
may require substantial expenditures that could have a negative
impact on our results of operations and financial
condition.
Emissions
of carbon dioxide resulting from manufacturing ethanol are subject
to permit requirements. If new laws or regulations are
passed relating to the production, disposal or emissions of carbon
dioxide, we may be required to incur significant costs to comply
with such new laws or regulations.
Our business is affected by greenhouse gas and climate change
regulation.
The
operations at our Keyes Plant will result in the emission of
CO
2
into the atmosphere. In March 2010, the EPA released its
final regulations on the RFS. We believe the EPA’s
final RFS regulations grandfather the Keyes Plant we operate at its
current capacity. However, compliance with future legislation may
require us to take action unknown to us at this time that could be
costly, and require the use of working capital, which may or may
not be available, preventing us from operating as planned, which
may have a material adverse effect on our operations and cash
flow.
15
A change in government policies may cause a decline in the demand
for our products.
The
domestic ethanol industry is highly dependent upon a myriad of
federal and state regulations and legislation, and any changes in
legislation or regulation could adversely affect our results of
operations and financial position. Other federal and
state programs benefiting ethanol generally are subject to U.S.
government obligations under international trade agreements,
including those under the World Trade Organization Agreement on
Subsidies and Countervailing Measures, and may be the subject of
challenges, in whole or in part. Growth and demand for
ethanol and biodiesel is largely driven by federal and state
government mandates or blending requirements, such as the RFS,
which was implemented pursuant to the Energy Policy Act of 2005 and
the Energy Independence and Security Act of 2007 (the
“EISA”). The RFS program sets annual quotas for the
quantity of renewable fuels (such as ethanol) that must be blended
into motor fuels consumed in the United States. However,
legislation aimed at reducing or eliminating the renewable fuel use
required by the RFS has been introduced in the United States
Congress. Any change in government policies could have a
material adverse effect on our business and the results of our
operations.
Waivers
of the RFS minimum levels of renewable fuels included in gasoline
or of the requirements by obligate parties to comply with the
regulations could have a material adverse effect on our results of
operations. Under the Energy Policy Act, the U.S.
Department of Energy, in consultation with the Secretary of
Agriculture and the Secretary of Energy, may waive the renewable
fuels mandate with respect to one or more states if the
Administrator of the EPA determines that implementing the
requirements would severely harm the economy or the environment of
a state, a region or the nation, or that there is inadequate supply
to meet the requirement. Additionally, the EPA has exercised the
authority to waive the requirements of the RFS for certain small
refiners. Any waiver of the RFS with respect to one or
more states would reduce demand for ethanol and could cause our
results of operations to decline and our financial condition to
suffer. Further activity by the EPA to waive the requirements for
small refiners could cause softening of pricing in the industry and
cause our results of operations to similarly decline.
A critical state program is California's LCFS, which is designed to
reduce greenhouse gas emissions associated with transportation
fuels used in California by ensuring that the fuel sold meets
declining targets for such emissions. The regulation quantifies
lifecycle greenhouse gas emissions by assigning a CI score to each
transportation fuel based on that fuel’s lifecycle
assessment. Each petroleum fuel provider, generally the
fuel’s producer or importer (the “Regulated
Party”), is required to ensure that the overall CI score for
its fuel pool meets the annual carbon intensity target for a given
year. A Regulated Party’s fuel pool can include gasoline,
diesel, and their blend stocks and substitutes. This obligation is
tracked through credits and deficits. Fuels with a CI score lower
than the annual standard earn a credit, and fuels that are higher
than the standard result in a deficit. Credits can be traded. Any
changes to California’s LCFS
could cause our results
of operations to decline and our financial condition to
suffer.
Concerns regarding the environmental impact of biofuel production
could affect public policy which could impair our ability to
operate at a profit and substantially harm our revenues and
operating margins.
Under the EISA, the EPA is required to produce a study every three
years of the environmental impacts associated with current and
future biofuel production and use, including effects on air and
water quality, soil quality and conservation, water availability,
energy recovery from secondary materials, ecosystem health and
biodiversity, invasive species and international impacts. Should
such EPA triennial studies, or other analyses find that biofuel
production and use has resulted in, or could in the future result
in, adverse environmental impacts, such findings could also
negatively impact public perception and acceptance of biofuel as an
alternative fuel, which also could result in the loss of political
support. To the extent that state or federal laws are modified or
public perception turns against biofuels, use requirements such as
RFS and LCFS may not continue, which could materially harm our
ability to operate profitably.
We may encounter unanticipated difficulties in converting the
Keyes Plant to accommodate alternative feedstocks, new chemicals
used in the fermentation and distillation process or new mechanical
production equipment.
In
order to improve the operations of the Keyes Plant and execute on
our business plan, we intend to modify the Keyes Plant to
accommodate alternative feedstocks and new chemical and/or
mechanical production processes, including an integrated microgrid,
an MVR distillation system, the Mitsubishi dehydration system and
other technologies. We may not be able to successfully
implement these modifications, and they may not function as we
expect them to. These modifications may cost significantly
more to complete than our estimates. The Keyes Plant may
not operate at nameplate capacity once the changes are
complete. If any of these risks materialize, they could
have a material adverse effect on our results of operations and
financial position.
We may be subject to liabilities and losses that may not be covered
by insurance.
Our
employees and facilities are subject to the hazards associated with
producing ethanol and biodiesel. Operating hazards can
cause personal injury and loss of life, damage to, or destruction
of, property, plant and equipment and environmental
damage. We maintain insurance coverage in amounts,
against the risks that we believe are consistent with industry
practice, and maintain an active safety
program. However, we could sustain losses for
uninsurable or uninsured risks, or in amounts in excess of existing
insurance coverage. Events that result in significant
personal injury or damage to our property or to property owned by
third parties or other losses that are not fully covered by
insurance could have a material adverse effect on our results of
operations and financial position.
Insurance
liabilities are difficult to assess and quantify due to unknown
factors, including the severity of an injury, the determination of
our liability in proportion to other parties, the number of
incidents not reported and the effectiveness of our safety
program. If we were to experience insurance claims or
costs above our coverage limits or that are not covered by our
insurance, we might be required to use working capital to satisfy
these claims rather than to maintain or expand our
operations. To the extent that we experience a material
increase in the frequency or severity of accidents or
workers’ compensation claims, or unfavorable developments on
existing claims, our operating results and financial condition
could be materially and adversely affected.
16
Our success depends in part
on recruiting and retaining key personnel and, if we fail to do so,
it may be more difficult for us to execute our business
strategy.
Our
success depends on our continued ability to attract, retain and
motivate highly qualified management, manufacturing and scientific
personnel, in particular our Chairman and Chief Executive Officer,
Eric McAfee. We maintain key person insurance on our Mr.
McAfee as our Chief Executive Officer for purposes of loan
compliance, but do not maintain any key person insurance on our
other executives. Competition for qualified personnel in the
renewable fuel and bio-chemicals manufacturing fields is
intense. Our future success will depend on, among other
factors, our ability to retain our current key personnel, and
attract and retain qualified future key personnel, particularly
executive management. Failure to attract or retain key
personnel could have a material adverse effect on our business and
results of operations.
Our operations subject us to risks associated with foreign
laws, policies, regulations, and markets.
Our
sales and manufacturing operations in foreign countries are subject
to the laws, policies, regulations, and markets of the countries in
which we operate. As a result, our foreign manufacturing
operations and sales are subject to inherent risks associated with
the countries in which we operate. Risks involving our
foreign operations include differences or unexpected changes in
regulatory requirements, political and economic instability,
terrorism and civil unrest, work stoppages or strikes, natural
disasters, interruptions in transportation, restrictions on the
export or import of technology, difficulties in staffing and
managing international operations, variations in tariffs, quotas,
taxes, and other market barriers, longer payment cycles, changes in
economic conditions in the international markets in which our
products are sold, and greater fluctuations in sales to customers
in developing countries. Any inability to effectively
manage the risks associated with our foreign operations may have a
material adverse effect on our results of operations or financial
condition.
We could be adversely affected by violations of the U.S.
Foreign Corrupt Practices Act.
Our
operations in countries outside the United States, including our
operations in India, are subject to anti-corruption laws and
regulations, including restrictions imposed by the U.S. Foreign
Corrupt Practices Act (the “FCPA”). The FCPA and
similar anti-corruption laws in other jurisdictions generally
prohibit companies and their intermediaries from making improper
payments to government officials for the purpose of obtaining or
retaining business. We operate in parts of the world that have
experienced governmental corruption to some degree and, in certain
circumstances, strict compliance with anti-corruption laws may
conflict with local customs and practices.
Our
employees and agents interact with government officials on our
behalf, including interactions necessary to obtain licenses and
other regulatory approvals necessary to operate our business. These
interactions create a risk that actions may occur that could
violate the FCPA or other similar laws.
Although
we have policies and procedures designed to promote compliance with
local laws and regulations as well as U.S. laws and regulations,
including the FCPA, there can be no assurance that all of our
employees, consultants, contractors and agents will abide by our
policies. If we are found to be liable for violations of the FCPA
or similar anti-corruption laws in other jurisdictions, either due
to our own acts or out of inadvertence, or due to the acts or
inadvertence of others, we could suffer from criminal or civil
penalties which could have a material and adverse effect on our
results of operations, financial condition and cash
flows.
A substantial portion of our assets and operations are located in
India, and we are subject to regulatory, economic and political
uncertainties in India.
Certain
of our principal operating subsidiaries are incorporated in India,
and substantial portions of our assets are located in India. We
intend to continue to develop and expand our facilities in
India. The Indian government has exercised and continues
to exercise significant influence over many aspects of the Indian
economy. India’s government has traditionally maintained an
artificially low price for certain commodities, including diesel
fuel, through subsidies, but has recently begun to reduce such
subsidies, which benefits us. We cannot assure you that
liberalization policies will continue. Various factors, such as
changes in the current federal government, could trigger
significant changes in India’s economic liberalization and
deregulation policies and disrupt business and economic conditions
in India generally and our business in particular. Our
financial performance may be adversely affected by general economic
conditions and economic and fiscal policy in India, including
changes in exchange rates and controls, interest rates and taxation
policies, as well as social stability and political, economic or
diplomatic developments affecting India in the future.
Currency fluctuations between the Indian rupee and the U.S.
dollar could have a material adverse effect on our results of
operations.
A
substantial portion of our revenues is denominated in Indian
rupees. We report our financial results in U.S. dollars. The
exchange rates between the Indian rupee and the U.S. dollar have
changed substantially in recent years and may fluctuate
substantially in the future. We do not currently engage
in any formal currency hedging of our foreign currency exposure,
and our results of operations may be adversely affected if the
Indian rupee fluctuates significantly against the U.S.
dollar.
We could be subject to strict restrictions on the movement of cash
and the exchange of foreign currencies which could limit our access
to cash held in our Indian subsidiary to fund our U.S. operations
or otherwise make investments where needed.
Our
Indian operations could be subject to strict restrictions on the
movement of cash and the exchange of foreign currencies, which
would limit our ability to use this cash across our global
operations. For instance, cash and cash equivalents were $0.7
million at December 31, 2019, of which $0.4 million was held in our
North American entities and $0.3 million held in our Indian
subsidiary. Cash held in our Indian subsidiary may not otherwise be
available for servicing debt obligations, potential investment or
use for operations in the United States. Moreover, even if we
were to repatriate this cash back to the United States for use
in U.S. investments, this cash could be subject to additional
withholding taxes. Due to various methods by which cash could be
repatriated to the United States in the future, the amount of
taxes attributable to the cash is dependent on circumstances
existing if and when remittance occurs. Due to the various methods
by which such earnings could be repatriated in the future, it is
not practicable to determine the amount of applicable taxes that
would result from such repatriation. In addition, Indian
regulations may impose restrictions on the movement and exchange of
foreign currencies which could further limit our ability to use
such funds for repayment of debt, operations or capital or other
strategic investments. Our inability to access our cash where and
when needed could impede our ability to service our debt
obligations, make investments and support our
operations.
We are a holding company
and there are significant limitations on our ability to receive
distributions from our subsidiaries.
We
conduct substantially all of our operations through subsidiaries
and are dependent on cash distributions, dividends or other
intercompany transfers of funds from our subsidiaries to finance
our operations. Our subsidiaries have not made significant
distributions to us and may not have funds available for dividends
or distributions in the future. The ability of our subsidiaries to
transfer funds to us will be dependent upon their respective
abilities to achieve sufficient cash flows after satisfying their
respective cash requirements, including subsidiary-level debt
service on their respective credit agreements. Our current credit
agreement, the Third Eye Capital Note Purchase Agreement, as
amended from time to time, as described in the Notes to
Consolidated Financial Statements, requires us to obtain the prior
consent of Third Eye Capital, as the Administrative Agent of the
Note holders, to make cash distributions or any intercompany fund
transfers. The ability of our Indian operating subsidiary to
transfer funds to us is restricted by Indian laws and may be
adversely affected by U.S. federal income tax laws. Under Indian
laws, our capital contributions, or future capital contributions,
to our Indian operation cannot be remitted back to the U.S.
Remittance of funds by our Indian subsidiary to us may subject us
to significant tax liabilities under U.S. federal income tax
laws.
17
Our Chief Executive Officer
has outside business interests that could require time and
attention.
Eric
McAfee, our Chairman and Chief Executive Officer, has outside
business interests which include his ownership of McAfee
Capital. Although Mr. McAfee’s employment
agreement requires that he devote reasonable business efforts to
our company and prohibits him from engaging in any competitive
employment, occupational and consulting services, this agreement
also permits him to devote time to his outside business interests
consistent with past practice. As a result, these
outside business interests could interfere with
Mr. McAfee’s ability to devote time to our business and
affairs.
Our business may be subject to natural forces beyond our
control.
Earthquakes,
floods, droughts, tsunamis, and other unfavorable weather
conditions may affect our operations. Natural
catastrophes may have a detrimental effect on our supply and
distribution channels, causing a delay or preventing our receipt of
raw materials from our suppliers or delivery of finished goods to
our customers. In addition, weather conditions may
adversely impact the planting, growth, harvest, storage, and
general availability of any number of the products we may process
at our facilities or sell to our customers. The severity
of these occurrences, should they ever occur, will determine the
extent to which and if our business is materially and adversely
affected.
Our ability to utilize our NOL carryforwards may be
limited.
Under
the Internal Revenue Code of 1986, as amended (the
“Code”), a corporation is generally allowed a deduction
in any taxable year for net operating losses (“NOL”)
carried over from prior taxable years.
As of December 31, 2019, we had U.S. federal NOL
carryforwards of approximately $
197.1
million and state NOL carryforwards of
approximately $
213.4
million.
As of December 31, 2019, the federal NOL’s of $195.1 million
and the state NOL’s of $213.4 million expire on various dates
between 2027 and 2039. Due to the 2017 U.S. Tax Reform, U.S.
federal NOLs post 2017 in the amount of $2.0 million have no
expiration date.
In addition, disallowed interest expense under Code Sec. 163(j) of
$43.5 million as of December 31, 2019 has no expiration date as it
is carried forward indefinitely and treated as interest expense
when utilized.
Our
ability to deduct these NOL carryforwards against future taxable
income could be limited if we experience an “ownership
change,” as defined in Section 382 of the Code. In general,
an ownership change may result from one or more transactions
increasing the aggregate ownership of certain persons (or groups of
persons) in our stock by more than 50 percentage points over a
testing period (generally three years). Future direct or indirect
changes in the ownership of our stock, including sales or
acquisitions of our stock by certain stockholders and purchases and
issuances of our stock by us, some of which are not in our control,
could result in an ownership change. Any resulting limitation on
the use of our NOL carryforwards could result in the payment of
taxes above the amounts currently estimated and could have a
negative effect on our future results of operations and financial
position.
U.S. tax law changes could materially affect the tax aspects of our
business and the industries in which we compete.
On
December 22, 2017, President Trump signed into law the final
version of H.R. 1, the Tax Cuts and Jobs Act (the “2017 Tax
Act”). The 2017 Tax Act significantly reforms the Internal
Revenue Code of 1986, as amended, with many of its provisions
effective for tax years beginning on or after January 1, 2018. The
2017 Tax Act, among other things, contains significant changes to
corporate taxation, including a permanent reduction of the
corporate income tax rate, a partial limitation on the
deductibility of business interest expense, a limitation of the
deduction for net operating loss carryforwards, an indefinite net
operating loss carryforward and the elimination of the two-year net
operating loss carryback, temporary, immediate expensing for
certain new investments and the modification or repeal of many
business deductions and credits. We have examined the tax impact of
the 2017 Tax Act and believe that all necessary adjustments have
been accounted for.
Non-U.S. stockholders of our common
stock, in certain situations, could be subject to U.S. federal
income tax on the gain from the sale, exchange or other disposition
of our common stock
.
Our
Keyes Plant (which constitutes a U.S. real property interest for
purposes of determining whether we are a U.S. real property holding
corporation (a “USRPHC”) under the Foreign Investment
in Real Property Tax Act (“FIRPTA”)), currently
accounts for a significant portion of our assets. The value of our
Keyes Plant relative to our real property located outside of the
United States and other assets used in our trade or business may be
uncertain and may fluctuate over time. Therefore, we may be, now or
at any time while a non-U.S. stockholder owns our common stock, a
USRPHC. If we are a USRPHC, certain non-U.S. stockholders may be
subject to U.S. federal income tax on gain from the disposition of
our stock under FIRPTA, in which case such non-U.S. stockholders
would also be required to file U.S. federal income tax returns with
respect to such gain. Whether the FIRPTA provisions apply depends
on the stock that a non-U.S. stockholder owns and whether, at the
time such non-U.S. stockholder disposes of our common stock, such
common stock is regularly traded on an established securities
market within the meaning of the applicable U.S. Treasury
regulations. Non-U.S. stockholders should consult with their
own tax advisors concerning the U.S. federal income tax
consequences of the sale, exchange or other disposition of our
common stock.
18
We are subject to covenants and other operating restrictions under
the terms of our debt, which may restrict our ability to engage in
some business transactions.
Our
debt facilities contain covenants restricting our ability, among
others, to:
●
incur additional
debt;
●
make certain
capital expenditures;
●
incur or permit
liens to exist;
●
enter into
transactions with affiliates;
●
guarantee the debt
of other entities, including joint ventures;
●
pay
dividends;
●
merge or
consolidate or otherwise combine with another company;
and
●
transfer, sell or
lease our assets.
These
restrictions may limit our ability to engage in business
transactions that may be beneficial to us, or may restrict our
ability to execute our business plan.
Operational difficulties at our facilities may negatively impact
our business.
Our
operations may experience unscheduled downtimes due to technical or
structural failure, political and economic instability, terrorism
and civil unrest, natural disasters, and other operational hazards
inherent to our operations. These hazards may cause
personal injury or loss of life, severe damage to or destruction of
property, equipment, or the environment, and may result in the
suspension of operations or the imposition of civil or criminal
penalties. Our insurance may not be adequate to cover
such potential hazards and we may not be able to renew our
insurance on commercially reasonable terms or at all. In
addition, any reduction in the yield or quality of the products we
produce could negatively impact our ability to market our
products. Any decrease in the quality, reduction in
volume, or cessation of our operations due to these hazards would
have a material adverse effect on the results of our business and
financial condition.
The spread of the Coronavirus (COVID-19) could negatively impact
our operations.
We have
facilities located in California and India, and the employees
working in those facilities may be at greater risk for exposure to
and for contracting the Coronavirus, COVID-19. The U.S. Center for
Disease Control, or the CDC, has reported known cases of COVID-19
in both California and India. The spread of COVID-19 in these
locations may result in our employees being forced to work from
home or missing work if they or a member of their family contract
COVID-19. Additionally, the spread of COVID-19 may result in
economic downturns in the markets in which we sell our products and
lead to reduced demand for gasoline in such markets, each of which
may impair demand for ethanol, harm our operations and negatively
impact our financial condition.
Our success depends on our ability to manage the growth of
our operations.
Our
strategy envisions a period of rapid growth that may impose a
significant burden on our administrative and operational resources
and personnel, which, if not effectively managed, could impair our
growth. The growth of our business will require
significant investments of capital and management’s close
attention. If we are unable to successfully manage our
growth, our sales may not increase commensurately with capital
expenditures and investments. Our ability to effectively
manage our growth will require us to substantially expand the
capabilities of our administrative and operational resources and to
attract, train, manage and retain qualified management, technicians
and other personnel. In addition to our plans to adopt
technologies that expand our operations and product offerings at
our biodiesel and ethanol plants, we may seek to enter into
strategic business relationships with companies to expand our
operations. If we are unable to successfully manage our
growth, we may be unable to achieve our business goals, which may
have a material adverse effect on the results of our operations and
financial condition.
Our mergers, acquisitions, partnerships, and joint ventures
may not be as beneficial as we anticipate.
We have
increased our operations through mergers, acquisitions,
partnerships and joint ventures and intend to continue to explore
these opportunities in the future. The anticipated
benefits of these transactions might take longer to realize than
expected and these may never be fully realized, or even realized at
all. Furthermore, partnerships and joint ventures
generally involve restrictive covenants on the parties involved,
which may limit our ability to manage these agreements in a manner
that is in our best interest. Future mergers,
acquisitions, partnerships, and joint ventures may involve the
issuance of debt or equity, or a combination of the two, as payment
for or financing of the business or assets involved, which may
dilute ownership interest in our business. Any failure
to adequately evaluate and address the risks of and execute on our
mergers, acquisitions, partnerships, and joint ventures could have
an adverse material effect on our business, results of operations,
and financial condition. In connection with such
acquisitions and strategic transactions, we may incur unanticipated
expenses, fail to realize anticipated benefits, have difficulty
incorporating the acquired businesses, our management may become
distracted from our core business, and we may disrupt relationships
with current and new employees, customers and vendors, incur
significant debt, or have to delay or not proceed with announced
transactions. The occurrence of any of these events
could have an adverse effect on our business.
EdenIQ’s attempt to terminate and failure to close the EdenIQ
Merger, and litigation pertaining to the EdenIQ Merger, may
negatively impact our business and operations.
On
August 31, 2016, the Company filed a lawsuit in Santa Clara County
Superior Court against EdenIQ and its CEO, Brian D. Thome. The
lawsuit is based on EdenIQ’s wrongful termination of a merger
agreement (the “Merger Agreement”) that would have
effectuated the merger of the Company and EdenIQ (the “EdenIQ
Merger”). The relief sought includes specific performance of
the merger agreement and monetary damages, as well as punitive
damages, attorneys’ fees, and costs.
By way of its cross-complaint, EdenIQ sought
monetary damages, punitive damages, injunctive relief,
attorneys’ fees and costs. All of the claims asserted
by both the Company and EdenIQ have been denied or dismissed.
In February 2019, the Company and EdenIQ each filed motions seeking
reimbursement of attorney fees and costs associated with the
litigation. On July 24, 2019, the court awarded EdenIQ a portion of
the fees and costs it had sought in the amount of approximately
$6.2 million and the Company recorded these fees in 2019. The
Company’s ability to amend its claims and present its claims
to the court or a jury could materially affect the court’s
decision to award EdenIQ its fees and costs. In addition to further
legal motions and a potential appeal of the Court’s summary
judgment order, the Company plans to appeal the court’s award
of EdenIQ’s fees and costs.
However, we cannot predict
the outcome of such appeal. Such appeal may also create a
distraction for our management team and board of directors and
require time and attention. Any litigation relating to the EdenIQ
Merger could adversely impact our ability to execute our business
plan, our financial condition and results of
operations.
19
Our business may be significantly disrupted upon the occurrence of
a catastrophic event or cyberattack.
Our
Keyes and Kakinada Plants are highly automated and they rely
extensively on the availability of our network infrastructure and
internal technology systems. The failure of our systems due to a
catastrophic event, such as an earthquake, fire, flood, tsunami,
weather event, telecommunications failure, power failure,
cyberattack or war, could adversely impact our business, results of
operations and financial condition. We have developed disaster
recovery plans and maintain backup systems in order to reduce the
potential impact of a catastrophic event. However, there can be no
assurance that these plans and systems would enable us to return to
normal business operations.
Our
network infrastructure and internal technology systems may also be
subject to other risks such as computer viruses, physical or
electronic vandalism or other similar disruptions that could cause
system interruptions and loss of critical data. Cybersecurity
threats and incidents can range from uncoordinated individual
attempts to gain unauthorized access to our networks and systems to
more sophisticated and targeted measures directed at us or our
third-party service providers. Despite the implementation of
cybersecurity measures including access controls, data encryption,
vulnerability assessments, employee training, continuous
monitoring, and maintenance of backup and protective systems, our
network infrastructure and internal technology systems may still be
vulnerable to cybersecurity threats and other electronic security
breaches. While we have taken reasonable efforts to protect
ourselves, and to date, we have not experienced any material
breaches or material losses related to cyberattacks, we cannot
assure that any of our security measures would be sufficient in the
future.
We may be unable to protect our intellectual
property.
We rely
on a combination of patents, trademarks, trade name,
confidentiality agreements, and other contractual restrictions on
disclosure to protect our intellectual property
rights. We also enter into confidentiality agreements
with our employees, consultants, and corporate partners, and
control access to and distribution of our confidential
information. These measures may not preclude the
disclosure of our confidential or proprietary
information. Despite efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain and use our proprietary information. Monitoring
unauthorized use of our confidential information is difficult, and
we cannot be certain that the steps we have taken to prevent
unauthorized use of our confidential information, particularly in
foreign countries where the laws may not protect proprietary rights
as fully as in the U.S., will be effective.
Companies
in our industry aggressively protect and pursue their intellectual
property rights. From time to time, we receive notices
from competitors and other operating companies, as well as notices
from “non-practicing entities,” or NPEs, that claim we
have infringed upon, misappropriated or misused other
parties’ proprietary rights. Our success and
future revenue growth will depend, in part, on our ability to
protect our intellectual property. It is possible that
competitors or other unauthorized third parties may obtain, copy,
use or disclose our technologies and processes, or confidential
employee, customer or supplier data. Any of our existing
or future patents may be challenged, invalidated or
circumvented.
We may not be able to successfully develop and commercialize
our technologies, which may require us to curtail or cease our
research and development activities.
Since
2007, we have been developing patent-pending enzyme technology to
enable the production of ethanol from a combination of starch and
cellulose, or from cellulose alone. In July 2011, we acquired
Zymetis, Inc., a biochemical research and development firm, with
several patents pending and in-process R&D utilizing the
Z-microbe™ to produce renewable chemicals and advanced fuels
from renewable feedstocks. In December 2018, the Company
wrote off $0.9 million of patents associated with the
Z-microbe
TM
and enzymatic
processes to facilitate the degradation of certain plant biomass as
the Company no longer plans to commercially develop the
technologies itself and to free up resources to pursue other
methods.
In 2018, in cooperation with
a federally funded agency, we secured a grant from the California
Energy Commission to optimize and demonstrate the effectiveness of
ionic liquids technologies for breaking down biomass to produce
cellulosic ethanol.
To date, we have not completed a
large-scale commercial prototype of our technology and are
uncertain at this time when completion of a commercial scale
prototype or commercial scale production will
occur. Commercialization risks include economic
financial feasibility at commercial scale, availability of funding
to complete large-scale commercial plant, ability of ionic
liquids to function at commercial scale and market acceptance
of product.
Technological advances and changes in production methods in the
biomass-based biofuel industry and renewable chemical industry
could render our plants obsolete and adversely affect our ability
to compete.
It
is expected that technological advances in biomass-based biofuel
production methods will continue to occur and new technologies for
biomass-based diesel production may develop. Advances in the
process of converting oils and fats into biodiesel and renewable
diesel, including co-processing, could allow our competitors to
produce advanced biofuels more efficiently and at a substantially
lower cost. New standards or production technologies may require us
to make additional capital investments in, or modify, plant
operations to meet these standards. If we are unable to adapt or
incorporate technological advances into our operations, our
production facilities could become less competitive or obsolete.
Further, it may be necessary for us to make significant
expenditures to acquire any new technology and retrofit our plants
in order to incorporate new technologies and remain competitive. In
order to execute our strategy to expand into the production of
renewable chemicals, additional advanced biofuels, next generation
feedstocks and related renewable products, we may need to acquire
licenses or other rights to technology from third parties. We can
provide no assurance that we will be able to obtain such licenses
or rights on favorable terms. If we are unable to obtain, implement
or finance new technologies, our production facilities could be
less efficient than our competitors, and our ability to sell
biomass-based diesel may be harmed, negatively impacting our
revenues and profitability.
20
Risks related to ownership of our stock
If the trading price of our common stock fails to comply with the
continued listing requirements of
NASDAQ, we could face
possible
delisting.
NASDAQ
delisting
could materially adversely affect the market
for our shares.
On
January 31, 2020, we received a letter from the Listing
Qualifications Department of the Nasdaq Stock Market
(“Nasdaq”) indicating that,
based upon the closing
bid price of our common stock for the last 30 consecutive
business days, we did not meet the minimum bid price of $1.00 per
share required for continued listing on The NASDAQ Global Market
pursuant to Nasdaq Listing Rule 5450(a)(1). We were provided
with a compliance period of 180 calendar days, or July 29, 2020, to
regain our compliance with the minimum bid price
requirement.
On
February 11, 2020, we received a letter from the Listing
Qualifications Department of the Nasdaq Stock Market
(“Nasdaq”) indicating that,
based upon the most
recent publicly held shares information and the closing bid price
of the Company’s common stock for the last 30 consecutive
business days, we did not meet the minimum market value of publicly
held shares (“MVPHS”) of $15,000,000 required for
continued listing on The Nasdaq Global Market pursuant to Nasdaq
Listing Rule 5450(b)(3)(C). We were provided with a compliance
period of 180 calendar days, or August 10, 2020, to regain our
compliance with the MVPHS requirement.
Although we intend to continuously monitor the bid price of our
common stock, w
e cannot be sure that we will be able to
maintain the minimum bid price, MVPHS or other NASDAQ continued
listing requirements in the future. If our common stock loses its
listed status on The NASDAQ Global Market and we are not
successful in obtaining a listing on another exchange, our common
stock would likely trade on the over-the-counter
market.
If our
common stock were to trade on the over-the-counter market, selling
our common stock could be more difficult because smaller quantities
of our common stock would likely be bought and sold, transactions
could be delayed, and security analysts’ coverage of us may
be reduced. In addition, in the event our common stock is delisted,
broker-dealers have certain regulatory burdens imposed upon them,
which may discourage broker-dealers from effecting transactions in
our common stock, further limiting the liquidity of our common
stock. These factors could result in lower prices and larger
spreads in the bid and ask prices for our common
stock.
Future sales and issuances of rights to purchase common stock by us
could result in additional dilution of the percentage ownership of
our stockholders and could cause our stock price to
fall.
We may
issue equity or convertible securities in the future. To the
extent, we do so, our stockholders may experience substantial
dilution. We may sell common stock, convertible securities, or
other equity securities in one or more transactions at prices and
in a manner, we determine from time to time. If we sell common
stock, convertible securities, or other equity securities in more
than one transaction, investors may be materially diluted by
subsequent sales and new investors could gain rights superior to
our existing stockholders.
Our stock price is highly volatile, which could result in
substantial losses for investors purchasing shares of our common
stock and in litigation against us.
The
market price of our common stock has fluctuated significantly in
the past and may continue to fluctuate significantly in the future.
The market price of our common stock may continue to fluctuate in
response to one or more of the following factors, many of which are
beyond our control:
|
|
•
|
fluctuations
in the market prices of ethanol and its co-products including WDG
and corn oil;
|
|
|
•
|
the
cost of key inputs to the production of ethanol, including corn and
natural gas;
|
|
|
•
|
the
volume and timing of the receipt of orders for ethanol from major
customers;
|
|
|
•
|
competitive
pricing pressures;
|
|
|
•
|
our
ability to produce, sell and deliver ethanol on a cost-effective
and timely basis;
|
|
|
•
|
the
announcement, introduction and market acceptance of one or more
alternatives to ethanol;
|
|
|
•
|
losses
resulting from adjustments to the fair values of our outstanding
warrants to purchase our common stock;
|
|
|
•
|
changes
in market valuations of companies similar to us;
|
|
|
•
|
stock
market price and volume fluctuations generally;
|
|
|
•
|
regulatory
developments or increased enforcement;
|
|
|
•
|
fluctuations
in our quarterly or annual operating results;
|
|
|
•
|
additions
or departures of key personnel;
|
|
|
•
|
our
inability to obtain financing; and
|
|
|
•
|
our
financing activities and future sales of our common stock or other
securities.
|
21
The
price at which you purchase shares of our common stock may not be
indicative of the price that will prevail in the trading market.
You may be unable to sell your shares of common stock at or above
your purchase price, which may result in substantial losses to you
and which may include the complete loss of your investment. In the
past, securities class action litigation has often been brought
against a company following periods of high stock price volatility.
We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert
management’s attention and our resources away from our
business.
Any of
the risks described above could have a material adverse effect on
our results of operations or the price of our common stock, or
both.
We do not intend to pay dividends.
We have
not paid any cash dividends on any of our securities since
inception and we do not anticipate paying any cash dividends on any
of our securities in the foreseeable future.
Our principal shareholders hold a substantial amount of our common
stock.
Eric A.
McAfee, our Chief Executive Officer and Chairman of the Board, and
Laird Q. Cagan, a former board member, in the aggregate,
beneficially own 24.2% of our outstanding common stock. In
addition, the other members of our Board and management, in the
aggregate, excluding Mr. McAfee, beneficially own approximately
2.5% of our common stock. Our lender, Third Eye Capital, acting as
principal and agent and its affiliates, beneficially own 2.2% of
our common stock. As a result, these shareholders, acting together,
will be able to influence many matters requiring shareholder
approval, including the election of directors and approval of
mergers and acquisitions and other significant corporate
transactions. See “Security Ownership of Certain Beneficial
Owners and Management.” The interests of these shareholders
may differ from yours and this concentration of ownership enables
these shareholders to exercise influence over many matters
requiring shareholder approval, may have the effect of delaying,
preventing or deterring a change in control, deprive you of an
opportunity to receive a premium for your securities as part of a
sale of the company and may affect the market price of our
securities.
The conversion of convertible securities and the exercise of
outstanding options and warrants to purchase our common stock could
substantially dilute your investment and reduce the voting power of
your shares, impede our ability to obtain additional financing and
cause us to incur additional expenses.
Our
Series B convertible preferred stock is convertible into our common
stock. As of December 31, 2019, there were 1.3 million shares of
our Series B convertible Preferred Stock outstanding, convertible
into 132,340 shares of our common stock on a 10 to 1 ratio. Certain
of our financing arrangements, such as our EB-5 notes are
convertible into shares of our common stock at fixed prices.
Additionally, there are outstanding warrants and options to acquire
our common stock issued to employees and directors. As of December
31, 2019, there were outstanding warrants and options to purchase
3.8 million shares of our common stock.
Such
securities allow their holders an opportunity to profit from a rise
in the market price of our common stock such that conversion of the
securities will result in dilution of the equity interests of our
common stockholders. The terms on which we may obtain additional
financing may be adversely affected by the existence and
potentially dilutive impact of our outstanding convertible and
other promissory notes, Series B convertible preferred stock,
options and warrants. In addition, holders of our outstanding
promissory notes and certain warrants have registration rights with
respect to the common stock underlying those notes and warrants,
the registration of which involves substantial
expense.
I
tem 1B. Unresolved Staff
Comments
None.
I
t
em
2. Properties
North America
Corporate Office.
Our corporate
headquarters are located at 20400 Stevens Creek Blvd., Suite 700,
Cupertino, CA. The Cupertino facility office space consists of
9,238 rentable square feet. We extended the lease in February 2015
for an additional five years ending on May 31,
2020.
Ethanol Plant in Keyes, CA.
The
Keyes Plant is situated on approximately 11 acres of land and it
contains 25,284 square feet of plant building and structures. The
property is located next to Union Pacific railroad system to
facilitate the transportation of raw materials. Our tangible and
intangible assets, including the Keyes Plant, are subject to
perfected first liens and mortgages as further described in Note 4.
Debt, of the Notes to Consolidated Financial Statements in Part II,
Item 8 of this Form 10-K.
CO
2
Land
in Keyes, CA.
On December 3,
2018, we acquired the 5.32 acres of parcel land next to our Keyes
Plant. The land will be leased and utilized by Messer to
receive
CO
2
from the Keyes Plant, and produce liquid
CO
2 for
sale into local
markets.
22
Cellulosic Ethanol Plant in Modesto, CA.
On February 3, 2017, we entered into a lease
agreement with City of Riverbank Local Redevelopment Authority for
leasing of approximately 71,000 square feet. The space is leased
for 5 years with 10 five-year extensions allowed. The space is
being utilized to build the Riverbank Cellulosic Ethanol
Facility.
Land, Building and Equipment in Goodland, KS
. On December
31, 2019, we exercised our option to acquire all of the capital
stock of GAFI, comprising of approximately 93 acres of land,
approximately 34,992 square feet of buildings and equipment as part
of a partially completed 40 million gallon per year dry-mill
ethanol plant. Aemetis has future plans to deploy the cellulosic
ethanol technology at the Goodland Plant.
We productively utilize the majority of the space in our corporate
offices and the ethanol plant facilities. The lease with the City
of Riverbank and the acquisition of GAFI are intended for future
expansion and deployment of our cellulosic ethanol
technology.
India
Biodiesel Plant in Kakinada, India.
The Kakinada Plant is situated on approximately
32,000 square meters of land in Kakinada, India. The property is
located 7.5 kilometers from the local seaport with connectivity
through a third-party pipeline to the port jetty. The pipeline
facilitates the importing of raw materials and exporting of
finished products.
India Administrative Office.
On
April 2, 2019, we entered into three-year lease of approximately
1,000 square feet of office space to accommodate our principal
administrative, sales and marketing facilities in Hyderabad,
India.
We productively utilize the majority of the space in these
facilities.
I
t
em
3. Legal Proceedings
On
August 31, 2016, the Company filed a lawsuit in Santa Clara County
Superior Court against defendant EdenIQ, Inc.
(“EdenIQ”). The lawsuit was based on
EdenIQ’s wrongful termination of a merger agreement that
would have effectuated the merger of EdenIQ into a new entity that
would be primarily owned by Aemetis. The lawsuit asserted
that EdenIQ had fraudulently induced the Company into assisting
EdenIQ to obtain EPA approval for a new technology that the Company
would not have done but for the Company’s belief that the
merger would occur. The relief sought included EdenIQ’s
specific performance of the merger, monetary damages, as well as
punitive damages, attorneys’ fees, and costs. In
response to the lawsuit, EdenIQ filed a cross-complaint asserting
causes of action relating to the Company’s alleged inability
to consummate the merger, the Company’s interactions with
EdenIQ’s business partners, and the Company’s use of
EdenIQ’s name and trademark in association with publicity
surrounding the merger. Further, EdenIQ named Third Eye
Capital Corporation (“TEC”) as a defendant in a second
amended cross-complaint alleging that TEC had failed to disclose
that its financial commitment to fund the merger included terms
that were not disclosed. Finally, EdenIQ claimed that TEC and
the Company concealed material information surrounding the
financing of the merger. By way of its cross-complaint,
EdenIQ sought monetary damages, punitive damages, injunctive
relief, attorneys’ fees and costs. In November 2018, the
claims asserted by the Company were dismissed on summary judgment
and the Company filed a motion to amend its claims, which remains
pending. In December 2018, EdenIQ dismissed all of its claims prior
to trial. In February 2019, the Company and EdenIQ each filed
motions seeking reimbursement of attorney fees and costs associated
with the litigation. On July 24, 2019, the court awarded EdenIQ a
portion of the fees and costs it had sought in the amount of
approximately $6.2 million and the Company recorded these fees
based on the court order. The Company’s ability to amend its
claims and present its claims to the court or a jury could
materially affect the court’s decision to award EdenIQ its
fees and costs. In addition to further legal motions and a
potential appeal of the Court’s summary judgment order, the
Company plans to appeal the court’s award of EdenIQ’s
fees and costs. The Company intends to continue to vigorously
pursue its legal claims and defenses against EdenIQ.
I
tem 4. Mine Safety
Disclosures.
Not Applicable.
23
P
ART II
I
tem 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock is traded on the NASDAQ Stock Market under the
symbol “AMTX.” Prior to trading on NASDAQ, between
November 15, 2011 and June 5, 2014 our common stock was traded on
the OTC Bulletin Board under the symbol “AMTX.” Between
December 7, 2007 and November 15, 2011, our common stock traded on
the OTC Bulletin Board under the symbol “AEBF.” Prior
to December 7, 2007, our common stock traded on the OTC Bulletin
Board under the symbol “MWII.”
The following table sets forth the high and low sale prices of our
common stock for the quarterly reporting periods
indicated:
|
Quarter Ending
|
High
|
Low
|
|
2019
|
|
|
|
December
31,
|
$
1.21
|
$
0.73
|
|
September
30,
|
$
1.27
|
$
0.74
|
|
June
30,
|
$
1.70
|
$
0.72
|
|
March
31,
|
$
1.24
|
$
0.59
|
|
2018
|
|
|
|
December
31,
|
$
1.73
|
$
0.42
|
|
September
30,
|
$
2.40
|
$
0.90
|
|
June
30,
|
$
1.94
|
$
1.36
|
|
March
31,
|
$
3.12
|
$
0.45
|
Shareholders of Record
According to the records of our transfer agent, we had 245
stockholders of record as of February 24, 2020. This figure does
not include “street name” holders or beneficial holders
of our common stock whose shares are held of record by banks,
brokers and other financial institutions.
Dividends
We have never declared or paid any cash dividends on our common
stock. We currently expect to retain any future earnings for
use in the operation and expansion of our business and to reduce
our outstanding debt and do not anticipate paying any cash
dividends in the foreseeable future. Information with respect to
restrictions on paying dividends is set forth in
Note 4.
Debt
of the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Form
10-K.
Securities Authorized for Issuance under Equity Compensation
Plans
On
April 29, 2019, the Aemetis 2019 Stock Plan (the “2019 Stock
Plan”) was approved by stockholders of the Company. This plan
permits the grant of Incentive Stock Options, Non-Statutory Stock
Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units, Performance Units, Performance Shares and other stock
or cash awards as the Administrator may determine in its
discretion. The 2019 Stock Plan’s term is 10 years and
supersedes all prior plans. The 2019 Stock Plan authorized the
issuance of 200,000 shares of common stock for the 2019 calendar
year, in addition to permitting transferring and granting any
available and unissued or expired options under the Amended and
Restated 2007 Stock Plan in an amount up to 177,246 options. With
the approval of the 2019 Stock Plan, the Zymetis 2007 Stock Plan
and the Amended and Restated 2007 Stock Plan were terminated any no
further options may be granted under either plan. However, any
options granted prior to the 2019 Stock Plan was approved will
remain outstanding and can be exercised, and any expired options
will be available to grant under the 2019 Stock Plan.
Additional information regarding the 2019 Stock
Plan and other compensatory warrants may be found under the caption
“Equity Compensation Plans,” in the Proxy Statement,
which is hereby incorporated by reference.
Our shareholders approved our Second Amended and Restated 2007
Stock Plan (“2007 Stock Plan”) at our 2015 Annual
Shareholders Meeting. On July 1, 2011, we acquired
the Zymetis 2006 Stock Plan (“2006 Stock Plan”)
pursuant to the acquisition of Zymetis, Inc. and gave Zymetis
option holders the right to convert shares into our common stock at
the same terms as the 2006 Stock Plan. During 2015, we
established an Equity Inducement Plan pursuant to which 100,000
shares were made available specifically to attract human talent.
Additional information regarding the 2007 Stock Plan, 2006 Stock
Plan and other compensatory warrants may be found under the caption
“Equity Compensation Plans,” in the Proxy Statement to
be filed with the SEC, which section is incorporated herein by
reference.
Sales of Unregistered Equity Securities
None.
I
tem 6. Selected Financial
Data
Not
applicable.
24
I
tem 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
Our Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is provided in
addition to the accompanying consolidated financial statements and
notes to assist readers in understanding our results of operations,
financial condition, and cash flows. MD&A is organized as
follows:
●
Overview. Discussion of our business and overall analysis of
financial and other highlights affecting us, to provide context for
the remainder of MD&A.
●
Results of Operations. An analysis of our financial results
comparing the twelve months ended December 31, 2019 and
2018.
●
Liquidity and Capital Resources. An analysis of changes in our
balance sheets and cash flows and discussion of our financial
condition.
●
Critical Accounting Estimates. Accounting estimates that we believe
are important to understanding the assumptions and judgments
incorporated in our reported financial results and
forecasts.
The following discussion should be read in conjunction with our
consolidated financial statements and accompanying notes included
elsewhere in this report. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could
cause or contribute to these differences include those discussed
below and elsewhere in this Report, particularly under “Part
I, Item 1A. Risk Factors,” and in other reports we file with
the SEC. All references to years relate to the calendar year ended
December 31 of the particular year.
Overview
Headquartered
in Cupertino, California, Aemetis is an international 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. We operate in two
reportable geographic segments: “North America” and
“India.”
Founded
in 2006, we own and operate a 60 million gallon per year ethanol
facility in the California Central Valley in Keyes, California
where we manufacture and produce ethanol, WDG, CDS, and DCP.
.
We
operate a research and development laboratory to develop efficient
conversion technologies using waste feedstocks to produce biofuels
and biochemicals. We also own and operate a 50 million gallon per
year renewable chemical and advanced fuel production facility on
the East Coast of India producing high quality distilled biodiesel
and refined glycerin for customers in India and
Europe.
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 and InEnTec to build the Riverbank Cellulosic
Ethanol Facility capable of converting local California surplus
biomass – principally agricultural waste – into
ultra-low carbon renewable cellulosic ethanol. By producing
ultra-low carbon renewable cellulosic ethanol, we expect to capture
higher value D3 cellulosic RINs and California’s LCFS
credits. D3 RINs have a higher value in the marketplace than D6
RINs due to D3 RINs’ relative scarcity and mandated pricing
formula from the United States EPA.
During
2018, ABGL was formed to construct bio-methane digesters at local
dairies near the Keyes Plant, many of whom are already customers of
the WDG produced at the Keyes Plant. The digesters are connected by
a pipeline to a gas cleanup and compression facility to produce
RNG. ABGL currently has signed participation agreements with
over a dozen local dairies and fully executed leases with three
dairies near the Keyes Plant in order to capture their methane,
which would otherwise be released into the atmosphere, primarily
from manure wastewater lagoons. We plan to capture methane from
multiple dairies and pipe the gas to a centralized location at our
Keyes Plant. The impurities of the methane will then be removed and
cleaned into bio-methane for injection into the local utility
pipeline or to a RCNG truck loading station that will service local
trucking fleets to displace diesel fuel. The bio-methane can
also be used in our Keyes Plant to displace petroleum-based natural
gas. The environmental benefits of the ABGL project are potentially
significant because dairy biogas has a negative CI under the
California LCFS and will also receive D3 RINs under the federal
RFS. ABGL has constructed the first two digesters, and will begin
construction of our pipeline in the first quarter 2020 with an
expected operational date during the second quarter of
2020.
In
December 2018, we acquired a 5.2-acre parcel of land for the
construction of a facility by Messer to sell CO
2
produced at the
Keyes Plant, which will add incremental income for the North
America segment. We expect to commence operations and revenue from
this project in the second quarter of 2020.
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. We plan to deploy a cellulosic ethanol
technology to the Goodland Plant.
North America Revenue
Our
revenue development strategy in North America has historically on
supplying ethanol into the transportation fuel market in Northern
California and supplying feed products to dairy and other animal
feed operations in Northern California. We are actively seeking
higher value markets for our ethanol in an effort to improve our
overall margins and to add incremental income to the North America
segment, including the development of the Riverbank Cellulosic
Ethanol Facility, the sale of CO
2
produced at the
Keyes Plant to Messer, the construction bio-methane digesters at
local dairies near the Keyes Plant, and the implementation of the
Aemetis Integrated Microgrid System, the Food Emission and Energy
Efficiency Delivery Initiative, the Mitsubishi dehydration system
and other technologies. We are also actively working with local
dairy and feed potential customers to promote the value of our WDG
product in an effort to strengthen demand for this
product.
25
We
produce four products at the Keyes Plant: denatured ethanol fuel,
WDG, DCO and CDS. During fiscal 2019, we sold 100% of the ethanol
and WDG we produced to J.D. Heiskell pursuant to the Heiskell
Purchase Agreement. DCO was sold to J.D. Heiskell and other local
animal feedlots (primarily poultry). Smaller amounts of CDS were
sold to various local third parties. Ethanol pricing is determined
pursuant to a marketing agreement between us and Kinergy, and is
generally based on daily and monthly pricing for ethanol delivered
to the San Francisco Bay Area, California, as published by OPIS, as
well as quarterly contracts negotiated by Kinergy with local fuel
blenders. The price for WDG is determined monthly pursuant to a
marketing agreement between A.L. Gilbert and us and is generally
determined in reference to the local price of DDG and other feed
products. North American revenue is dependent on the price of
ethanol, WDG, and DCO. Ethanol pricing is influenced by local
and national inventory levels, local and national ethanol
production, corn prices and gasoline demand. WDG is influenced by
the price of corn, the supply and price of DDG, and demand from the
local dairy and feed markets. Our revenue is further
influenced by our decision to operate the Keyes Plant at any
capacity level, maintenance requirements, and the influences of the
underlying biological processes.
In the
first half of 2019, our ethanol production was approved for a lower
CI score and was awarded additional LCFS credits for the ethanol
produced from January 1, 2019 to May 21, 2019. These credits have a
market value and they can be sold in the open market. We recorded
revenue of $1.0 million in other sales for the year ended December
31, 2019, in connection with selling such LCFS
credits.
In the
fourth quarter of 2019, we entered into an agreement to sell
California Carbon Allowances (CCA) and received the cash in
advance. We recorded a contract liability of $1.0 million as of
December 31, 2019, as control of the credits was not transferred to
the customer until January 3, 2020.
India Revenue
Our
revenue strategy in India is based on continuing to sell biodiesel
to our bulk fuel customers, fuel station customers, mining
customers, industrial customers and tender offers placed by
Government Oil Marketing Companies for bulk purchases of fuels. In
2019, the Indian government imposed restrictions on imports of
biodiesel mixtures, which we expect will positively impact local
sales of biodiesel and provide additional opportunities to supply
biodiesel for manufacturing purposes and infrastructure
companies.
In
2019, under the Indian government mandate of mixing biodiesel with
diesel, the Kakinada Plant won the tender to supply biodiesel to
Government Oil Marketing Companies such as Hindustan Petroleum,
Bharat Petroleum, and Indian Oil Corporation. Under this agreement,
we started supplying biodiesel in May 2019. These tenders open
annually, generally in December, soliciting bids for the next year
based on competitiveness of price and quality of the biodiesel
supplied. We believe the deployment of these strategies will allow
for revenue growth through 2019 and 2020.
North America Segment
Revenue
Substantially
all of our North America revenues during the years ended December
31, 2019 and 2018 were from sales of ethanol and WDG. During the
twelve months ended December 31, 2019 and 2018, we produced and
sold 64.7 million gallons and 65.6 million gallons of ethanol and
428 thousand tons and 424 thousand tons of WDG,
respectively.
Cost of Goods Sold
Substantially
all of our feedstock is procured by J.D. Heiskell pursuant to the
Heiskell Supply Agreement. Title to the corn or milo passes to us
when the corn is deposited into our weigh bin and entered into the
production process. Our cost of feedstock is established by J.D
Heiskell based on the Chicago Board of Trade pricing and includes
rail, truck or ship transportation, local basis costs and a
handling fee paid to J.D. Heiskell. The credit term of the corn or
milo purchased from J.D. Heiskell is five days. Cost of goods sold
also includes chemicals, plant overhead and out-bound
transportation. Plant overhead includes direct and indirect costs
associated with the operation of the Keyes Plant, including the
cost of electricity and natural gas, maintenance, insurance, direct
labor, depreciation and freight. Transportation includes the costs
of in-bound delivery of corn by rail, inbound delivery of grain by
ship, rail, and truck, and out-bound shipments of ethanol and WDG
by truck.
Pursuant
to a Corn Procurement and Working Capital Agreement with J.D.
Heiskell, we purchase all of our corn or milo from J.D. Heiskell.
Title to the corn or milo passes to us when the corn is deposited
into our weigh bin and entered into the production process. The
credit term of the corn or milo purchased from J.D. Heiskell is
five days. J.D. Heiskell purchases our ethanol and WDG on one-day
terms. The price of corn is established by J.D Heiskell based on
the Chicago Board of Trade pricing including transportation and
basis, plus a handling fee.
26
Sales, Marketing and General Administrative Expenses
(SG&A)
SG&A
expenses consist of employee compensation, professional services,
travel, depreciation, taxes, insurance, rent and utilities, license
and permit fees, penalties, and sales and marketing fees. Our
single largest expense is employee compensation, including related
stock compensation, followed by sales and marketing fees paid in
connection with the marketing and sale of ethanol and
WDG.
In
October 2010, we
entered into an
exclusive marketing agreement with Kinergy to market and sell our
ethanol and an agreement with A.L. Gilbert to market and sell our
WDG.
The agreements will expire on August 31, 2020 and
December 31, 2020, respectively and automatically renew for
additional one-year terms. Pursuant to these agreements, our
marketing costs for ethanol and WDG are less than 2% of
sales.
Research and Development Expenses (R&D)
In
2019, substantially all of our R&D expenses were related to
research and development
activities in
Minnesota.
India Segment
Revenue
Substantially
all of our India segment revenues during the years ended December
31, 2019 and 2018 were from sales of biodiesel and refined
glycerin. During the twelve months ended December 31, 2019, we sold
47.0 thousand metric tons of biodiesel and 5.2 thousand metric tons
of refined glycerin. During the twelve months ended December 31,
2018, we sold 19.8 thousand metric tons of biodiesel and 4.7
thousand metric tons of refined glycerin.
Cost of Goods Sold
Cost of
goods sold consists primarily of feedstock oil, chemicals, direct
costs (principally labor and labor related costs) and factory
overhead. Depending upon the costs of these inputs in comparison to
the sales price of biodiesel and glycerin, our gross margins at any
given time can vary from positive to negative. Factory overhead
includes direct and indirect costs associated with the Kakinada
Plant, including the cost of repairs and maintenance, consumables,
maintenance, on-site security, insurance, depreciation and inbound
freight.
We
purchase crude palm stearin, a non-edible feedstock, for our
biodiesel unit from neighboring natural oil processing plants at a
discount to refined palm oil or import from international market
when prices are viable. Raw material is received by truck and title
passes when the goods are loaded at our vendors’ facilities.
Credit terms vary by vendor. However, we generally receive 15 days
of credit on the purchases. We purchase crude glycerin in the
international market on letters of credit or advance payment
terms.
Sales, Marketing and General Administrative Expenses
(SG&A)
SG&A
expenses consist of employee compensation, professional services,
travel, depreciation, taxes, insurance, rent and utilities,
licenses and permits, penalties, and sales and marketing fees.
Pursuant to an operating agreement with Gemini, we receive
operational support and working capital for our Kakinada Plant. We
compensate Gemini with a percentage of the profits generated from
operations. Payments of interest are identified as interest expense
while payments of profits are identified as compensation for the
operational support component of this agreement. We therefore
include the portion of profits paid to Gemini as a component of
SG&A, which will vary based on the profits earned by
operations. In addition, we market our biodiesel and glycerin
through our internal sales staff, commissioned agents and brokers.
Commissions paid to agents are included as a component of
SG&A.
Research and Development Expenses (R&D)
Our India segment has no research and development
activities.
27
Key Performance Indicators (KPI):
Aemetis
measures performance primarily on the utilization of the plants,
and the production of products. For traditional ethanol, the
products are ethanol and WDGS, measured in millions of gallons sold
and tons sold, respectively. For biodiesel production, the products
are biodiesel and refined glycerin, both measure in metric tons
sold. Since our Keyes Plant uses a single feedstock, the delivered
quantity and cost of corn is also used as a key performance
indicator for this facility, as it indicates high-level
profitability of the plant. Utilization is measured as the
production of transportation fuel produced as a percentage of the
nameplate capacity, the engineering specification of the plant.
These metrics allow the investor to understand the major components
that comprise revenues within each segment. Management utilizes
these metrics to assess cash generated by each facility on a daily
or weekly basis and to make decisions on the appropriate level of
operation to balance market demand with plant capabilities and
efficiency.
The following table summarized our KPI’s:
Production and Price Performance
|
|
Years
ended
|
|
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
Ethanol
|
|
|
|
Gallons Sold (in
millions)
|
64.7
|
65.6
|
|
Average Sales
Price/Gallon
|
$
1.77
|
$
1.74
|
|
Percent of
nameplate capacity
|
118
%
|
119
%
|
|
WDG
|
|
|
|
Tons Sold (in
thousands)
|
428
|
424
|
|
Average Sales
Price/Ton
|
$
81
|
$
76
|
|
Delivered
Cost of Corn
|
|
|
|
Bushels ground (in
millions)
|
22.7
|
22.9
|
|
Average delivered
cost / bushel
|
$
5.28
|
$
4.91
|
|
Biodiesel
|
|
|
|
Metric tons sold
(in thousands)
|
47.0
|
19.8
|
|
Average Sales
Price/Metric ton
|
$
904
|
$
857
|
|
Percent of
Nameplate Capacity
|
31
%
|
13
%
|
|
Refined
Glycerin
|
|
|
|
Metric tons sold
(in thousands)
|
5.2
|
4.7
|
|
Average Sales
Price/Metric ton
|
$
543
|
$
941
|
Results of Operations
Year Ended December 31, 2019 Compared to Year Ended December 31,
2018
Revenues
Our
revenues are derived primarily from sales of ethanol and WDG in
North America and biodiesel and refined glycerin in
India.
Fiscal Year Ended December 31 (in thousands)
|
|
2019
|
2018
|
Inc/(dec)
|
%
change
|
|
North
America
|
$
154,148
|
$
150,045
|
$
4,103
|
3
%
|
|
India
|
47,850
|
21,481
|
26,369
|
123
%
|
|
Total
|
$
201,998
|
$
171,526
|
$
30,472
|
18
%
|
28
North America
. The increase in revenues by 3% in the North
America segment was due to increases in the average sales price of
WDG by 6% to $80.65 per ton and the average sales price of ethanol
by 2% to $1.77 per gallon during the year ended December 31, 2019
compared to $76.38 per ton and $1.74 per gallon, respectively
during the year ended December 31, 2018. Sales volume of WDG
increased by 1% to 428 thousand tons compared to 424 thousand tons
during the year ended December 31, 2018. Sales volume of ethanol
decreased slightly to 64.7 million gallons for the year ended
December 31, 2019 compared to 65.6 million gallons in the year
ended December 31, 2018. For the year ended December 31, 2019, we
generated approximately 74% of revenues from sales of ethanol, 23%
of revenues from sales of WDG and 3% of revenues from DCO, CDS, and
other sales, compared to 76% of revenues from sales of ethanol, 22%
of revenues from sales of WDG and 2% of revenues from DCO, CDS and
other sales for the year ended December 31, 2018. For the year
ended December 31, 2019 and 2018, the Keyes Plant operations
averaged 118% and 119% of the 55 million gallon per year nameplate
capacity.
India
. The increase in revenues by 123% in the India segment
for the year ended December 31, 2019 reflects an increase in sales
volume of biodiesel due to obtaining and supplying Government Oil
Market Companies tender contracts in addition to retail, mining and
bulk customer sales. Biodiesel sales volume increased by 137% to
47.0 thousand metric tons while the average price increased by 5%
to $904 per metric ton. Refined glycerin sales volumes increased by
9% to 5.2 thousand metric tons while the average price per metric
ton decreased by 42% to $543 per metric ton. For the year ended
December 31, 2019, we generated approximately 89% of revenue from
sales of biodiesel, 6% of revenue from sales of glycerin, and 5% of
revenues from PFAD and other sales compared to 79% of revenue from
sales of biodiesel and 21% of revenue from sales of glycerin for
the year ended December 31, 2018.
Cost of Goods Sold
Fiscal Year Ended December 31 (in thousands)
|
|
2019
|
2018
|
Inc/(dec)
|
%
change
|
|
North
America
|
$
150,197
|
$
145,947
|
$
4,250
|
3
%
|
|
India
|
39,103
|
20,174
|
18,929
|
94
%
|
|
Total
|
$
189,300
|
$
166,121
|
$
23,179
|
14
%
|
North America.
We ground 22.7 million bushels of corn at an
average price of $5.28 per bushel during the year ended December
31, 2019 compared to 22.9 million bushels of corn at an average
price of $4.91 per bushel during the year ended December 31, 2018.
The increase in cost of goods sold was attributable to increased
corn costs by 6% coupled with increases in natural gas costs by 2%
offset by decreases in the number of bushels of corn ground and
other chemicals and maintenance costs.
India
. The increase in cost of goods sold reflects the 123%
increase in sales for 2019. The volume of crude palm stearin used
for biodiesel during the year ended December 31, 2019 increased by
168% to 42.1 thousand metric tons while the cost of crude palm
stearin for biodiesel decreased by an average of 9% to $685 per
metric ton compared to the year ended December 31, 2018. The
average price of crude glycerin decreased by 44% to $501 per metric
ton while the volume increased by 6% to 4.6 thousand metric tons
compared to the year ended December 31, 2018.
29
Gross Profit
Fiscal Year Ended December 31 (in thousands)
|
|
2019
|
2018
|
Inc/(dec)
|
%
change
|
|
North
America
|
$
3,951
|
$
4,098
|
$
(147
)
|
-4
%
|
|
India
|
8,747
|
1,307
|
7,440
|
569
%
|
|
Total
|
$
12,698
|
$
5,405
|
$
7,293
|
135
%
|
North America.
Gross profit decreased by 4% in the year
ended December 31, 2019 primarily due to an increase in the average
price of corn by 8% coupled with a decrease in volume of ethanol
sales by 1% which outpaced increases in the volume of WDG and the
price of WDG and ethanol.
India.
The increase in gross profit was attributable to an
increase in overall sales volume of biodiesel and refined glycerin
by 112% combined with a decrease in overall average feedstock costs
by 15% to $667 per metric ton.
Operating Expenses
R&D
Fiscal
Year Ended December 31
(in thousands)
|
|
2019
|
2018
|
Inc/(dec)
|
%
change
|
|
North
America
|
$
205
|
$
246
|
$
(41
)
|
-17
%
|
|
India
|
-
|
-
|
-
|
-
|
|
Total
|
$
205
|
$
246
|
$
(41
)
|
-17
%
|
The
decrease in R&D expenses for the year ended December 31, 2019
was due to decreases in amortization of intangibles of $70
thousand, rent, utilities, and other expenses of $58 thousand
offset by increases in supplies of $33 thousand and professional
fees of $52 thousand compared to the year ended December 31,
2018.
Selling, General & Administrative (SG&A)
Fiscal
Year Ended December 31
(in thousands)
|
|
2019
|
2018
|
Inc/(dec)
|
%
change
|
|
North
America
|
$
13,279
|
$
15,204
|
$
(1,925
)
|
-13
%
|
|
India
|
4,145
|
881
|
3,264
|
370
%
|
|
Total
|
$
17,424
|
$
16,085
|
$
1,339
|
8
%
|
SG&A
expenses consist primarily of salaries and related expenses for
employees, marketing expenses related to sales of ethanol and WDG
in North America and biodiesel and other products in India, as well
as professional fees, other corporate expenses, and related
facilities expenses. In addition, our single largest expense in
SG&A comes from operational support fees paid to Secunderabad
Oils Limited as part of an operating profit sharing arrangement in
India.
North America
. SG&A expenses as a percentage of revenue
in the year ended December 31, 2019 decreased to 9% as compared to
10% in the year ended December 31, 2018. The decrease in overall
SG&A expenses in the year ended December 31, 2019 was primarily
attributable to decreases in professional fees of $1.3 million,
salaries, supplies, and travel expenses of $0.2 million, and other
expenses of $0.8 million due to grant receipts charged against the
expenses partially offset by increases in insurance, penalties on
property taxes of $0.1 million and other expenses of $0.2 million
compared to the year ended December 31, 2018.
30
India
. SG&A expenses as a percentage of revenue in the
year ended December 31, 2019 increased to 9% compared to 4% for the
years ended December 31, 2018. The overall increase was due to an
increase in operating support charges of $2.0 million, salaries,
supplies and services of $0.8 million, utilities, professional fees
and other expenses totaling $0.5 million.
Other (Income)/Expense
Other
(income) expense consists primarily of interest and amortization
expense attributable to our debt facilities and those of our
subsidiaries. The debt facilities include stock or warrants issued
as fees. The fair value of stock and warrants are amortized as
amortization expense, except when the extinguishment accounting
method is applied, in which case refinanced debt costs are recorded
as extinguishment expense.
Fiscal
Year Ended December 31
(in thousands)
|
Other
(income)/expense
|
|
|
|
|
|
|
2019
|
2018
|
Inc/dec
|
%
change
|
|
North
America
|
|
|
|
|
|
Interest
rate expense
|
$
20,738
|
$
17,556
|
$
3,182
|
18
%
|
|
Debt
related fees and amortization expense
|
4,666
|
7,520
|
(2,854
)
|
-38
%
|
|
Accretion
of Series A preferred units
|
2,257
|
44
|
2,213
|
5030
%
|
|
Loss
on impairment of intangibles
|
-
|
865
|
(865
)
|
-100
%
|
|
Loss
contingency on litigation
|
6,200
|
-
|
6,200
|
100
%
|
|
Other
(income)/expense
|
25
|
(1,208
)
|
1,233
|
-102
%
|
|
|
|
|
|
|
|
India
|
|
|
|
|
|
Interest
rate expense
|
351
|
614
|
(263
)
|
-43
%
|
|
Other
income
|
(822
)
|
(37
)
|
(785
)
|
2122
%
|
|
|
|
|
|
|
|
Total
|
$
33,415
|
$
25,354
|
$
8,061
|
32
%
|
North America
. Interest rate expense was higher in the year
ended December 31, 2019 due to higher debt balances in 2019 as we
added waiver fees to our senior debt and refinancing fees to our
subordinated debt. The decrease in amortization expense in the year
ended December 31, 2019 was mainly due to an absence of immediate
expense of fees compared to immediate expense of redemption fees of
$3.1 million and $0.5 million waiver fees on Amendment No. 14 in
the first quarter of 2018 due to troubled debt restructuring For
Series A Preferred Unit financing, we accrete the change in the
redemption value over the estimated redemption period of the Series
A Preferred Units of six years. We recorded accretion of $2.3
million for the year ended December 31, 2019. In addition, based on
the court award in the EdenIQ litigation, we recorded a $6.2
million loss contingency during the year ended December 31, 2019.
The decrease in other income for the year ended December 31, 2019
was due to selling of CCAs and LCFS credits that was recorded as
revenue based on recurring nature of the transactions compared to
$1.2 million recognized as other income in the year ended December
31, 2018. The outstanding intangible asset balance of $0.9 million
was impaired completely in the fourth quarter of 2018 as the
Company plans to pursue a different set of patents for enzymatic
process.
India
. Interest expense decreased as a result of more
payments than draws on two working capital loans during the year
ended December 31, 2019. The increase in other income of $0.8
million was caused primarily by release of long-standing accounts
payable and interest on these payables as matters closed
legally.
Liquidity and Capital Resources
Cash and Cash Equivalents
Cash
and cash equivalents were $0.7 million at December 31, 2019, of
which $0.4 million was held in our North American entities and $0.3
million held in our Indian subsidiary. Our current ratio was 0.22
and 0.24, respectively, at December 31, 2019 and 2018. We expect
that our future available capital resources will consist primarily
of cash generated from operations, remaining cash balances, EB-5
program borrowings, amounts available for borrowing, if any, under
our senior debt facilities and our subordinated debt facilities,
and any additional funds raised through sales of
equity.
31
Liquidity
Cash
and cash equivalents, current assets, current liabilities and debt
at the end of each period were as follows (in
thousands):
|
|
As of
|
|
|
|
December 31, 2019
|
December 31, 2018
|
|
Cash
and cash equivalents
|
$
656
|
$
1,188
|
|
Current
assets (including cash, cash equivalents, and
deposits)
|
12,576
|
10,311
|
|
Current
and long term liabilities (excluding all debt)
|
51,843
|
32,286
|
|
Current
& long term debt
|
202,425
|
175,117
|
Our
principal sources of liquidity have been cash provided by
operations and borrowings under various debt arrangements. As of
December 31, 2019, the EB-5 escrow account is holding funds in the
amount of $0.5 million from one investor pending approval by the
USCIS.
We
launched an EB-5 Phase II funding in 2016, under which we expect to
issue $50.0 million in additional EB-5 Notes on substantially
similar terms and conditions as those issued under our EB-5 Phase I
funding. On November 21, 2019, the minimum investment was raised
from $500,000 per investor to $900,000 per investor. As of December
31, 2019, the EB-5 escrow funding in the amount of $4.0 million had
been released to the Company. Our principal uses of cash have been
to refinance indebtedness, fund operations, and for capital
expenditures. We anticipate these uses will continue to be our
principal uses of cash in the future. Global financial and credit
markets have been volatile in recent years, and future adverse
conditions of these markets could negatively affect our ability to
secure funds or raise capital at a reasonable cost, or at
all.
We
operate in a volatile market in which we have limited control over
the major components of input costs and product revenues, and are
making investments in future facilities and facility upgrades that
improve the overall margin while lessening the impact of these
volatile markets. As such, we expect cash provided by
operating activities to fluctuate in future periods primarily
because of changes in the prices for corn, ethanol, WDG, DCO, CDS,
biodiesel, waste fats and oils, glycerin, non-refined palm oil and
natural gas. To the extent that we experience periods in which
the spread between ethanol prices and corn and energy costs narrow
or the spread between biodiesel prices and waste fats and oils or
palm oil and energy costs narrow, we may require additional working
capital to fund operations.
Management
believes that through the following actions, the Company will have
the ability to generate capital liquidity to carry out the business
plan:
●
Operate the Keyes
Plant and continue to improve operational performance, including
the adoption of new technologies or process changes that allow for
energy efficiency, cost reduction or revenue enhancements to the
current operations.
●
Raise the funds
necessary to construct and operate the Riverbank Cellulosic Ethanol
Facility using the licensed technology from LanzaTech and InEnTec
Technology to generate federal and state carbon credits available
for ultra-low carbon fuels.
●
To utilize lower
cost, non-food advanced feedstocks at the Keyes Plant to
significantly increase margins during 2020.
●
Monetize the
CO
2
produced at the Keyes Plant by executing on the agreement with
Messer for the delivery of gas to their neighboring facility during
2020.
●
Construct and
operate biogas digesters to capture and monetize biogas during
2020.
●
Secure higher
volumes of shipments of fuels at the India plant by developing the
sales channels and expanding the existing domestic
markets.
●
Continue to locate
funding for existing and new business opportunities through a
combination of working with our senior lender, restructuring
existing loan agreements, selling the current offering for $50
million from the Phase II EB-5 program, or by vendor financing
arrangements.
At
December 31, 2019, the outstanding balance of principal, interest
and fees, net of discounts, on all Third Eye Capital Notes equaled
$137.4 million including the GAFI debt. The current maturity date
for all of the Third Eye Capital financing arrangements, except
GAFI, is April 1, 2020; provided, however, that pursuant to
Amendment No. 14, we have the right to extend the maturity date of
the Third Eye Capital Notes to April 1, 2021 upon notice and
payment of a 5% extension fee. The current maturity date for all of
the Third Eye Capital GAFI financing arrangements is July 10, 2020
with option to extend with one-year renewals. GAFI intends to repay
the Third Eye Capital Notes through proceeds from the issuance of a
GAFI EB-5 offering or other debt/equity offerings by an Aemetis
subsidiary. We intend to repay the Third Eye Capital Notes through
operational cash flow, proceeds from the issuance of the EB-5 Notes
and/or a senior debt refinancing and/or an equity
financing.
Our
senior lender has provided a series of accommodating amendments to
the existing and previous loan facilities as described in further
detail in
Note 4.Debt
of
the Notes to Consolidated Financial Statements in Part IV of this
Form 10-K. However, there can be no assurance that our senior
lender will continue to provide further amendments or
accommodations or will fund additional amounts in the
future.
We also
rely on our working capital lines with J.D. Heiskell in California,
and Gemini and SOL in India to fund our commercial arrangements for
the acquisitions of feedstock. J.D. Heiskell currently provides us
with working capital for the Keyes Plant, Gemini currently provides
us with working capital for the Kakinada Plant and SOL provides us
inter-corporate deposit for British Petroleum business
operations. The ability of J.D. Heiskell, Gemini, and SOL to
continue to provide us with working capital depends in part on both
of their respective financial strength and banking
relationships.
32
Change in Working Capital and Cash Flows
The
below table (in thousands) describes the changes in current and
long-term debt during the year ended December 31,
2019:
|
Increases
to debt:
|
|
|
|
Accrued
interest
|
$
20,993
|
|
|
Amendment
No.15 and 16 waiver fee added to redemption fee$4
|
1,500
|
|
|
Feb
2019 Promissory note including $0.1 million withheld as fees by
TEC
|
2,782
|
|
|
Sub
debt extension fees3
|
680
|
|
|
India
working capital draws and changes due to foreign
currency
|
49,565
|
|
|
GAFI
Amendment No. 1 SARS exercise added to debt
|
1,050
|
|
|
GAFI
Amendment No. 2 draw
|
1,481
|
|
|
EB-5
Phase 2 investment received
|
2,500
|
|
|
GAFI
debt renewal fee
|
500
|
|
|
Change
in debt issuance costs, net of amortization
|
1,521
|
|
|
|
Total
increases to debt
|
$
82,572
|
|
Decreases
to debt:
|
|
|
|
Principal
and interest payments to senior lender
|
$
(271
)
|
|
|
Interest
payments to EB-5 investors
|
(140
)
|
|
|
Principal,
fees and interest payments on working capital loans in
India
|
(52,107
)
|
|
|
GAFI
interest and principal payments
|
(2,746
)
|
|
|
|
Total
decreases to debt
|
$
(55,264
)
|
|
|
|
|
|
|
Change
in total debt
|
$
27,308
|
|
|
|
|
Working
capital changes resulted in (i) a $0.4 million increase in
inventories was mainly due to producing finished goods on hand of
$0.3 million in India operations in anticipation of winter weather
conditions and a $0.1 million increase in the North America
entities, (ii) a $0.1 million decrease in prepaid expenses mainly
due to recognition of expenses in North America entities, (iii) a
$1.6 million increase in other current assets was due to $1.7
million increase in India operations mainly due to bank guarantee
deposits set aside for OMC contracts offset by $0.1 million
decrease in other current assets from North America entities, and
(iv) a $0.9 million increase in accounts receivable of North
America entities was offset by a $0.8 million decrease in cash of
North America entities and $0.2 million increase in cash from India
operations.
Net
cash used by operating activities during the year ended December
31, 2019 was $2.0 million consisting of non-cash charges of $13.2
million, net changes in operating assets and liabilities of $24.2
million, and net loss of $39.5 million. The non-cash charges
consisted of: (i) $4.7 million in amortization of debt issuance
costs and other amortization, (ii) $4.4 million in depreciation
expenses, (iii) $0.8 million in stock-based compensation expense,
(iv) $2.3 million of accretion of series A preferred shares, (v)
$1.1 million of deferred foreign taxes, and (vi) $0.1 million of
fair value changes in SARs. Net changes in operating assets and
liabilities consisted primarily of an increase in inventories of
$0.5 million, accounts receivable of $1.0 million, and other assets
of $0.6 million, offset by: (i) a $1.0 million increase in accounts
payable, (ii) a $0.1 million decrease in prepaid assets, (iii) a
$7.1 million increase in other liabilities, and (iv) a $18.0
million increase in accrued interest.
Cash
used by investing activities during the year ended December 31,
2019 was $8.6 million, consisting of capital expenditures of $1.1
million from India operations and $7.5 million from U.S.
operations.
Cash
provided by financing activities was $10.1 million, consisting
primarily of $4.8 million received from the Series A Preferred Unit
issuance, $1.4 million received as grant awards, $2.7 million
received from Third Eye Capital promissory note, $2.5 million
received from EB-5 investments, and $49.7 million from working
capital partners in India for their operations, partially offset by
payments of $51.7 million in principal to working capital partners
in India for their operations. GAFI had a $2.5 million of
borrowings and $0.7 million in payments including maturity renewal
fee of $0.5 million on GAFI notes.
Off-Balance Sheet Arrangements
We had no outstanding off-balance sheet arrangements as of December
31, 2019.
33
Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements,
which have been prepared in accordance with generally accepted
accounting principles in the U.S. (“GAAP”). The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of
revenues and expenses for each period. The following represents a
summary of our critical accounting policies, defined as those
policies that we believe are the most important to the portrayal of
our financial condition and results of operations and that require
management’s most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects
of matters that are inherently uncertain.
Revenue Recognition
In May
2014, the Financial Accounting Standards Board issued new guidance
on the recognition of revenue. The guidance stated that an entity
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The standard was effective
for annual reporting periods beginning after December 15, 2018,
including interim periods within that reporting period. In March
and April 2016, the FASB issued further revenue recognition
guidance amending principal versus agent considerations regarding
whether an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods and services. The Company
adopted this guidance on January 1, 2019 using the modified
retrospective approach. There was no cumulative impact to retained
earnings. We assessed all of our revenue streams to identify any
differences in the timing, measurement or presentation of revenue
recognition.
We
derive revenue primarily from sales of ethanol and related
co-products in North America, and of biodiesel and refined glycerin
in India based on the 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.
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.
North America:
In North America, we sell the majority of our production to one
customer under a supply contract, with individual sales
transactions occurring under this 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 the tank of J.D. Heiskell or to one of
their 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 on WDG and DCO. There is no transaction
price allocation needed.
The
below table shows our sales in North America by product
category:
|
North America (in thousands)
|
||
|
|
For
the years ended December 31,
|
|
|
|
2019
|
2018
|
|
Ethanol
sales
|
$
114,593
|
$
113,855
|
|
Wet
distillers' grains sales
|
34,510
|
32,362
|
|
Other
sales
|
5,045
|
3,828
|
|
|
|
|
|
|
$
154,148
|
$
150,045
|
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 some contractual agreements.
In North America, we buy corn as feedstock in producing ethanol
from our working capital partner J.D. Heiskell and we sell all
ethanol, WDG, and corn oil produced in this process to J.D.
Heiskell. Our finished goods tank is leased by J.D. Heiskell and
they require us to transfer legal title to the product upon
transfer of our finished ethanol to this location. We consider the
purchase of corn as a cost of goods sold and the sale of ethanol
upon transfer to the finished goods tank 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. The
transportation component is accounted for in cost of goods sold and
the marketing component is 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 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.
34
We have
a contract liability of $1.0 million as of December 31, 2019, in
connection with a contract with a customer to sell CCA credits.
However, the control of the CCA credits was not transferred to the
customer until January 3, 2020 while we received cash in
advance.
India:
In India where we sell products on purchase orders (written or
verbal) or by contract with governmental or international parties,
the performance obligation 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 based
on reference market prices for biodiesel and refined glycerin every
day 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 years ended December 31,
|
|
|
|
2019
|
2018
|
|
Biodiesel
sales
|
$
42,464
|
$
17,009
|
|
Refined
Glycerin sales
|
2,809
|
4,467
|
|
Other
sales
|
2,577
|
5
|
|
|
$
47,850
|
$
21,481
|
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 some contractual agreements.
In
India, we occasionally enter into contracts where we purchase
feedstock from the customer, process the feedstock into biodiesel,
and sell to the same customer. 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.
Recoverability of Our
Long-Lived Assets
Property 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
plants in North America and India. When property, plant and
equipment are acquired as part of an acquisition, the items are
recorded at fair value on the purchase date. It is our policy to
depreciate capital assets over their estimated useful lives using
the straight-line method.
Impairment of Long-Lived Assets
Our
long-lived assets consist of property, plant and equipment.
We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. We measure
recoverability of assets to be held and used by comparing the
carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, we record an impairment charge in the amount by which the
carrying amount of the asset exceeds the fair value of the
asset.
The
impairment test for long-lived assets requires us to make estimates
regarding amount and timing of projected cash flows to be generated
by an asset or asset group over an extended period of time.
Management judgment regarding the existence of circumstances that
indicate impairment is based on numerous potential factors
including, but not limited to, a decline in our future projected
cash flows, a decision to suspend operations at a plant for an
extended period of time, adoption of our product by the market, a
sustained decline in our market capitalization, a sustained decline
in market prices for similar assets or businesses, or a significant
adverse change in legal or regulatory factors or the business
climate. Significant management judgment is required in
determining the fair value of our long-lived assets to measure
impairment, including projections of future cash flows. Fair
value is determined through various valuation techniques including
discounted cash flow models, market values and third-party
independent appraisals, as considered necessary. Changes in
estimates of fair value could result in a write-down of the asset
in a future period.
Our
subsidiaries, Aemetis Advanced Fuels Keyes, which operates our
Keyes Plant, and UBPL, which operates our Kakinada Plant, represent
our significant long-lived assets. Both plants were operated
efficiently and showed no indicators of impairment, so no
impairment test was needed for our Company’s long-lived
assets.
35
Testing for Debt Modification or Extinguishment
Accounting
During 2019 and 2018, we evaluated amendments to our debt under the
ASC 470-50 guidance for modification and extinguishment accounting.
This evaluation included 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 our future
cash flows changed more than 10 percent, we recorded our debt at
fair value based on factors available to us for similar borrowings
and used the extinguishment accounting method to account for the
debt extinguishment.
Recently Issued Accounting Pronouncements
Refer to Note 1 of the Financial Statements for a description of
new accounting pronouncements.
I
tem 7A. Quantitative and Qualitative
Disclosures About Market Risk
Not
applicable.
I
tem 8. Financial Statements and
Supplementary Data
Financial Statements are listed in the Index to Consolidated
Financial Statements on page 46 of this Report.
I
tem 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
I
tem 9A. Controls and
Procedures
The
information contained in this section covers management’s
evaluation of our disclosure controls and procedures and our
assessment of our internal control over financial reporting for the
year ended December 31, 2019.
Evaluation of Disclosure Controls and Procedures.
Management
(with the participation of our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), carried out an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act). Based on this evaluation, our CEO and CFO
concluded that, although remediation plans were initiated to
address the material weakness over financial reporting as
identified in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2018, the disclosure controls
and procedures along with the related internal controls over
financial reporting were not effective to provide reasonable
assurance that the information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods
specified in Securities and Exchange Commission rules and forms,
and is accumulated and communicated to our management, including
our CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our
disclosure controls or our internal control over financial
reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s
objectives will be met. Our controls and procedures are designed to
provide reasonable assurance that our control system’s
objective will be met, and our CEO and CFO have concluded that our
disclosure controls and procedures are effective at the reasonable
assurance level. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the company
have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls
can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on
certain assumptions about the likelihood of future events and there
can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Projections of
any evaluation of the effectiveness of controls in future periods
are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of
compliance with policies or procedures.
Management’s Annual Report on Internal Control over Financial
Reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our
internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of our financial statements for
external purposes in accordance with GAAP. Our internal control
over financial reporting includes those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and
expenditures by us are being made only in accordance with
authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that
could have a material effect on the consolidated financial
statements.
36
Under
the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as
of the period covered by this report based on the criteria for
effective internal control described in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Tread way Commission - 2013. Based on the
results of management’s assessment and evaluation, our CEO
and CFO concluded that our internal control over financial
reporting was not effective to appropriately assess the competency
of its third party specialist or evaluate the completeness and
accuracy for their work performed.
Changes in Internal Control over Financial Reporting
Discussed below are changes made to our internal control over
financial reporting since our last annual filing through December
31, 2018, in response to the identified material
weaknesses.
Our efforts to improve our internal controls are ongoing and
focused on expanding our organizational capabilities to improve our
control environment and on implementing process changes to
strengthen our internal control and monitoring activities. In
addition, although we are implementing specific additions to our
identified key controls to address the identified material
weaknesses as discussed below, our testing of effectiveness of
these controls has not been completed as of the filing date of this
report.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of the company’s annual or interim financial statements will
not be prevented or detected on a timely basis. A
material weaknesses was identified in our failure to design and
maintain
effective controls over our supervision and review
of the completeness and accuracy of the work performed by a third
party specialist.
As part of our ongoing efforts to remediate the weaknesses in our
internal controls identified,
a new control and review
procedures will be designed and implemented to address the material
weakness.
There are, however, inherent
limitations in all control systems and no evaluation of controls
can provide absolute assurance that all deficiencies have been
detected.
I
tem 9B. Other Information
Reserve Liquidity Facility
On
March 6, 2020, we and a subsidiary entered into a one-year reserve
liquidity facility governed by a promissory note, payable to Third
Eye Capital, in the principal amount of $18 million. We do not
currently expect to draw upon the note. However, we determined that
it was prudent to maintain a liquidity reserve in case of
unforeseen needs. Borrowings under the facility are available from
March 6, 2020 until maturity on April 1, 2021. Interest on borrowed
amounts accrues at a rate of 30% per annum, paid monthly in
arrears, or 40% if an event of default has occurred and continues.
The outstanding principal balance of the indebtedness evidenced by
the promissory note, plus any accrued but unpaid interest and any
other sums due thereunder, shall be due and payable in full at the
earlier to occur of (a) the closing of any new debt or equity
financing, refinancing or other similar transaction between Third
Eye Capital or any fund or entity arranged by them and the Company
or its affiliates, (b) receipt by the Company or its affiliates of
proceeds from any sale, merger, equity or debt financing,
refinancing or other similar transaction from any third party and
(c) April 1, 2021. The promissory note is secured by liens and
security interests upon the property and assets of the Company as
described in that certain Amended and Restated Note Purchase
Agreement, dated as of July 6, 2012. If any amounts are drawn under
the facility, the Company will pay a non-refundable fee in the
amount of $500,000, payable from the proceeds of the first drawing
under the facility.
The
foregoing descriptions of the promissory note do not purport to be
complete and are qualified in their entirety by reference to the
full text of the promissory note, which is filed as Exhibit 10.75
hereto and incorporated by reference herein.
37
P
ART III
I
tem 10. Directors, Executive Officers
and Governance
The information required by this Item 10 is included in our Proxy
Statement for our 2020 Annual Meeting of Stockholders and is
incorporated herein by reference.
I
tem 11. Executive
Compensation
The information required by this Item 11 is included in our Proxy
Statement for our 2020 Annual Meeting of Stockholders and is
incorporated herein by reference.
I
tem 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item 12 is included in our Proxy
Statement for our 2020 Annual Meeting of Stockholders and is
incorporated herein by reference.
I
tem 13. Certain Relationships and
Related Transactions, and Director Independence
The information required by this Item 13 is included in our Proxy
Statement for our 2020 Annual Meeting of Stockholders and is
incorporated herein by reference.
I
tem 14. Principal Accounting Fees and
Services
The information required by this Item 14 is included in our Proxy
Statement for our 2020 Annual Meeting of Stockholders and is
incorporated herein by reference.
38
P
ART IV
I
tem 15. Exhibits and Financial
Statement Schedules
(a) The following documents are filed as a part of this Form
10-K:
1.
Financial Statements:
The following financial statements of Aemetis, Inc. are filed as a
part of this Annual Report:
●
Report
of Independent Registered Public Accounting Firm
●
Consolidated
Balance Sheets
●
Consolidated
Statements of Operations and Comprehensive Loss
●
Consolidated
Statements of Cash Flows
●
Consolidated
Statements of Stockholders’ Deficit
●
Notes
to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules have been omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements and notes thereto under Item 8 in Part II of
this Form 10-K.
3. Exhibits:
INDEX TO EXHIBITS
|
|
|
Incorporated by Reference
|
Filed Herewith
|
|||
|
Exhibit No.
|
Description
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
|
|
1.1
|
At Market Issuance Sales Agreement dated March 23, 2016 with FBR
Capital Markets & Co. and MLV & Co. LLC and Aemetis
Inc.
|
10-K
|
000-51354
|
1.1
|
Mar 28, 2016
|
|
|
3.1.1
|
Articles of Incorporation
|
10-Q
|
000-51354
|
3.1
|
Nov. 14, 2008
|
|
|
3.1.2
|
Certificate of Amendment to Articles of Incorporation
|
10-Q
|
000-51354
|
3.1.1
|
Nov. 14, 2008
|
|
|
3.1.3
|
Certificate of Designation of Series B Preferred Stock
|
8-K
|
000-51354
|
3.2
|
Dec. 13, 2007
|
|
|
3.1.4
|
Certificate of Amendment to Articles of Incorporation
|
8-K
|
000-51354
|
3.3
|
Dec. 13, 2007
|
|
|
3.1.5
|
Certificate of Amendment to Articles of Incorporation
|
Pre14C
|
111136140
|
|
Oct. 11, 2011
|
|
|
3.1.6
|
Certificate
of Change in Articles of Incorporation are a result of 1 for 10
reverse split to Authorized Shares and Common Shares Outstanding on
May 5, 2014
|
10-Q
|
000-51354
|
3.1
|
May 31,
2014
|
|
|
3.1.7
|
Amended
and Restated Articles of Incorporation
|
10-K
|
000-51354
|
3.1.7
|
March
16, 2018
|
|
|
3.2.1
|
Bylaws
|
8-K
|
000-51354
|
3.4
|
Dec. 13, 2007
|
|
|
4.1
|
Specimen Common Stock Certificate
|
8-K
|
000-51354
|
4.1
|
Dec. 13, 2007
|
|
|
4.2
|
Specimen Series B Preferred Stock Certificate
|
8-K
|
000-51354
|
4.2
|
Dec. 13, 2007
|
|
|
4.3
|
Form of Common Stock Warrant
|
8-K
|
000-51354
|
4.3
|
Dec. 13, 2007
|
|
|
4.4
|
Form of Series B Preferred Stock Warrant
|
8-K
|
000-51354
|
4.4
|
Dec. 13, 2007
|
|
|
10.1
|
Amended and Restated 2007 Stock Plan
|
14A
|
000-51354
|
|
Apr. 3, 2015
|
|
|
10.2
|
Amended and Restated 2007 Stock Plan form of Stock Option Award
Agreement
|
14A
|
000-51354
|
|
Apr. 15, 2008
|
|
|
10.3
|
Eric McAfee Executive Employment Agreement dated September 1,
2011
|
8-K
|
000-51354
|
10.2
|
Sep. 8, 2011
|
|
|
10.4
|
Andrew Foster Executive Employment Agreement, dated May 22,
2007
|
8-K
|
000-51354
|
10.7
|
Dec. 13, 2007
|
|
|
10.5
|
Todd Waltz Executive Employment Agreement, dated March 15,
2010
|
8-K
|
000-51354
|
|
May 20, 2009
|
|
|
10.6
|
Sanjeev Gupta Executive Employment Agreement, dated September 1,
2007
|
10-K
|
000-51354
|
10.11
|
May 20, 2009
|
|
|
10.7
|
Agreement of Loan for Overall Limit dated June 26, 2008 between
Universal Biofuels Private Limited and State Bank of
India
|
10-Q
|
000-51354
|
10.12
|
Aug. 14, 2008
|
|
39
|
10.8
|
Ethanol Marketing Agreement, dated October 29, 2010 between AE
Advanced Fuels Keyes, Inc. and Kinergy Marketing, LLC
|
10-Q
|
000-51354
|
10.6
|
Dec. 1, 2010
|
|
|
10.9
|
Zymetis, Inc. 2006 Stock Incentive Plan
|
10-K
|
000-51354
|
10.31
|
Oct. 31, 2012
|
|
|
10.10
|
Zymetis Inc. Incentive Stock Option Agreement
|
10-K
|
000-51354
|
10.32
|
Oct. 31, 2012
|
|
|
10.11
|
Zymetis Inc. Non-Incentive Stock Option Agreement
|
10-K
|
000-51354
|
10.33
|
Oct. 31, 2012
|
|
|
10.12
|
First Amendment to Ethanol Marketing Agreement dated September 6,
2011, between AE Advanced Fuels Keyes, Inc. and Kinergy Energy
Marketing
|
8-K
|
000-51354
|
10.1
|
Sept. 8, 2011
|
|
|
10.13
|
Form of Note and Warrant Purchase Agreement
|
8-K
|
000-51354
|
10.1
|
Jan. 1, 2012
|
|
|
10.14
|
Form of 5% Subordinated Note
|
8-K
|
000-51354
|
10.2
|
Jan. 1, 2012
|
|
|
10.15
|
Form of Common Stock Warrant
|
8-K
|
000-51354
|
10.3
|
Jan. 1, 2012
|
|
|
10.16
|
Amendment No. 6 to Note Purchase Agreement dated April 13, 2012
among Aemetis Advanced Fuels Keyes, Inc., Third Eye Capital
Corporation, as agent, and the Purchasers
|
8-K
|
000-51354
|
10.1
|
Apr. 19, 2012
|
|
|
10.17
|
Limited Waiver to Note Purchase Agreement dated March 31, 2012
among Aemetis Advanced Fuels Keyes, Inc., and Third Eye Capital
Corporation, an Ontario corporation, as agent
|
8-K
|
000-51354
|
10.1
|
Apr. 19, 2012
|
|
|
10.18
|
Limited Waiver to Note and Warrant Purchase Agreement dated March
31, 2012 among Aemetis, Inc., Third Eye Capital Corporation, an
Ontario corporation, as agent, and the Purchasers
|
8-K
|
000-51354
|
10.1
|
Apr. 19, 2012
|
|
|
10.19
|
Amendment No. 7 to Note Purchase Agreement dated May 15, 2012 among
Aemetis Advanced Fuels Keyes, Inc., Third Eye Capital Corporation,
as agent, and the Purchasers
|
8-K
|
000-51354
|
10.1
|
May 22, 2012
|
|
|
10.20
|
Form of Note and Warrant Purchase Agreement
|
8-K
|
000-51354
|
10.1
|
Jun. 6, 2012
|
|
|
10.21
|
Form of 5% Subordinated Note
|
8-K
|
000-51354
|
10.1
|
Jun. 6, 2012
|
|
|
10.22
|
Form of Common Stock Warrant
|
8-K
|
000-51354
|
10.1
|
Jun. 6, 2012
|
|
|
10.23
|
Note and Warrant Purchase Agreement dated June 21, 2012 among Third
Eye Capital Corporation, Aemetis Advanced Fuels Keyes, Inc., and
Aemetis, Inc.
|
8-K
|
000-51354
|
10.1
|
Jun. 28, 2012
|
|
|
10.24
|
5% Subordinated Promissory Note dated June 21, 2012 among Third Eye
Capital Corporation, Aemetis Advanced Fuels Keyes, Inc., and
Aemetis, Inc.
|
8-K
|
000-51354
|
10.2
|
Jun. 28, 2012
|
|
|
10.25
|
Form of Warrant to Purchase Common Stock
|
8-K
|
000-51354
|
10.3
|
Jun. 28, 2012
|
|
|
10.26
|
Note Purchase Agreement dated June 27, 2012 among Third Eye Capital
Corporation, Aemetis Advanced Fuels Keyes, Inc., and Aemetis,
Inc.
|
8-K
|
000-51354
|
10.1
|
July 3, 2012
|
|
|
10.27
|
15% Subordinated Promissory Note dated June 27, 2012 among Third
Eye Capital Corporation, Aemetis Advanced Fuels Keyes, Inc., and
Aemetis, Inc.
|
8-K
|
000-51354
|
10.2
|
July 3, 2012
|
|
|
10.28
|
Agreement and Plan of Merger, dated July 6, 2012, among Aemetis,
Inc., AE Advanced Fuels, Inc., Keyes Facility Acquisition Corp.,
and Cilion, Inc.
|
8-K
|
000-51354
|
2.1
|
July 10, 2012
|
|
|
10.29
|
Stockholders’ Agreement dated July 6, 2012, among Aemetis,
Inc., and Western Milling Investors, LLC, as Security
holders’ Representative.
|
8-K
|
000-51354
|
10.1
|
July 10, 2012
|
|
|
10.30
|
Amended and Restated Note Purchase Agreement, dated July 6, 2012
among Aemetis Advanced Fuels Keyes, Inc., Keyes Facility
Acquisition Corp., Aemetis, Inc., Third Eye Capital Corporation, as
Administrative Agent, and the Note holders
|
8-K
|
000-51354
|
10.2
|
July 10, 2012
|
|
|
10.31
|
Amended and Restated Guaranty, dated July 6, 2012 among Aemetis,
Inc., certain subsidiaries of Aemetis and Third Eye Capital
Corporation, as Agent.
|
8-K
|
000-51354
|
10.3
|
July 10, 2012
|
|
|
10.32
|
Amended
and Restated Security Agreement, dated July 6, 2012 among Aemetis,
Inc., certain subsidiaries of Aemetis and Third Eye Capital
Corporation, as Agent.
|
8-K
|
000-51354
|
10.4
|
July
10, 2012
|
|
40
|
10.33
|
Investors’ Rights Agreement dated July 6, 2012, by and among
Aemetis, Inc., and the investors listed on Schedule A
thereto.
|
8-K
|
000-51354
|
10.5
|
July 10, 2012
|
|
|
10.34
|
Technology License Agreement dated August 9, 2012 between Chevron
Lummus Global LLC and Aemetis Advanced Fuels, Inc.
|
8-K
|
000-51354
|
10.1
|
Aug. 22, 2012
|
|
|
10.35
|
Corn Procurement and Working Capital Agreement dated March 9, 2011
between J.D. Heiskell Holdings LLC and Aemetis Advanced Fuels
Keyes, Inc.*
|
10-K
|
000-51354
|
10.64
|
Oct. 31, 2012
|
|
|
10.36
|
Purchasing Agreement dated March 9, 2011 between J.D. Heiskell
Holdings LLC and Aemetis Advanced Fuels Keyes, Inc.*
|
10-K
|
000-51354
|
10.65
|
Oct. 31, 2012
|
|
|
10.37
|
WDG Purchase and Sale Agreement dated March 23, 2011 between A.L.
Gilbert Company and Aemetis Advanced Fuels Keyes, Inc.
|
10-K
|
000-51354
|
10.66
|
Oct. 31, 2012
|
|
|
10.38
|
Keyes Corn Handling Agreement dated March 23, 2011 among A. L.
Gilbert Company, AE Advanced Fuels Keyes, Inc., and J.D. Heiskell
Holdings, LLC
|
10-K
|
000-51354
|
10.67
|
Oct. 31, 2012
|
|
|
10.39
|
Limited Waiver and Amendment No. 1 to Amended and Restated Note
Purchase Agreement dated as of October 18, 2012 by and among
Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation, Aemetis
Facility Keyes, Inc., a Delaware corporation, Third Eye Capital
Corporation, an Ontario corporation as agent, Third Eye Capital
Credit Opportunities Fund – Insight Fund, and Sprott PC
Trust.
|
8-K
|
000-51354
|
10.1
|
Oct. 23, 2012
|
|
|
10.40
|
Amendment No. 1 to Revolving Line of Credit Agreement dated October
16, 2012 by and among Aemetis International, Inc., a Nevada
corporation, and Laird Q. Cagan
|
8-K
|
000-51354
|
10.2
|
Oct. 23, 2012
|
|
|
10.41
|
Note Purchase Agreement effective as of March 4, 2011, amended
January 19, 2012 and July 24, 2012 by and among AE Advanced Fuels,
Inc., a Delaware corporation, and Advanced BioEnergy, LP a
California limited partnership and Advanced BioEnergy GP, LLC, a
California limited liability company.
|
8-K
|
000-51354
|
10.3
|
Oct. 23, 2012
|
|
|
10.42
|
Form of Convertible Subordinated Promissory Note by and among AE
Advanced Fuels, Inc., a Delaware corporation and Advanced
BioEnergy, LP, a California limited partnership.
|
8-K
|
000-51354
|
10.4
|
Oct. 23, 2012
|
|
|
10.43
|
Amendment to the Purchasing Agreement dated March 9, 2011 between
J.D. Heiskell Holdings LLC and Aemetis Advanced Fuels Keyes, Inc.
dated September 29, 2012
|
10-K
|
000-51354
|
10.72
|
Apr. 4, 2013
|
|
|
10.44
|
Agreement for Repayment of Note by Share Issuance dated as of
December 31, 2012 by and among Aemetis, Inc., Aemetis
International, Inc., (formerly known as “International
Biodiesel, Inc.”), a Nevada corporation and wholly-owned
subsidiary of the Company, and Laird Q. Cagan for himself and on
behalf of all other holders of interests in the Revolving Line of
Credit (as defined in the Agreement).
|
8-K
|
000-51354
|
10.1
|
Jan. 7, 2013
|
|
|
10.45
|
Agreement for Repayment of Note by Share Issuance dated as of
December 31, 2012 by and among Aemetis, Inc., Aemetis
International, Inc., (formerly known as “International
Biodiesel, Inc.”), a Nevada corporation and wholly-owned
subsidiary of the Company, and Laird Q. Cagan for himself and on
behalf of all other holders of interests in the Revolving Line of
Credit (as defined in the Agreement).
|
8-K/A
|
000-51354
|
10.1
|
Feb. 27, 2013
|
|
|
10.46
|
Limited Waiver and Amendment No. 2 to Amended and Restated Note
Purchase Agreement dated as of February 27, 2013 by and among
Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation, Aemetis
Facility Keyes, Inc., a Delaware corporation, Third Eye Capital
Corporation, an Ontario corporation as agent, Third Eye Capital
Credit Opportunities Fund – Insight Fund, and Sprott PC
Trust.
|
8-K
|
000-51354
|
10.1
|
Mar. 11, 2013
|
|
41
|
10.47
|
Amendment No. 1 to Agreement for Repayment of Note by Share
Issuance dated as of April 10, 2013 by and among Aemetis, Inc.,
Aemetis International, Inc., a Nevada corporation and wholly-owned
subsidiary of the Company, and Laird Q. Cagan for himself and on
behalf of all other holders of interests in the Revolving Line of
Credit (as defined in the Agreement).
|
10-K
|
000-51354
|
10.77
|
Apr. 4, 2013
|
|
|
10.48
|
Amendment to the Purchasing Agreement dated March 9, 2011 between
J.D. Heiskell Holdings LLC and Aemetis Advanced Fuels Keyes, Inc.
dated January 2, 2013.
|
10-K
|
000-51354
|
10.76
|
Apr. 4, 2013
|
|
|
10.49
|
Limited Waiver and Amendment No.3 to Amended and Restated Note
Purchase Agreement dated as of April 15, 2013 by and among Aemetis
Advanced Fuels Keyes, Inc., a Delaware corporation, Aemetis
Facility Keyes, Inc., a Delaware corporation, Third Eye Capital
Corporation, an Ontario corporation as agent, Third Eye Capital
Credit Opportunities Fund – Insight Fund, and Sprott PC
Trust.
|
8-K
|
000-51354
|
10.1
|
Apr. 16, 2013
|
|
|
10.505
|
Amendment No. 4 to Amended and Restated Note Purchase Agreement
dated as of April 19, 2013 by and among Aemetis Advanced Fuels
Keyes, Inc., a Delaware corporation, Aemetis Facility Keyes, Inc.,
a Delaware corporation, Aemetis, Inc., a Nevada corporation, and
Third Eye Capital Corporation, an Ontario corporation, as agent for
Third Eye Capital Insight Fund
|
8-K/A
|
000-51354
|
10.2
|
May 14, 2013
|
|
|
10.5
|
Special Bridge Advance dated as of March 29, 2013 by and among
Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation,
Aemetis, Inc., a Nevada corporation, Third Eye Capital Corporation,
an Ontario corporation, as agent for Third Eye Capital Insight
Fund
|
8-K
|
000-51354
|
10.2
|
Apr. 16, 2013
|
|
|
10.51
|
Agreement For Satisfaction of Note by Share and Note Issuance dated
as of April 18, 2013 between Aemetis, Inc., Aemetis International,
Inc. and Laird Q. Cagan for himself and on behalf of all other
holders of interests in the Revolving Line of Credit dated August
17, 2009 as amended.
|
8-K
|
000-51354
|
10.1
|
Apr. 24, 2013
|
|
|
10.52
|
Amended and Restated Heiskell Purchasing Agreement dated May 16,
2013, by and between Aemetis Advanced Fuels Keyes, Inc., a Delaware
corporation and a wholly-owned subsidiary of Aemetis, Inc. and J.D.
Heiskell Holdings, LLC, a California limited liability company
doing business as J.D. Heiskell & Co.*
|
8-K
|
000-51354
|
10.1
|
May 23, 2013
|
|
|
10.53
|
Amended and Restated Aemetis Keyes Corn Procurement and Working
Capital Agreement, dated May 2, 2013, by and between Aemetis
Advanced Fuels Keyes, Inc., and J.D. Heiskell Holdings,
LLC
|
8-K
|
000-51354
|
10.2
|
May 23, 2013
|
|
|
10.54
|
Limited Waiver and Amendment No.5 to Amended and Restated Note
Purchase Agreement, dated as of July 26, 2013 by and among Aemetis,
Inc., Aemetis Advanced Fuels Keyes, Inc. Aemetis Facility Keyes,
Inc., Third Eye Capital Corporation, an Ontario corporation, as
agent, Third Eye Capital Credit Opportunities Fund - Insight Fund,
and Sprott PC Trust
|
8-K
|
000-51354
|
10.1
|
July 31, 2013
|
|
42
|
10.55
|
Limited Waiver and Amendment No.6 to Amended and Restated Note
Purchase Agreement, dated as of October 28, 2013 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
8-K
|
000-51354
|
10.1
|
Nov. 1, 2013
|
|
|
10.62
|
Limited Waiver and Amendment No.7 to Amended and Restated Note
Purchase Agreement, dated as of May 14, 2014 by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc.; Third Eye Capital Corporation, an Ontario corporation, as
agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-Q
|
000-51354
|
10.1
|
Mar. 31, 2014
|
|
|
10.64
|
Limited Waiver and Amendment No. 8 to Amended and Restated Note
Purchase Agreement, dated as of November 7, 2014 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-Q/A
|
000-51354
|
10.1
|
Nov. 13, 2014
|
|
|
10.65
|
Limited Waiver and Amendment No. 9 to Amended and Restated Note
Purchase Agreement, dated as of March 12, 2015 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10K
|
000-51354
|
10.1
|
Mar. 12,2015
|
|
|
10.66
|
Limited Waiver and Amendment No. 10 to Amended and Restated Note
Purchase Agreement, dated as of April 30, 2015 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital
Corporation, an Ontario corporation, as agent for Third Eye Capital
Credit Opportunities Fund - Insight Fund, and Sprott PC
Trust.
|
10-Q
|
000-51354
|
10.1
|
May 7, 2015
|
|
|
10.67
|
Limited Waiver and Amendment No. 11 to Amended and Restated Note
Purchase Agreement, dated as of August 6, 2015 by and among
Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc.; Third Eye Capital Corporation, an Ontario corporation, as
agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust (incorporated by reference to Exhibit
10.2 of the Quarterly Report on Form 10-Q filed on August 7,
2015).
|
10-Q
|
000-51354
|
10.1
|
Nov. 5, 2015
|
|
|
10.68
|
Limited Waiver and Amendment No. 12 to Amended and Restated Note
Purchase Agreement, dated as of March 21, 2016 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-K
|
000-51354
|
10.68
|
Mar. 28, 2016
|
|
|
10.69
|
Binding
letter of intent for the purchase of certain property, plant and
equipment in Goodland, Kansas by Aemetis Advanced Fuels Goodland,
Inc., or such other subsidiary of Aemetis Inc., dated March 22,
2016 from Third Eye Capital Corporation, in its capacity as
attorney-in-fact for New Goodland Energy Center, LLC.
|
10-K
|
000-51354
|
10.69
|
Mar. 28, 2016
|
|
43
|
10.70
|
Limited Waiver and Amendment No. 13 to Amended and Restated Note
Purchase Agreement, dated as of March 1, 2017by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc.; Third Eye Capital Corporation, an Ontario corporation, as
agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-K
|
000-51354
|
10.70
|
Mar. 16, 2017
|
|
|
10.71
|
Limited Waiver and Amendment No. 14 to Amended and Restated Note
Purchase Agreement, dated as of March 27, 2018 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund –
Insight Fund, and Sprott PC Trust.
|
10-K
|
000-51354
|
10.71
|
Mar. 27, 2018
|
|
|
10.72
|
Promissory Note, dated as of March 27, 2018 by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc., Aemetis, Inc.; and Third Eye Capital Corporation, an Ontario
corporation,
|
10-K
|
000-51354
|
10.72
|
Mar. 27, 2018
|
|
|
10.73
|
Promissory Note, dated as of March 11, 2019 by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc., Aemetis, Inc.; and Third Eye Capital Corporation, an Ontario
corporation,
|
10-K
|
000-51354
|
10.73
|
Mar. 14, 2019
|
|
|
10.74
|
Limited Waiver and Amendment No. 15 to Amended and Restated Note
Purchase Agreement, dated as of March 11, 2019 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund –
Insight Fund, and Sprott PC Trust.
|
10-K
|
000-51354
|
10.74
|
Mar. 14, 2019
|
|
44
|
10.75
|
Promissory Note, dated as of March 6, 2020 by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc., Aemetis, Inc.; and Third Eye Capital Corporation, an Ontario
corporation,
|
10-K
|
000-51354
|
10.75
|
Mar. 6, 2020
|
X
|
|
14
|
Code of Ethics
|
10-K
|
000-51354
|
14
|
May 20, 2009
|
|
|
Subsidiaries of the Registrant
|
|
|
|
|
X
|
|
|
Consent of Independent Registered Public Accounting
Firm
|
|
|
|
|
X
|
|
|
24
|
Power of Attorney (see signature page)
|
|
|
|
|
X
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
*Confidential
treatment has been requested for portions of this exhibit. Omitted
portions have been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
45
AEMETIS, INC.
I
ndex to Consolidated Financial
Statements
|
|
Page
Number
|
|
Report of Independent Registered Public Accounting
Firm
|
47
|
|
Consolidated Financial Statements
|
|
|
Consolidated
Balance Sheets
|
48
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
49
|
|
Consolidated
Statements of Cash Flows
|
50
|
|
Consolidated
Statements of Stockholders' Deficit
|
51
|
|
Notes
to Consolidated Financial Statements
|
52 -79
|
46
Report of Independent Registered Public Accounting
Firm
To the Stockholders and the Board of Directors of Aemetis,
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Aemetis, Inc. and subsidiaries (the Company) as of December 31,
2019 and 2018, the related consolidated statements of operations
and comprehensive loss, stockholders' deficit and cash flows for
the years then ended, and the related notes to the consolidated
financial statements (collectively, the financial statements). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and
its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2012.
Des Moines, Iowa
March 12, 2020
47
AEMETIS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF December 31, 2019 AND 2018
(In
thousands except for par value)
|
|
December
31,
2019
|
December
31,
2018
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$
656
|
$
1,188
|
|
Accounts
receivable
|
2,036
|
1,096
|
|
Inventories
|
6,518
|
6,129
|
|
Prepaid
expenses
|
794
|
942
|
|
Other
current assets
|
2,572
|
956
|
|
Total
current assets
|
12,576
|
10,311
|
|
|
|
|
|
Property,
plant and equipment, net
|
84,226
|
78,492
|
|
Operating
lease right-of-use assets
|
557
|
-
|
|
Other
assets
|
2,537
|
3,018
|
|
Total
assets
|
$
99,896
|
$
91,821
|
|
|
|
|
|
Liabilities and stockholders' deficit
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
15,968
|
$
13,500
|
|
Current
portion of long term debt
|
5,792
|
2,396
|
|
Short
term borrowings
|
16,948
|
14,902
|
|
Mandatorily
redeemable Series B convertible preferred stock
|
3,149
|
3,048
|
|
Accrued
property taxes
|
4,095
|
3,337
|
|
Accrued
contingent litigation fees
|
6,200
|
-
|
|
Other
current liabilities
|
5,667
|
5,396
|
|
Total
current liabilities
|
57,819
|
42,579
|
|
Long
term liabilities:
|
|
|
|
Senior
secured notes
|
107,205
|
89,884
|
|
EB-5
notes
|
36,500
|
36,500
|
|
GAFI
secured and revolving notes
|
29,856
|
25,461
|
|
Long
term subordinated debt
|
6,124
|
5,974
|
|
Series
A preferred units
|
14,077
|
7,005
|
|
Other
long term liabilities
|
2,687
|
-
|
|
Total
long term liabilities
|
196,449
|
164,824
|
|
|
|
|
|
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; 20,570 and 20,345
shares issued and outstanding each period,
respectively
|
21
|
20
|
|
Additional
paid-in capital
|
86,852
|
85,917
|
|
Accumulated
deficit
|
(237,421
)
|
(193,204
)
|
|
Accumulated
other comprehensive loss
|
(3,825
)
|
(3,576
)
|
|
Total
stockholders' deficit attributable to Aemetis, Inc.
|
(154,372
)
|
(110,842
)
|
|
Non-controlling
interest - GAFI
|
-
|
(4,740
)
|
|
Total
stockholders' deficit
|
(154,372
)
|
(115,582
)
|
|
Total
liabilities and stockholders' deficit
|
$
99,896
|
$
91,821
|
The accompanying notes are an integral part of the financial
statements
48
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
FOR THE YEARS ENDED December 31, 2019 AND 2018
(In
thousands, except for earnings per share)
|
|
For the
years ended December 31,
|
|
|
|
2019
|
2018
|
|
Revenues
|
$
201,998
|
$
171,526
|
|
|
|
|
|
Cost
of goods sold
|
189,300
|
166,121
|
|
|
|
|
|
Gross
profit
|
12,698
|
5,405
|
|
|
|
|
|
Research
and development expenses
|
205
|
246
|
|
Selling,
general and administrative expenses
|
17,424
|
16,085
|
|
Operating
loss
|
(4,931
)
|
(10,926
)
|
|
|
|
|
|
Other
(income) expense:
|
|
|
|
Interest
expense
|
|
|
|
Interest
rate expense
|
21,089
|
18,170
|
|
Debt
related fees and amortization expense
|
4,666
|
7,520
|
|
Accretion
of Series A preferred units
|
2,257
|
44
|
|
Loss
on impairment of intangibles
|
-
|
865
|
|
Loss
contingency on litigation
|
6,200
|
-
|
|
Other
income
|
(797
)
|
(1,245
)
|
|
Loss
before income taxes
|
(38,346
)
|
(36,280
)
|
|
Income
tax expense
|
1,131
|
7
|
|
Net
loss
|
$
(39,477
)
|
$
(36,287
)
|
|
Less:
Net loss attributable to non-controlling interest
|
(3,761
)
|
(3,271
)
|
|
Net
loss attributable to Aemetis, Inc.
|
$
(35,716
)
|
$
(33,016
)
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
Foreign
currency translation loss
|
(249
)
|
(672
)
|
|
Comprehensive
loss
|
$
(39,726
)
|
$
(36,959
)
|
|
|
|
|
|
Net
loss per common share attributable to Aemetis, Inc.
|
|
|
|
Basic
|
$
(1.75
)
|
$
(1.63
)
|
|
Diluted
|
$
(1.75
)
|
$
(1.63
)
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
Basic
|
20,467
|
20,252
|
|
Diluted
|
20,467
|
20,252
|
The accompanying notes are an integral part of the financial
statement
49
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED December 31, 2019 AND 2018
(In thousands)
|
|
For the
years ended December 31,
|
|
|
|
2019
|
2018
|
|
Operating activities:
|
|
|
|
Net
loss
|
$
(39,477
)
|
$
(36,287
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Share-based
compensation
|
774
|
981
|
|
Stock
issued for services
|
-
|
22
|
|
Depreciation
|
4,434
|
4,580
|
|
Debt
related fees and amortization expense
|
4,666
|
7,520
|
|
Intangibles
and other amortization expense
|
48
|
140
|
|
Accretion
of Series A preferred units
|
2,257
|
44
|
|
Deferred
tax expense
|
1,123
|
-
|
|
Loss
on sale/disposal of assets
|
-
|
9
|
|
Impairment
loss on intangible assets
|
-
|
865
|
|
Change
in fair value of stock appreciation rights
|
(80
)
|
(145
)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(963
)
|
1,079
|
|
Inventories
|
(491
)
|
(721
)
|
|
Prepaid
expenses
|
147
|
1,692
|
|
Other
assets
|
(594
)
|
(380
)
|
|
Accounts
payable
|
1,001
|
2,207
|
|
Accrued
interest expense and fees
|
18,033
|
12,463
|
|
Other
liabilities
|
7,088
|
425
|
|
Net
cash used in operating activities
|
(2,034
)
|
(5,506
)
|
|
|
|
|
|
Investing activities:
|
|
|
|
Capital
expenditures
|
(8,578
)
|
(4,074
)
|
|
Net
cash used in investing activities
|
(8,578
)
|
(4,074
)
|
|
|
|
|
|
Financing activities:
|
|
|
|
Proceeds
from borrowings
|
54,834
|
20,071
|
|
Repayments
of borrowings
|
(51,714
)
|
(18,010
)
|
|
GAFI
proceeds from borrowings
|
1,480
|
3,144
|
|
GAFI
repayments of borrowings
|
(164
)
|
(1,775
)
|
|
GAFI
renewal fee payment
|
(530
)
|
-
|
|
Grant
proceeds received for capital expenditures
|
1,364
|
-
|
|
Proceeds
from Series A preferred units financing
|
4,815
|
6,961
|
|
Net
cash provided by financing activities
|
10,085
|
10,391
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
(5
)
|
(51
)
|
|
Net
change in cash and cash equivalents for period
|
(532
)
|
760
|
|
Cash
and cash equivalents at beginning of period
|
1,188
|
428
|
|
Cash
and cash equivalents at end of period
|
$
656
|
$
1,188
|
|
|
|
|
|
Supplemental
disclosures of cash flow information, cash paid:
|
|
|
|
Cash
paid for interest, net of capitalized interest of $316 and $135 for
the years ended December 31, 2019 and 2018,
respectively
|
$
2,476
|
$
5,590
|
|
Income
taxes paid
|
8
|
6
|
|
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
|
162
|
235
|
|
TEC
debt extension, waiver fees, promissory notes fees added to
debt
|
1,602
|
4,255
|
|
Capital
expenditures in accounts payable
|
2,391
|
905
|
|
Operating
lease liabilities arising from obtaining right of use
assets
|
1,181
|
-
|
|
Exercise
of Stock Appreciation Rights added to GAFI debt
|
1,050
|
-
|
|
Debt
exchanged for prepaid interest on GAFI Term loan
|
-
|
200
|
|
GAFI
Amendment No. 1 & 2 fees added to debt
|
-
|
250
|
|
Stock
Appreciation Rights issued for GAFI Amendment No. 1
|
-
|
1,277
|
The accompanying notes are an integral part of the financial
statement
50
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED December 31, 2019 AND 2018
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred
Stock
|
Common
Stock
|
Additional
|
Accumulated
|
Accumulated Other
|
Non controlling
|
|
||
|
|
Shares
|
Dollars
|
Shares
|
Dollars
|
Paid-in
Capital
|
Deficit
|
Comprehensive
Loss
|
Interest
|
Total
|
|
Balance
at December 31, 2017
|
1,323
|
$
1
|
20,088
|
$
20
|
$
84,679
|
$
(160,188
)
|
$
(2,904
)
|
$
(1,469
)
|
$
(79,861
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
2
|
-
|
981
|
-
|
-
|
-
|
981
|
|
Shares issued to
consultants and other services
|
-
|
-
|
30
|
-
|
22
|
-
|
-
|
-
|
22
|
|
Issuance and exercise
of warrants
|
-
|
-
|
225
|
-
|
235
|
-
|
-
|
-
|
235
|
|
Foreign currency
translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(672
)
|
-
|
(672
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(33,016
)
|
-
|
(3,271
)
|
(36,287
)
|
|
Balance
at December 31, 2018
|
1,323
|
1
|
20,345
|
20
|
85,917
|
(193,204
)
|
(3,576
)
|
(4,740
)
|
(115,582
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
774
|
-
|
-
|
-
|
774
|
|
Issuance and exercise
of warrants
|
-
|
-
|
225
|
1
|
161
|
-
|
-
|
-
|
162
|
|
Foreign currency
translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(249
)
|
-
|
(249
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(35,716
)
|
-
|
(3,761
)
|
(39,477
)
|
|
Reclassification of
GAFI noncontrolling interest
|
-
|
-
|
-
|
-
|
-
|
(8,501
)
|
-
|
8,501
|
-
|
|
Balance
at December 31, 2019
|
1,323
|
$
1
|
20,570
|
$
21
|
$
86,852
|
$
(237,421
)
|
$
(3,825
)
|
$
-
|
$
(154,372
)
|
The accompanying notes are an integral part of the financial
statements.
51
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
1. Nature of Activities and Summary of Significant Accounting
Policies
Nature of Activities
. These consolidated financial
statements include the accounts of Aemetis, Inc. (formerly AE
Biofuels, Inc.), a Nevada corporation, and its wholly owned
subsidiaries (collectively, “Aemetis” or the
“Company”):
●
Aemetis Americas,
Inc., a Nevada corporation, and its subsidiary AE Biofuels, Inc., a
Delaware corporation;
●
Biofuels Marketing,
Inc., a Delaware corporation;
●
Aemetis
International, Inc., a Nevada corporation, and its subsidiary
International Biofuels, Ltd., a Mauritius corporation, and its
subsidiary Universal Biofuels Private, Ltd., an India
company;
●
Aemetis
Technologies, Inc., a Delaware corporation;
●
Aemetis
Biochemicals, Inc., a Nevada corporation;
●
Aemetis Biofuels,
Inc., a Delaware corporation, and its subsidiary Energy Enzymes,
Inc., a Delaware corporation;
●
AE Advanced Fuels,
Inc., a Delaware corporation, and its subsidiaries Aemetis Advanced
Fuels Keyes, Inc., a Delaware corporation, and Aemetis Facility
Keyes, Inc., a Delaware corporation, Aemetis Property Keyes, Inc.,
a Delaware corporation;
●
Aemetis Advanced
Fuels, Inc., a Nevada corporation;
●
Aemetis Advanced
Products Keyes, Inc., a Delaware corporation and its subsidiary
Aemetis Properties Riverbank, Inc., a Delaware corporation, Aemetis
Riverbank, Inc., a Delaware corporation, and its subsidiary Aemetis
Advanced Products Riverbank, Inc., a Delaware
corporation;
●
Aemetis Advanced
Biorefinery Keyes, Inc., a Delaware corporation;
●
Aemetis Biogas LLC,
a Delaware limited liability company; and
●
Goodland Advanced
Fuels, Inc., a Nevada corporation.
Nature of Activities
. Headquartered in Cupertino,
California, Aemetis 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 60
million gallon per year ethanol facility (“Keyes
Plant”) in the California Central Valley near Modesto where
we manufacture and produce ethanol, 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
producing 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. As of December 31, 2019, we
exercised the option to acquire the all of capital stock of GAFI.
Before exercising the option on December 31, 2019, GAFI was
consolidated into the financial statements as a variable interest
entity. We plan to deploy a cellulosic ethanol technology to the
Goodland Plant.
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 waste – into
ultra-low carbon renewable cellulosic ethanol. By producing
ultra-low carbon renewable cellulosic ethanol, we expect to capture
higher value D3 cellulosic renewable identification numbers
(“RINs”) and California’s Low Carbon Fuel
Standard (“LCFS”) credits.
In
December 2018, we acquired a 5.2-acre parcel of land for the
construction of a facility by Messer to sell carbon dioxide
(“CO
2”)
produced
at the Keyes Plant. The Aemetis section of the CO
2
project
construction was completed in January 2020, and we expect to
commence operations and revenue from this project in the second
quarter of 2020.
During
2018, Aemetis Biogas, LLC (“ABGL”) was formed to
construct bio-methane digesters at local dairies near the Keyes
Plant, many of whom are already customers of the distillers’
grain produced at the Keyes Plant. The digesters are connected by a
pipeline to a gas cleanup and compression facility to produce
Renewable Natural Gas (“RNG”). ABGL currently has
signed participation agreements with over a dozen local dairies and
three fully executed leases with dairies near the Keyes Plant in
order to capture their methane, which would otherwise be released
into the atmosphere, primarily from manure wastewater lagoons. We
plan to capture biogas from multiple dairies and pipe the gas to a
centralized location at our Keyes Plant where we will remove the
impurities of the methane and clean it into bio-methane for
injection into the local utility pipeline 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 in our Keyes Plant to
displace petroleum-based natural gas. The environmental benefits of
the ABGL project are potentially significant because dairy biogas
has a negative carbon intensity (“CI”) under the
California LCFS. The biogas produced by ABGL will also receive D3
RINs under the federal Renewable Fuel Standard
(“RFS”).
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. In addition, the period costs
related to non-controlling interest are presented as separately on
the Statement of Operations for the year ended December 31,
2019.
52
All
intercompany balances and transactions have been eliminated in
consolidation including any transactions between GAFI and Aemetis,
Inc.
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, and 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 and related co-products in North America, and of
biodiesel and refined glycerin in India based on the 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.
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.
North America:
In North America, we sell the majority of our production to one
customer under a supply contract, with individual sales
transactions occurring under this 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 the tank of J.D. Heiskell or to one of
their 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 on WDG and DCO. There is no transaction
price allocation needed.
The
below table shows our sales in North America by product
category:
North America (in thousands)
|
|
For
the years ended December 31,
|
|
|
|
2019
|
2018
|
|
Ethanol
sales
|
$
114,593
|
$
113,855
|
|
Wet
distillers' grains sales
|
34,510
|
32,362
|
|
Other
sales
|
5,045
|
3,828
|
|
|
$
154,148
|
$
150,045
|
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 some contractual agreements.
In
North America, we buy corn as feedstock in producing ethanol from
our working capital partner J.D. Heiskell and we sell all ethanol,
WDG, and corn oil produced in this process to J.D. Heiskell. Our
finished goods tank is leased by J.D. Heiskell and they require us
to transfer legal title to the product upon transfer of our
finished ethanol to this location. We consider the purchase of corn
as a cost of goods sold and the sale of ethanol upon transfer to
the finished goods tank 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. The transportation component
is accounted for in cost of goods sold and the marketing component
is 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 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.
We have
a contract liability of $1.0 million as of December 31, 2019, in
connection with a contract with a customer to sell CCA credits.
However, control of the credits were not transferred to the
customer until January 3, 2020 while we received cash in
advance.
53
India:
In India where we sell products on purchase orders (written or
verbal) or by contract with governmental or international parties,
the performance obligation 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 based
on reference market prices for biodiesel and refined glycerin every
day 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 years ended December 31,
|
|
|
|
2019
|
2018
|
|
Biodiesel
sales
|
$
42,464
|
$
17,009
|
|
Refined
Glycerin sales
|
2,809
|
4,467
|
|
Other
sales
|
2,577
|
5
|
|
|
$
47,850
|
$
21,481
|
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 some contractual agreements.
In
India, we occasionally enter into contracts where we purchase
feedstock from the customer, process the feedstock into biodiesel,
and sell to the same customer. 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.
Shipping and Handling Costs
.
Shipping and handling costs are classified as a component of cost
of goods sold in the accompanying consolidated statements of
operations.
Research and Development.
Research and development costs are
expensed as incurred, unless they have alternative future uses to
the Company.
Cash and Cash Equivalents
. The
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The
Company maintains cash balances at various financial institutions
domestically and abroad. The Federal Deposit Insurance Corporation
insures domestic cash accounts. The Company’s accounts at
these institutions may at times exceed federally insured limits.
The Company has not experienced any losses in such
accounts.
Accounts Receivable.
The Company sells ethanol, WDG, CDS,
and DCO through third-party marketing arrangements generally
without requiring collateral. 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 it 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 receivable 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 conditions of the Company’s
customers were to deteriorate, additional allowances may be
required.
We did not reserve any
balance for allowance for doubtful accounts in the years ended
December 31, 2019 and 2018.
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.
54
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 Cellulosic ethanol, CO
2
project and
Biogas diaries capital projects are being constructed and are not
in operation; hence, we are not depreciating these assets yet.
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. In
estimating our forecasts, we used significant assumptions with
regard to the cost of inputs mainly palm stearin, and outputs
mainly biodiesel. These assumptions were commodity market driven
but we also considered the government regulations, import and
export tariffs, availability of alternate low-cost inputs, and
potential customer agreements. We evaluated all assumptions based
on conditions which the Company believes will become available to
increase production at profitable margins in the
future.
Intangibles:
In December 2018, the Company wrote off $0.9
million of patents associated with the Z-microbe
TM
and enzymatic
processes to facilitate the degradation of certain plant biomass as
the Company shifted away from this technology.
California Energy Commission Technology Demonstration Grant
.
The Company has been awarded an $825 thousand matching grant from
the California Energy Commission (“CEC”) Natural
Resources Agency to optimize and demonstrate the effectiveness of
technologies to break down biomass to produce cellulosic ethanol.
The Company will receive the grant proceeds as a subcontractor to
the Lawrence Berkeley National Laboratory. The project will focus
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 receives these funds as reimbursement for
actual costs incurred. Due to the uncertainty associated with the
cost approval process under the grant program, the Company
recognizes the grant as a reduction of the expenses or as a
reduction in fixed assets 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 Aemetis
low carbon advanced cellulosic ethanol production plant (the
“Riverbank Project”). 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 in the other long term liabilities as
of December 31, 2019.
Income Taxes.
The Company
recognizes income taxes in accordance with ASC 740
Income Taxes
using an asset and
liability approach. This approach requires the recognition of taxes
payable or refundable for the current year and deferred tax assets
and liabilities for the expected future tax consequences of events
that have been recognized in the Company’s consolidated
financial statements or tax returns. The measurement of current and
deferred taxes is based on provisions of enacted tax
law.
ASC 740
provides for recognition of deferred tax assets if the realization
of such assets is more likely than not to occur. Otherwise, a
valuation allowance is established for the deferred tax assets,
which may not be realized. As of December 31, 2019 and 2018, the
Company recorded a full valuation allowance against its net
deferred tax assets due to operating losses incurred since
inception. Realization of deferred tax assets is dependent upon
future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets were fully
offset by a valuation allowance.
The
Company is subject to income tax audits by the respective tax
authorities in all of the jurisdictions in which it operates. The
determination of tax liabilities in each of these jurisdictions
requires the interpretation and application of complex and
sometimes uncertain tax laws and regulations. The recognition and
measurement of current taxes payable or refundable and deferred tax
assets and liabilities requires that the Company make certain
estimates and judgments. Changes to these estimates or a change in
judgment may have a material impact on the Company’s tax
provision in a future period.
In
2018, the Company adopted certain tax accounting policies related
to the new global intangible low-taxed income (“GILTI”)
provisions under the Tax Act such that the Company will: (1)
account for all GILTI related book-tax differences as period costs
and (2) use the Incremental Cash Tax Savings approach in evaluating
its valuation allowance assessment related to the GILTI
inclusion.
Basic and Diluted Net Income (Loss) per Share.
Basic net
income (loss) per share is computed by dividing net income or 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 a net
loss for the years ended December 31, 2019 and 2018, potentially
dilutive securities have been excluded from the diluted net loss
per share computations as their effect would be
anti-dilutive.
55
The
following table shows the number of potentially dilutive shares
excluded from the diluted net loss per share calculation as of
December 31, 2019 and 2018:
|
|
As
of
|
|
|
|
December
31, 2019
|
December
31, 2018
|
|
|
|
|
|
Series
B preferred (post split basis)
|
132
|
132
|
|
Common
stock options and warrants
|
3,840
|
2,984
|
|
Debt
with conversion feature at $30 per share of common
stock
|
1,262
|
1,236
|
|
SARs
conversion if stock issued at $0.71 per share to cover $2.1
million
|
-
|
2,964
|
|
Total
number of potentially dilutive shares excluded from the diluted net
loss per share calculation
|
5,234
|
7,316
|
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 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. The investment in
this subsidiary is considered indefinitely invested overseas, and
as a result, deferred income taxes are not recorded related to the
currency translation adjustments.
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
Company’s 60 million gallons per year capacity Keyes Plant in
California, the cellulosic ethanol facility in Riverbank, the
cluster of biogas digesters on dairies near Keyes, California, the
Goodland Plant, Kansas and the research and development facility in
Minnesota.
The
“India” operating segment encompasses 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, SARs liability, 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.
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.
Debt Modification Accounting
. The Company
evaluates amendments to its debt in accordance
with ASC 540-50
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.
56
2.
Inventories
Inventories consist of the following:
|
|
December
31,
2019
|
December
31,
2018
|
|
Raw
materials
|
$
2,566
|
$
3,647
|
|
Work-in-progress
|
1,455
|
1,327
|
|
Finished
goods
|
2,497
|
1,155
|
|
Total
inventories
|
$
6,518
|
$
6,129
|
As of
December 31, 2019 and December 31, 2018, the Company recognized a
lower of cost or market reserve of $0.1 million and $0.2 million
respectively, related to inventory.
3. Property, Plant and Equipment
Property, plant and equipment consist of the
following:
|
|
December
31,
2019
|
December
31,
2018
|
|
Land
|
$
4,104
|
$
4,116
|
|
Plant
and buildings
|
83,139
|
82,445
|
|
Furniture
and fixtures
|
1,094
|
1,056
|
|
Machinery
and equipment
|
4,252
|
3,928
|
|
Construction
in progress
|
12,571
|
3,581
|
|
GAFI
property held for development
|
15,408
|
15,408
|
|
Total
gross property, plant & equipment
|
120,568
|
110,534
|
|
Less
accumulated depreciation
|
(36,342
)
|
(32,042
)
|
|
Total
net property, plant & equipment
|
$
84,226
|
$
78,492
|
Interest capitalized in property, plant, and equipment was $316
thousand and $135 thousand for the years ended December 31, 2019
and 2018, respectively.
Given there are several ongoing capital projects such as Biogas
digesters,
CO
2
project,
cellulosic ethanol and ongoing capital updates in India, these
capital expenses have been accumulated in construction in progress
and will be capitalized and depreciated when the projects are
finished and are in service.
Depreciation
on the components of the 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 - 7
|
|
Furniture
and fixtures
|
3 - 5
|
The
Company
recorded depreciation expense
of approximately $4.4 million and $4.6 million respectively, for
the years ended December 31, 2019 and
2018
.
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. Based
on the analysis,
our long-lived assets did not require
impairment adjustment as of December 31, 2019 and
2018.
57
4. Debt
Debt
consists of the notes from the Company’s senior lender, Third
Eye Capital, acting as Agent for the Purchasers (Third Eye
Capital), other working capital lenders and subordinated lenders as
follows:
|
|
December
31,
2019
|
December
31,
2018
|
|
Third
Eye Capital term notes
|
$
7,024
|
$
7,024
|
|
Third
Eye Capital revolving credit facility
|
62,869
|
47,225
|
|
Third
Eye Capital revenue participation term notes
|
11,794
|
11,794
|
|
Third
Eye Capital acquisition term notes
|
25,518
|
23,841
|
|
Third
Eye Capital promissory note
|
2,815
|
-
|
|
Cilion
shareholder seller notes payable
|
6,124
|
5,974
|
|
Subordinated
notes
|
11,502
|
10,080
|
|
EB-5
promissory notes
|
41,932
|
38,536
|
|
Unsecured
working capital loans
|
2,631
|
4,822
|
|
GAFI
Term and Revolving loans
|
30,216
|
25,821
|
|
Total debt
|
202,425
|
175,117
|
|
Less
current portion of debt
|
22,740
|
17,298
|
|
Total long term debt
|
$
179,685
|
$
157,819
|
Third Eye Capital Note Purchase Agreement
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
January 4, 2018, a Promissory Note (the January 2018 Note) for $160
thousand 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 1, 2018. In
consideration of the January 2018 Note, $10 thousand of the total
proceeds were paid to Third Eye Capital as financing charges. On
April 1, 2018, the January 2018 Note was paid in full.
On
February 27, 2018, a Promissory Note (the “February 2018
Note”, and 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, 2018. In consideration of the
February 2018 Note, $0.1 million of the total proceeds were paid to
Third Eye Capital as financing charges. The maturity date of the
note was December 31, 2018 with $183 thousand in fees due and
payable at the time of the redemption of the Note. On December 20,
2018, the February 2018 Note was paid in full.
On
March 27, 2018, Third Eye Capital agreed to Limited Waiver and
Amendment No. 14 to the Note Purchase Agreement, or 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.
We
evaluated Amendment No. 14 in accordance with ASC 470-60
Troubled Debt
Restructuring.
According to guidance, we considered
Amendment No. 14 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, 2020 for a 6% fee, which was lower on an
annual basis than the extension fee of 5% provided by Amendment No.
13 for a one-year extension. No interest is accrued on these fees
and there were no other settlements in Amendment No. 14 on these
Notes. 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 solved for a
discount rate equal to the carrying amount of pre-restructuring of
debt, and by comparing this calculation to the terms of Amendment
No. 13, 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. The extension fee,
due at maturity, was discounted at the effective interest rate of
the Third Eye Capital Notes, and an immediate charge was taken to
recognize the fees into amortization expense on the income
statement related to the trouble debt restructuring of $3.1 million
and amendment fees of $0.5 million. Using the effective interest
method of amortization, the remaining extension fee of $1.4 million
will be amortized over the stated remaining life of the Third Eye
Capital Notes.
58
On
March 27, 2018, Third Eye Capital also agreed to a one-year reserve
liquidity facility governed by a promissory note, payable in the
principal amount of up to $6 million. Borrowings under the facility
are available from March 27, 2018 until maturity on April 1, 2019.
Interest on borrowed amounts accrues at a rate of 30% per annum,
paid monthly in arrears, or 40% if an event of default has occurred
and continues. The outstanding principal balance of the
indebtedness evidenced by the promissory note, plus any accrued but
unpaid interest and any other sums due thereunder, shall be due and
payable in full at the earlier to occur of (a) the closing of any
new debt or equity financing, refinancing or other similar
transaction between Third Eye Capital or any fund or entity
arranged by them and the Company or its affiliates, (b) receipt by
the Company or its affiliates of proceeds from any sale, merger,
equity or debt financing, refinancing or other similar transaction
from any third party and (c) April 1, 2019. The promissory note is
secured by liens and security interests upon the property and
assets of the Company. If any amounts are drawn under the facility,
the Company will pay a non-refundable fee in the amount of $200
thousand payable from the proceeds of the first drawing under the
facility. On March 11, 2019, Third Eye Capital agreed to increase
the amount available under the reserve liquidity facility up to
$8.0 million and extend the maturity date to April 1, 2020 with the
same terms as above. We did not draw any amounts under the facility
and no balance was outstanding as of December 31, 2019 under this
facility.
Based
on the terms of Amendment No. 14, the Company intends to extend the
maturity to April 1, 2021 for a fee of 5% on the outstanding debt
which can be paid or added to the outstanding balance of the
revolving notes.
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
through 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 the Amendment No. 15, the ratio of note indebtedness covenant is
waived for the quarters ended March 31, 2019, June 30, 2019,
September 30, 2019 and December 31, 2019. Based on the Amendment
No. 16 dated November 11, 2019, the ratio of note indebtedness
covenant is waived for the quarters ended March 31, 2020, June 30,
2020, September 30, 2020 and December 31, 2020. 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. Given the waivers are received for the
ratio of note indebtedness covenant through December 31, 2020,
hence 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. As of December 31, 2019, the
outstanding balance of principal and interest on the February 2019
note was $2.8 million.
Terms of Third Eye Capital Notes
A.
Term
Notes
.
As of December
31, 2019, the Company had $7.0 million in principal and interest
outstanding under the Term Notes. The Term Notes accrue interest at
14% per annum. The Term Notes mature on April 1,
2020*.
B.
Revolving Credit
Facility
.
The
Revolving Credit Facility accrues interest at the prime rate plus
13.75% (18.5% as of December 31, 2019), payable monthly in arrears.
Interest was accrued and accrued interest from all notes can be
capitalized to the Revolving Credit Facility. The Revolving Credit
Facility matures on April 1, 2020*. As of December 31, 2019, AAFK
had $62.9 million in principal and interest and waiver fees
outstanding under the Revolving Credit Facility net of $0.1 million
unamortized discount issuance costs.
C.
Revenue Participation Term
Notes
.
The Revenue
Participation Term Note bears interest at 5% per annum and matures
on April 1, 2020*. As of December 31, 2019, AAFK had $11.8 million
in principal and interest outstanding on the Revenue Participation
Term Notes.
D.
Acquisition Term
Notes
.
The
Acquisition Term Notes accrue interest at the prime rate plus
10.75% (15.5% per annum as of December 31, 2019) and mature on
April 1, 2020*. As of December 31, 2019, Aemetis Facility Keyes,
Inc. had $25.5 million in principal and interest and redemption
fees outstanding net of unamortized discount issuances costs of
$0.8 million. The outstanding principal balance includes a total of
$7.5 million in redemption fees, including $4.5 million which was
added to the Acquisition Term Notes as part of Amendment No. 14,
$1.0 million of covenant waiver fees as part of Amendment No.15,
and $0.5 million of covenant waiver fees as part of Amendment No.
16.
E.
Reserve Liquidity
Notes
.
The Reserve
Liquidity Notes, with available borrowing capacity in the amount of
$18.0 million, accrue interest at the rate of 30% per annum and are
due and payable upon the earlier of: (i) the closing of new debt or
equity financings, (ii) receipt from any sale, merger, debt or
equity financing, or (iii) April 1, 2021. We have no borrowings
outstanding under the Reserve Liquidity Notes as of December 31,
2019.
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 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.
59
We have
no remaining availability on the Revolving Credit
Facility.
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
Company plans to extend the maturity date to April 2021. As a
condition to any such extension, the Company would be required to
pay a fee of 5% 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 (Cilion Notes) as merger compensation, subordinated to
the Third Eye Capital Notes. The Cilion Notes bear interest at 3%
per annum and are due and payable after the Third Eye Capital Notes
have been paid in full. As of December 31, 2019, Aemetis Facility
Keyes, Inc. had $6.1 million in principal and interest outstanding
on the Cilion Notes.
Subordinated Notes
. On January 6 and January 9, 2012, AAFK
entered into Note and Warrant Purchase Agreements with two
accredited investors pursuant to which it issued $0.9 million and
$2.5 million in original notes to the investors (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, Inc. may make any
principal payments under the Subordinated Notes until all loans
made by Third Eye Capital to AAFK are paid in full.
The
Subordinated Notes were amended to extend the maturity date on
January 1, 2019 and again on July 1, 2019 with six months extension
for maturity until December 31, 2019. We evaluated these amendments
and the refinancing terms of the notes and applied modification
accounting treatment in accordance with ASC 470-50
Debt – Modification and
Extinguishment
.
On
January 1, 2020, the Subordinated Notes were amended to extend the
maturity date until the earlier of (i) June 30, 2020; (ii)
completion of an equity financing by AAFK or Aemetis, Inc. in an
amount of not less than $25.0 million; or (iii) after the
occurrence of an Event of Default, 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 January 1, 2020 amendment
and the refinancing terms of the notes and apply accounting
treatment in accordance with ASC 470-50
Debt – Modification and
Extinguishment
.
At
December 31, 2019 and 2018, the Company had, in aggregate, the
amount of $11.5 million and $10.1 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 five 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 while the five early investor notes 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 December 31, 2019, $35.0 million 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 December 31,
2019, $35.0 million in principal and $2.9 million in accrued
interest was outstanding on the EB-5 Phase I Notes.
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. On November 21,
2019, the minimum investment was raised from $500,000 per investor
to $900,000 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 investments, for the issuance of up to 100 EB-5 Notes
bearing interest at 3%. Each 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 $50.0
million (the “EB-5 Phase II funding”).
60
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 December 31, 2019, $4.0 million was released from
escrow to the Company and $46.0 million remains to be funded to
escrow. As of December 31, 2019, $4.1 million in principal and
interest was outstanding on the EB-5 Phase II Notes.
Unsecured 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
advances bear interest at 12%. 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. We recognized $2.0 million as operating
support charges for the twelve months ended December 31, 2019. 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 year
ended December 31, 2019 and 2018, the Company made principal and
interest payments to Gemini of approximately $51.6 million and
$12.2 million, respectively. As of December 31, 2019 and 2018, the
Company had approximately $2.0 million and $4.6 million outstanding
under this agreement, respectively.
In
November 2008, the Company entered into an operating agreement with
Secunderabad Oils Limited (“Secunderabad Oils”). The
2008 agreement provided the working capital and had the first
priority lien on assets in return for 30% of the plant’s
monthly net operating profit. These expenses were recognized as
selling, general, and administrative expenses by the Company in the
financials. All terms of the 2008 agreement with Secunderabad Oils
were terminated to amend the agreement as below. 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 years ended December 31, 2019 and
2018, the Company made principal and interest payments to
Secunderabad Oils of approximately $0.5 million and $3.7 million,
respectively. As of December 31, 2019 and 2018, the Company had
$0.6 million and $0.3 million outstanding under this agreement,
respectively.
GAFI Term loan and Revolving loan
On July
10, 2017, GAFI entered into a Note Purchase Agreement (“Note
Purchase Agreement”) with Third Eye Capital (Noteholders).
See further discussion regarding GAFI in Note 6. Pursuant to the
Note Purchase Agreement, the Noteholders agreed, subject to the
terms and conditions of the 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 (“Term Loan”) and (ii) revolving advances not
to exceed ten million dollars in the aggregate (“Revolving
Loan”). The interest rate per annum applicable to the Term
Loan is equal to ten percent (10%). The interest rate per annum
applicable to the 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 December 31, 2019 was
12.5%. On June 10, 2019, notice was given to renew the maturity
date of GAFI notes to July 10, 2020 by following extension terms in
the GAFI Note Purchase Agreement in exchange for a fee of $0.5
million. The maturity date of the loans (“Maturity
Date”) is July 10, 2020, provided that the Maturity Date may
be extended at the option of GAFI for up to one additional one-year
period upon prior written notice and upon satisfaction of certain
conditions and the payment of a renewal fee for such extension. An
initial advance under the Revolving Loan was made for $2.2 million
as a prepayment of interest on the 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. The fee of $75 thousand was recognized as
expense on the amendment date. 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 11
th
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 was drawn
under GAFI Amendment No. 2 for the CO
2
project. Among
other requirements, the Company is also required to make the
following mandatory repayments of the GAFI Term Loan: i) on a
monthly basis, an amount equal to 75% of any payments received by
the Company for CO
2
produced by
Messer LLC, ii) an amount equal to 100% of each monthly payment
received by the Company for land use by Messer for CO
2
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 $0.4 million is estimated to be paid in the next 12
months and is classified as current debt as of December 31,
2019.
As of
December 31, 2019 and 2018, GAFI had $19.7 million net of debt
issuance costs of $0.3 million outstanding on the Term Loan and
$10.5 million on the Revolving Loan respectively.
61
Debt
repayments for the Company’s loan obligations
follow:
|
Twelve
months ended December 31,
|
Debt
Repayments
|
|
2020
|
$
22,740
|
|
2021
|
144,775
|
|
2022
|
23,000
|
|
2023
|
10,624
|
|
2024
|
2,500
|
|
Total
debt
|
203,639
|
|
Debt
issuance costs
|
(1,214
)
|
|
Total
debt, net of debt issuance costs
|
$
202,425
|
5. Commitments and Contingencies
Leases
In February 2016, the FASB established Topic 842, Leases, by
issuing Accounting Standards Update (ASU) No. 2016-02, which
requires lessees to recognize leases on-balance sheet and disclose
key information about leasing arrangements. Topic 842 was
subsequently amended by ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases; and ASU No.
2018-11, Targeted Improvements. The new standard establishes a
right-of-use model (ROU) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases.
Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense
recognition in the income statement.
The new standard was effective for us on January 1, 2019. We
adopted the new standard on its effective date. A modified
retrospective transition approach was required, applying the new
standard to all leases existing at the date of initial application.
An entity may choose to use either (1) its effective date or (2)
the beginning of the earliest comparative period presented in the
financial statements as its date of initial application. We adopted
the new standard on January 1, 2019 and used the effective date as
our date of initial application. Consequently, financial
information will not be updated and the disclosures required under
the new standard will not be provided for dates and periods before
January 1, 2019.
The new standard provides a number of optional practical expedients
in transition. We elected the ‘package of practical
expedients’, which permits us not to reassess under the new
standard our prior conclusions about lease identification, lease
classification and initial direct costs. We did not elect the
practical expedient pertaining to land easements. We made an
accounting policy election to keep leases with an initial term of
12 months or less off of the balance sheet. We will recognize those
lease payments in the Consolidated Statements of Operations as we
incur the expenses.
This standard had a material effect on our consolidated balance
sheet due to the recognition of right-of-use assets and lease
liabilities. However, it did not have a material impact on the
Consolidated Statement of Operations.
After assessment of this standard on our Company wide agreements
and arrangements, we have identified assets as the corporate
office, warehouse, monitoring equipment and laboratory facilities
which we have control over these identified assets and obtain
economic benefits fully. We classified these identified assets as
operating leases after assessing the terms under classification
guidance. Our leases have remaining lease terms of 1 year to 3
years. We have only one lease that has option to extend, we have
concluded that it is not reasonably certain that we would exercise
the option to extend the lease. Therefore, as of the lease
commencement date, our lease terms generally did not include these
options. We include options to extend the lease when it is
reasonably certain that we will exercise that option. We have an
equipment lease with extension options which the Company likely to
extend, however, the equipment is billed based on the hours it is
used in the period. According to the guidance, the variable
payments based on other than index or rate, are to be expensed in
the period incurred. The equipment cost is recognized as it is
incurred. The corporate office had a sublease agreement for seven
months in which we were a sub lessor. We did not have any separate
lease components in any of the leases and the property taxes and
insurance charges are based on a variable rate in our real estate
leases, hence we did not include them in the lease payments as in
substance fixed payments.
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 to 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.
Upon
adoption of the standard, we recognized additional operating
liabilities of $1.2 million, with corresponding ROU assets of the
same amount based on the present value of the remaining minimum
lease payments for existing operating leases.
62
The
components of lease expense and sublease income was as
follows:
|
|
Year ended December 31,
2019
|
|
|
|
|
Operating
lease expense
|
$
712
|
|
Short
term lease expense
|
85
|
|
Variable
lease expense
|
102
|
|
Sub
lease income
|
(117
)
|
|
Total
lease cost
|
$
782
|
Supplemental
non-cash flow information related to right-of-use asset and lease
liabilities was as follows for the year ended December 31,
2019:
|
|
Year ended December 31,
2019
|
|
Accretion
of the lease liability
|
$
124
|
|
|
|
|
Amortization
of right-of-use assets
|
$
587
|
|
|
|
|
Weighted Average Remaining Lease Term Operating Leases
|
1.5 years
|
|
Weighted Average Discount Rate Operating Leases
|
14.8
%
|
Supplemental
balance sheet information related to leases was as
follows:
|
|
As
of
|
|
|
December
31, 2019
|
|
Operating
lease right-of-use assets
|
$
557
|
|
|
|
|
Operating
lease liabilities:
|
|
|
Short
term lease liability
|
$
377
|
|
Long
term lease liability
|
$
200
|
Maturities
of operating lease liabilities were as follows:
|
Year
ended December 31,
|
Operating leases
|
|
|
|
|
2020
|
$
423
|
|
2021
|
185
|
|
2022
|
30
|
|
Total
lease payments
|
$
638
|
|
Less
imputed interest
|
(61
)
|
|
Total
operating lease liability
|
$
577
|
63
Property taxes
The Company entered into a payment plan with Stanislaus County for
unpaid property taxes for the Keyes Plant site on June 28, 2018 by
paying $1.5 million as a first payment. Under the annual payment
plan, the Company was set to pay 20% of the outstanding redemption
amount, in addition to the current year property taxes and any
interest incurred on the unpaid balance to date annually, on or
before April 10 starting in 2019. After making one payment, Company
defaulted on the payment plan and as of December 31, 2019, the
balance in property tax accrual was $4.1 million. Subsequent to
year end, the County agreed not to enforce collection actions and
we are now in discussions with them regarding a payment
plan.
Legal Proceedings
On
August 31, 2016, the Company filed a lawsuit in Santa Clara County
Superior Court against defendant EdenIQ, Inc.
(“EdenIQ”). The lawsuit was based on
EdenIQ’s wrongful termination of a merger agreement that
would have effectuated the merger of EdenIQ into a new entity that
would be primarily owned by Aemetis. The lawsuit asserted
that EdenIQ had fraudulently induced the Company into assisting
EdenIQ to obtain EPA approval for a new technology that the Company
would not have done but for the Company’s belief that the
merger would occur. The relief sought included EdenIQ’s
specific performance of the merger, monetary damages, as well as
punitive damages, attorneys’ fees, and costs. In
response to the lawsuit, EdenIQ filed a cross-complaint asserting
causes of action relating to the Company’s alleged inability
to consummate the merger, the Company’s interactions with
EdenIQ’s business partners, and the Company’s use of
EdenIQ’s name and trademark in association with publicity
surrounding the merger. Further, EdenIQ named Third Eye
Capital Corporation (“TEC”) as a defendant in a second
amended cross-complaint alleging that TEC had failed to disclose
that its financial commitment to fund the merger included terms
that were not disclosed. Finally, EdenIQ claimed that TEC and
the Company concealed material information surrounding the
financing of the merger. By way of its cross-complaint,
EdenIQ sought monetary damages, punitive damages, injunctive
relief, attorneys’ fees and costs. In November 2018, the
claims asserted by the Company were dismissed on summary judgment
and the Company filed a motion to amend its claims, which remains
pending. In December 2018, EdenIQ dismissed all of its claims prior
to trial. In February 2019, the Company and EdenIQ each filed
motions seeking reimbursement of attorney fees and costs associated
with the litigation. On July 24, 2019, the court awarded EdenIQ a
portion of the fees and costs it had sought in the amount of
approximately $6.2 million. The Company recorded the $6.2 million
as loss contingency on litigation during the year ended December
31, 2019. The Company’s ability to amend its claims and
present its claims to the court or a jury could materially affect
the court’s decision to award EdenIQ its fees and costs. In
addition to further legal motions and a potential appeal of the
Court’s summary judgment order, the Company plans to appeal
the court’s award of EdenIQ’s fees and costs. The
Company intends to continue to vigorously pursue its legal claims
and defenses against EdenIQ.
6.
Variable
Interest Entity
GAFI
was formed to acquire the partially completed Goodland ethanol
plant in Goodland, Kansas. GAFI entered into the GAFI Note Purchase
Agreement with Third Eye Capital to acquire the plant. GAFI, the
Company and its subsidiary AAPK also entered into separate GAFI
Intercompany Notes, pursuant to which GAFI may, from time to time,
lend a portion of the proceeds of the GAFI Revolving Loan incurred
under the GAFI Note Purchase Agreement to the Company. Aemetis,
Inc. and AAPK (in such capacity, the “GAFI Guarantors”)
also agreed to enter into a limited guaranty (the “GAFI
Limited Guaranty”). Pursuant to the GAFI Limited Guaranty,
the Guarantors agreed to guarantee the prompt payment and
performance of all unpaid principal and interest on the GAFI Loans
and all other obligations and liabilities of GAFI to the GAFI
Noteholders in connection with the GAFI Note Purchase Agreement.
The obligations of the GAFI Guarantors pursuant to the GAFI Limited
Guaranty are secured by a first priority lien over all assets of
the GAFI Guarantors pursuant to separate general security
agreements entered into by each GAFI Guarantor. The aggregate
obligations and liabilities of each GAFI Guarantor is limited to
the sum of (i) the aggregate amount advanced by GAFI to such GAFI
Guarantor under and in accordance with the GAFI Intercompany Notes
and (ii) the obligation of the GAFI Guarantor pursuant to its
indemnity and expense obligations under the GAFI Limited Guaranty
prior to the date on which the option under the GAFI Option
Agreement is exercised. Additionally, on July 10, 2017, the Company
entered into the GAFI Option Agreement by and between GAFI and the
sole shareholder of GAFI, pursuant to which the Company was granted
an irrevocable option to purchase all, but not less than all, of
the capital stock of GAFI for an aggregate purchase price equal to
$0.01 per share for a total purchase price of $10.00 (such option,
the “GAFI Option”). The GAFI Option provides for
automatic triggering in the event of certain default circumstances.
After the automatic exercise upon default, the GAFI Limited
Guaranty no longer applies and the GAFI Guarantors are responsible
for the outstanding balances of the GAFI Term Loan and the GAFI
Revolving Loan. Additionally, Third Eye Capital was granted a
warrant for the purchase of 250 shares, representing 20% of the
outstanding shares of GAFI, for a period of 10 years at an exercise
price of $0.01 per share. The sole shareholder of GAFI received
100,000 shares of common stock of the Company as consideration. On
July 10, 2017, the Company issued the 100,000 shares and recognized
$0.1 million of stock compensation expense during the year ended
December 31, 2017.
64
After
consideration of the above agreements, we concluded that GAFI did
not have enough equity to finance its activities without additional
subordinated financial support. Additionally, GAFI’s
shareholder did not have a controlling financial interest in the
entity. Hence, we concluded that GAFI is a VIE. The primary
beneficiary of a VIE is the party that has both the power to direct
the activities that most significantly affect the economic
performance of the VIE and the obligation to absorb losses or
receive benefits that could potentially be significant to the VIE.
In determining whether Aemetis is the primary beneficiary, a number
of factors are considered, including the structure of the entity,
contractual provisions that grant any additional rights to
influence or control the economic performance of the VIE, and
obligation to absorb significant losses. Through providing Limited
Guaranty and signing the Option Agreement, the Company took the
risks related to operations, financing the Goodland Plant, and
agreed to meet the financial covenants for GAFI to be in existence.
Based upon this assessment, Aemetis has the power to direct the
activities of GAFI and has been determined to be the primary
beneficiary of GAFI and accordingly, the assets, liabilities, and
operations of GAFI are consolidated into those of the Company. The
assets and liabilities were initially recognized at fair
value.
On
December 31, 2019, Company exercised the option to acquire all
capital stock of the GAFI, hence the Company is responsible for
outstanding balances of the GAFI Term Loan and the GAFI Revolving
Loan.
GAFI’s
Statements of Operations for years ended December 31, 2019 and 2018
as follows:
|
|
For the
years ended
|
|
|
|
December
31, 2019
|
December
31, 2018
|
|
Other
Expenses
|
|
|
|
Selling,
general and administrative expenses
|
$
426
|
$
455
|
|
Operating
loss
|
(426
)
|
(455
)
|
|
|
|
|
|
Interest
expense
|
|
|
|
Interest
rate expense
|
3,142
|
2,865
|
|
Debt
related fees and amortization expense
|
868
|
690
|
|
Other
income
|
(675
)
|
(739
)
|
|
Net
loss
|
$
(3,761
)
|
$
(3,271
)
|
65
GAFI,
the Company and its subsidiaries Aemetis Advanced Products Keyes,
Inc. (“AAPK”) and Aemetis Property Keyes, Inc.
(“APK”) also entered into separate intercompany
revolving promissory notes (the “GAFI Intercompany
Notes”), dated July 10, 2017, pursuant to which GAFI may,
from time to time, lend a portion of the proceeds of the GAFI
Revolving Loan borrowed under the Amended GAFI Note Purchase
Agreement to the Company. Aemetis paid GAFI fees of $1.0 million
associated with entry into the Note purchase agreement with TEC,
and accordingly holds an account receivable from GAFI.
The
Company borrowed $1.5 million on June 28, 2018 and it was paid back
on December 20, 2018. On December 3, 2018, APK borrowed $1.6
million from GAFI to purchase the land for CO
2
project. In 2019,
APK borrowed $1.5 million from GAFI to construct the CO
2
project. As of
December 31, 2019 and 2018, the Company, AAPK, APK had $6.4 million
and $6.2 million outstanding on the GAFI Intercompany Notes. The
outstanding balances are eliminated upon consolidation and after
the exercise of the option, these notes are treated as intercompany
transactions between subsidiaries.
7.
Biogas
LLC – Series A Preferred Financing
On
December 20, 2018, Aemetis Biogas LLC (the “ABGL”)
entered into a Series A Preferred Unit Purchase Agreement (the
“Preferred Unit Agreement”) by selling Series A
preferred Units to Protair-X Americas, Inc. (the
“Purchaser”), with Third Eye Capital acting as an agent
for the purchaser (the “Agent”). ABGL plans to
construct and collect biogas from dairies located near the Keyes
Plant (the “CO
2
Project”).
Biogas is a blend of methane along with CO
2
and other
impurities that can be captured from dairies, landfills and other
sources. After a gas cleanup and compression process, biogas
can be converted into bio-methane, which is a direct replacement of
petroleum natural gas and can be transported in existing natural
gas pipelines.
ABGL is
authorized to issue 11,000,000 Common Units, and up to 6,000,000
convertible, redeemable, secured, preferred membership units (the
“Series a Preferred Units”). ABGL issued 6,000,000
Common Units to the Company. ABGL also issued 1,660,000 Series A
Preferred Units to the Purchaser for $8,300,000 with the ability to
issue an additional 4,340,000 Series A Preferred Units at $5.00 per
Unit for a total of up to $30,000,000 in funding. Additionally,
5,000,000 common units are held in reserve as potential conversion
units issuable to the Purchaser upon certain triggering events
discussed below.
The
Preferred Unit Agreement includes (i) preference payments of $0.50
per unit on the outstanding Series A Preferred Units commencing on
the second anniversary, (ii) conversion rights for up to 1,200,000
common units or up to maximum number of 5,000,000 common units
(also at a one Series A Preferred Unit to one Common Unit basis) if
certain triggering events occur, (iv) one Board seat of the three
available to be elected by Preferred Unit holders, (iii) mandatory
redemption value at $15 per unit payable at an amount equal to 75%
of free cash flow generated by ABGL, up to $90 million in the
aggregate (if all units are issued), (iv) full redemption of the
units on the sixth anniversary, (v) minimum cash flow requirements
from each digester, and (vi) $0.9 million paid as fees to the Agent
from the proceeds.
Triggering
events occur upon ABGL’s failure to redeem units, comply with
covenants, any other defaults or cross defaults, or to perform
representations or warranties. Upon a triggering event: (i) the
obligation of the Purchaser to purchase additional Series A
Preferred Units is terminated, (ii) cash flow payments for
redemption payments increases from 75% to 100% of free cash flows,
and (iii) total number of common units into which preferred units
may be converted increases from 1,200,000 common units to 5,000,000
common units on a one for one basis.
Pursuant
to signing the agreement with the Purchaser, the ABGL issued
1,660,000 Series A Preferred Units for an amount of $8.3 million in
first tranche of investment. ABGL paid $6.0 million of this amount
to Aemetis, Inc. in the form of management fees for managing and
executing the Project. We assessed the above terms and concluded
that the minority shareholders lacks substantive participating
rights, principally based on the ownership percentage, manager
representation, and expertise in the industry. Therefore, ABGL is
controlled by Aemetis, Inc. and accordingly consolidated into the
Company. The Series A Preferred Units are recorded as mandatorily
redeemable and treated as a liability as the conversion option was
deemed to be non-substantive. The Company is accreting up to the
redemption value of $24.9 million over the estimated future cash
flow periods of six years using the effective interest method. In
addition, the Company identified freestanding future tranche rights
and the accelerated redemption feature related to a change in
control provision as derivatives which required bifurcation. These
derivative features were assessed to have minimal value as of
December 31, 2019 and December 31, 2018 based on the evaluation of
the other conditions included in the agreement.
During
the year ended December 31, 2019, ABGL issued 963,000 Series A
Preferred Units for incremental proceeds of $4.8 million as part of
the first tranche of the Series A Preferred Unit Agreement.
Consistent with the previous issuances, the units are treated as a
liability as the conversion option was deemed to be
non-substantive. The Company is accreting up to the redemption
value of $14.4 million over the estimated future cash flow periods
of six years from the original anniversary date using the effective
interest method.
As of
December 31, 2019 and 2018, the Company recorded Series A Preferred
Unit liabilities of $14.1 million and $7.0 million net of unit
issuance costs and inclusive of accretive preferences pursuant to
this agreement.
8. Stockholders’ Equity
The Company is authorized to issue up to 40 million shares of
common stock, $0.001 par value per share and 65 million shares of
preferred stock, $0.001 par value per share.
66
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Convertible Preferred Stock
The following is a summary of the authorized, issued and
outstanding convertible preferred stock:
|
|
|
Shares Issued and
|
|
|
|
Authorized
|
Outstanding December 31,
|
|
|
|
Shares
|
2019
|
2018
|
|
Series
B preferred stock
|
7,235
|
1,323
|
1,323
|
|
Undesignated
|
57,765
|
—
|
—
|
|
|
65,000
|
1,323
|
1,323
|
Our Articles of Incorporation authorize
the Company’s
board to issue up to 65 million shares
of preferred stock, $0.001 par value, in one or more classes or
series within a class upon authority of the board without further
stockholder approval.
Significant terms of the designated preferred stock are as
follows:
Voting.
Holders of
the
Company’s
Series B preferred
stock are entitled to the number of votes equal to the number of
shares of Common Stock into which the shares of Series B preferred
stock held by such holder could be converted as of the record date.
Cumulative voting with respect to the election of directors is not
allowed. Currently each share of Series B preferred stock is
entitled to a 1 for 10, as converted, vote per share of Series B
preferred stock. In addition, without obtaining the approval of the
holders of a majority of the outstanding preferred stock, the
Company cannot:
●
Increase
or decrease (other than by redemption or conversion) the total
number of authorized shares of Series B preferred
stock;
●
Effect
an exchange, reclassification, or cancellation of all or a part of
the Series B preferred stock, including a reverse stock split, but
excluding a stock split;
●
Effect
an exchange, or create a right of exchange, of all or part of the
shares of another class of shares into shares of Series B preferred
stock; or
●
Alter
or change the rights, preferences or privileges of the shares of
Series B preferred stock so as to affect adversely the shares of
such series.
Dividends
. Holders of all
of
the Company’s
shares
of Series B preferred stock are entitled to receive non-cumulative
dividends payable in preference and before any declaration or
payment of any dividend on common stock as may from time to time be
declared by the board of directors out of funds legally available
for that purpose at the rate of 5% of the original purchase price
of such shares of preferred stock. No dividends may be made with
respect to
the Company’s
common stock until all declared dividends on the
preferred stock have been paid or set aside for payment to the
preferred stockholders. To date, no dividends have been
declared.
Liquidation Preference.
In the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series B preferred
stock are entitled to receive, prior and in preference to any
payment to the holders of the common stock, $3.00 per share plus
all declared but unpaid dividends (if any) on the Series B
preferred stock. If the Company’s assets legally available
for distribution to the holders of the Series B preferred stock are
insufficient to permit the payment to such holders of their full
liquidation preference, then the Company’s entire assets
legally available for distribution are to be distributed to the
holders of the Series B preferred stock in proportion to their
liquidation preferences. After the payment to the holders of the
Series B preferred stock of their liquidation preference, the
Company’s remaining assets legally available for distribution
are distributed to the holders of the common stock in proportion to
the number of shares of common stock held by them. A liquidation,
dissolution or winding up includes (a) the acquisition of the
Company by another entity by means of any transaction or series of
related transactions to which the Company is party (including,
without limitation, any stock acquisition, reorganization, merger
or consolidation but excluding any sale of stock for capital
raising purposes) that results in the voting securities of the
Company outstanding immediately prior thereto failing to represent
immediately after such transaction or series of transactions
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or the entity that controls such
surviving entity) a majority of the total voting power represented
by the outstanding voting securities of the Company, such surviving
entity or the entity that controls such surviving entity, or (b) a
sale, lease or other conveyance of all or substantially all of the
assets of the Company.
Conversion.
Holders of Series B
preferred stock have the right, at their option at any time, to
convert any shares into common stock. Every 10 shares of preferred
stock will convert into one share of common stock, at the current
conversion rate. The conversion ratio is subject to adjustment from
time to time in the event of certain dilutive issuances and events,
such as stock splits, stock dividends, stock combinations,
reclassifications, exchanges and the like. In addition, at such
time as the Registration Statement covering the resale of the
shares of common stock is declared effective, then all outstanding
Series B preferred stock shall be automatically converted into
common stock at the then effective conversion
rate.
Mandatorily Redeemable Series B preferred stock.
In connection with the election of
dissenters’ rights by the Cordillera Fund, L.P., at December
31, 2008 the Company reclassified 583 thousand shares with an
original purchase price of $1.8 million out of shareholders’
equity to a liability called “mandatorily redeemable Series B
preferred stock” and accordingly reduced stockholders’
equity by the same amount to reflect the Company’s
obligations with respect to this matter. The obligation accrues
interest at the rate of 5.25% per year. At December 31, 2019 and
2018, the Company had accrued an outstanding obligation of $3.1
million and $3.0 million, respectively. Full cash payment to the
Cordillera Fund is past due. The Company expects to pay this
obligation upon availability of funds after paying senior secured
obligations.
67
9. Outstanding Warrants
During the years ended December 31, 2019 and 2018, the Company
granted
227 thousand
common
stock warrants, for the extension of certain
Notes for each
period, respectively. The accredited investors received 2-year
warrants exercisable at $0.01 per share as part of note
agreements.
The weighted average fair value calculations for warrants granted
are based on the following weighted average
assumptions:
|
|
For the year ended December 31
|
|
|
Description
|
2019
|
2018
|
|
Dividend-yield
|
0
%
|
0
%
|
|
Risk-free
interest rate
|
2.13
%
|
2.25
%
|
|
Expected
volatility
|
103.0
%
|
92.2
%
|
|
Expected
life (years)
|
2
|
2
|
|
Market
value per share on grant date
|
$
0.73
|
$
1.05
|
|
Exercise
price per share
|
$
0.01
|
$
0.01
|
|
Fair
value per share on grant date
|
$
0.72
|
$
1.04
|
For the years ended December 31, 2019 and 2018, Note investors
exercised 227 thousand warrant shares for each period respectively,
at exercise prices of $0.01 per share, respectively.
A summary of historical warrant activity for the years ended
December 31, 2019 and 2018 follows:
|
|
Warrants Outstanding & Exercisable
|
Weighted - Average Exercise Price
|
Average Remaining Term in Years
|
|
Outstanding
December 31, 2017
|
330
|
$
3.47
|
3.02
|
|
Granted
|
227
|
0.01
|
|
|
Exercised
|
(227
)
|
0.01
|
|
|
Expired
|
(235
)
|
3.82
|
|
|
Outstanding
December 31, 2018
|
95
|
$
2.59
|
6.95
|
|
Granted
|
227
|
0.01
|
|
|
Exercised
|
(227
)
|
0.01
|
|
|
Outstanding
December 31, 2019
|
95
|
$
2.59
|
5.95
|
All of the above outstanding warrants are vested and exercisable as
of December 31, 2019. As of December 31, 2019 and 2018, the Company
had none and $37 thousand of total compensation expense related to
warrants recognized, respectively.
68
10. Stock-Based Compensation
2019 Plan
On April 29, 2019, the Aemetis 2019 Stock Plan (the “2019
Stock Plan”) was approved by stockholders of the Company.
This plan permits the grant of Incentive Stock Options,
Non-Statutory Stock Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Performance Units, Performance
Shares and other stock or cash awards as the Administrator may
determine in its discretion. The 2019 Stock Plan’s term is 10
years and supersedes all prior plans. The 2019 Stock Plan
authorized the issuance of 200,000 shares of common stock for the
2019 calendar year, in addition to permitting transferring and
granting any available and unissued or expired options under the
Amended and Restated 2007 Stock Plan in an amount up to 177,246
options.
On June 6, 2019, 374,000 option grants were issued to employees and
directors under the 2019 Stock Plan. These options expire ten years
from the date of grant. Employee grants have a general vesting term
of 1/12th every three months and are exercisable at any time after
vesting subject to continuation of employment. Option grants for
directors had immediate vesting with 10-year term
expiration.
With the approval of the 2019 Stock Plan, the Zymetis 2006 Stock
Plan, and Amended and Restated 2007 Stock Plan are terminated for
granting any options under either plan. However, any options
granted before the 2019 Stock Plan approved will remain outstanding
and can be exercised, and any expired options will be available to
grant under the 2019 Stock Plan.
On January 8, 2019, 707,000 stock option grants were issued for
employees and directors under the Amended and Restated 2007 Stock
Plan. On February 21, 2019, 10,000 stock option grants were issued
to a consultant by the Company.
As of December 31, 2019, 3.7 million options are outstanding under
the Company Stock Plans.
Inducement Equity Plan Options
In March 2016, the Board of Directors of the Company (the
“Board”) approved an Inducement Equity Plan authorizing
the issuance of 100,000 non-statutory stock options to purchase
common stock.
On June 6, 2019, 25,000 option grants were made under the
Inducement Equity Plan to employees. As of December 31, 2019,
25,000 options were outstanding under the Inducement Equity
Plan.
Common Stock Reserved for Issuance
The following is a summary of awards granted under the above
Plans:
|
|
Shares Available for Grant
|
Number of Shares Outstanding
|
Weighted-Average Exercise Price
|
|
Balance
as of December 31, 2017
|
196
|
2,189
|
$
2.70
|
|
Authorized
|
655
|
-
|
-
|
|
Granted
|
(1,148
)
|
1,148
|
1.07
|
|
Exercised
|
-
|
(2
)
|
0.67
|
|
Forfeited/expired
|
446
|
(446
)
|
4.35
|
|
Balance
as of December 31, 2018
|
149
|
2,889
|
$
1.80
|
|
Authorized
|
855
|
-
|
-
|
|
Granted
|
(1,116
)
|
1,116
|
0.78
|
|
Forfeited/expired
|
259
|
(259
)
|
3.53
|
|
Balance
as of December 31, 2019
|
147
|
3,746
|
$
1.38
|
69
Vested and unvested awards outstanding as of December 31, 2019 and
2018 follow:
|
|
Number of Shares
|
Weighted Average Exercise Price
|
Remaining Contractual Term (In Years)
|
Average Intrinsic Value
1
|
|
2019
|
|
|
|
|
|
Vested
and Exercisable
|
2,659
|
$
1.56
|
7.45
|
$
145
|
|
Unvested
|
1,087
|
0.93
|
8.78
|
77
|
|
Total
|
3,746
|
$
1.38
|
7.84
|
$
222
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
Vested
and Exercisable
|
1,923
|
$
2.01
|
7.34
|
$
-
|
|
Unvested
|
966
|
1.38
|
8.81
|
-
|
|
Total
|
2,889
|
$
1.80
|
7.80
|
$
-
|
(1)
Intrinsic value based on the
$0.83 and $0.61 closing price of Aemetis stock on December 31, 2019
and 2018 respectively, as reported on the NASDAQ
Exchange.
Stock-based compensation for employees
Stock-based compensation is accounted for in accordance with the
provisions of ASC 718, Compensation-Stock Compensation, which
requires the measurement and recognition of compensation expense
for all stock-based awards made to employees and directors based on
estimated fair values on the grant date. We estimate the fair value
of stock-based awards on the date of grant using the Black-Scholes
option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the
requisite service periods using the straight-line
method.
For the
years ended December 31, 2019 and 2018 the Company recorded option
expense in the amount of $0.8 million and $1.0 million,
respectively.
Valuation and Expense Information
All
issuances of stock options or other issuances of equity instruments
to employees as the consideration for services received by us are
accounted for based on the fair value of the equity instrument
issued. The fair value of options granted to employees is estimated
on the grant date using the Black-Scholes option valuation model.
This valuation model for stock based compensation expense requires
us to make assumptions and judgments about the variables used in
the calculation, including the fair value of our common stock, the
expected term (the period of time that the options granted are
expected to be outstanding), the volatility of our common stock, a
risk-free interest rate, and expected dividends. We also estimate
forfeitures of unvested stock options. To the extent actual
forfeitures differ from the estimates, the difference will be
recorded as a cumulative adjustment in the period estimates are
revised. No compensation cost is recorded for options that do not
vest. We use the simplified calculation of expected life described
in the SEC’s Staff Accounting Bulletin No. 107, Share-Based
Payment, and volatility is based on an average of the historical
volatilities of the common stock of four entities with
characteristics similar to those of the Company. The risk-free rate
is based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the
option. We use an expected dividend yield of zero, as we do not
anticipate paying any dividends in the foreseeable future. Expected
forfeitures are assumed zero due to the small number of plan
participants.
The weighted average fair value calculations for options granted
during years ended December 31, 2019 and 2018 are based on the
following assumptions:
|
|
For the years ended December 31,
|
|
|
Description
|
2019
|
2018
|
|
Dividend-yield
|
0
%
|
0
%
|
|
Risk-free
interest rate
|
2.38
%
|
2.71
%
|
|
Expected
volatility
|
88.54
%
|
82.99
%
|
|
Expected
life (years)
|
6.55
|
6.48
|
|
Market
value per share on grant date
|
$
0.78
|
$
1.07
|
|
Fair
value per share on grant date
|
$
0.59
|
$
0.79
|
As of December 31, 2019, the Company had $0.7 million of total
unrecognized compensation expense for employees which the Company
will amortize over the weighted remaining term of 1.8
years.
70
The
Company entered into a Stock Appreciation Rights Agreement to issue
1,050,000 Stock Appreciation Rights (SARs) to Third Eye Capital on
August 23, 2018 as part of Amendment No.1 to GAFI Note Purchase
Agreement with an exercise date of one year from the issuance date.
The SARs Agreement contains a call option for the Company at $2.00
per share during the first 11 months of the agreement either pay
$2.1 million in cash or issue common stock worth of $2.1 million
based on 30-day weighted average price of the stock on the call
date, and a put option for the Third Eye Capital at $1.00 per share
during the 11
th
month of the
agreement where Third Eye Capital can redeem the SARs for $1.1
million in cash and cash equivalents. If none of the above options
is exercised, SARs are automatically exercised and paid for in cash
and cash equivalents one year from the date of the issuance date
based upon the 30-day weighted average price of the Company’s
stock price. We used an outside valuation expert to value the SARs
using the Monte Carlo method. This valuation model requires us to
make assumptions and judgments about the variables used in the
calculation, such assumptions include the following: the fair value
of our common stock, which was at $1.28. On August 23, 2018, the
volatility of our common stock for a year at 127%, and a risk-free
interest rate for one year at 2.43%. Based on this valuation, we
recorded a fair value of the SARs of $1.28 million as fees on
Amendment No. 1 to the GAFI term loan and these fees were amortized
over the term of the loan according to ASC 470-50
Debt – Modification and
Extinguishment.
The Company also recorded a liability for
the fair value of $1.28 million in other liabilities which will be
re-measured at every quarter end using the Monte Carlo valuation
method until the SARs are exercised. 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.
11. Agreements
Working Capital Arrangement.
Pursuant to a Corn Procurement
and Working Capital Agreement with J.D. Heiskell, the Company
agreed to procure whole yellow corn and grain sorghum, primarily
from J.D. Heiskell. The Company has the ability to obtain grain
from other sources subject to certain conditions; however, in the
past all the Company’s grain purchases have been from J.D.
Heiskell. Title and risk of loss of the corn pass to the Company
when the corn is deposited into the Keyes Plant weigh bin. The term
of the Corn Procurement and Working Capital Agreement expires on
December 31, 2020 and the term can be automatically renewed for
additional one-year terms. J.D. Heiskell further agrees to sell all
ethanol the Company produces to Kinergy Marketing or other
marketing purchasers designated by the Company and all WDG the
Company produces to A.L. Gilbert. The Company markets and sells DCO
to A.L. Gilbert and other third parties. The Company’s
relationships with J.D. Heiskell, Kinergy Marketing, and A.L.
Gilbert are well established and the Company believes that the
relationships are beneficial to all parties involved in utilizing
the distribution logistics, reaching out to widespread customer
base, managing inventory, and building working capital
relationships. Revenue is recognized upon delivery of ethanol to J.
D. Heiskell as revenue recognition criteria have been met and any
performance required of the Company subsequent to the sale to J.D.
Heiskell is inconsequential. These agreements are ordinary purchase
and sale agency agreements for the Keyes Plant.
The
J.D. Heiskell sales activity associated with the Purchasing
Agreement, Corn Procurement and Working Capital
Agreements
during the years ended December 31, 2019 and 2018 were as
follows:
|
|
As of and for the years ended December 31,
|
|
|
|
2019
|
2018
|
|
Ethanol
sales
|
$
114,593
|
$
113,855
|
|
Wet
distillers' grains sales
|
34,510
|
32,362
|
|
Corn
oil sales
|
3,536
|
3,393
|
|
Corn
purchases
|
119,786
|
112,687
|
|
Accounts
receivable
|
554
|
433
|
|
Accounts
payable
|
2,027
|
1,882
|
Ethanol and Wet Distillers Grains Marketing Arrangement.
The
Company entered into an Ethanol Marketing Agreement with Kinergy
Marketing and a Wet Distillers Grains Marketing Agreement with A.L.
Gilbert. Under the terms of the agreements, subject to certain
conditions, the Ethanol Marketing Agreement matures on August 31,
2020 and with A.L Gilbert on December 31, 2020 with automatic
one-year renewals thereafter. For the years ended December 31, 2019
and 2018, the Company expensed marketing costs of $2.6 million,
respectively, under the terms of both ethanol and wet
distillers’ grains agreements.
As of
December 31, 2019, the Company has forward sales commitments for
approximately 82,000 tons of WDG. These committed sales will be
expected through March 2020.
12. Segment Information
Aemetis
recognizes two reportable geographic segments: “North
America” and “India.” The “North
America” operating segment includes the Keyes Plant in Keyes,
the cellulosic ethanol facility in Riverbank, the cluster of biogas
digesters on dairies near Keyes, California, the Goodland Plant,
Kansas and the research and development facility in
Minnesota.
The
“India” operating segment includes the Company’s
50 million gallon per year nameplate capacity biodiesel
manufacturing Kakinada Plant, the administrative offices in
Hyderabad, India, and the holding companies in Nevada and
Mauritius. The Company’s biodiesel is marketed and sold
primarily to customers in India through brokers and by the Company
directly.
71
Summarized financial information by reportable segment for the
years ended December 31, 2019 and 2018 follow:
|
|
For the
year ended December 31, 2019
|
For the
year ended December 31, 2018
|
||||
|
|
North
America
|
India
|
Total
Consolidated
|
North
America
|
India
|
Total
Consolidated
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
154,148
|
$
47,850
|
$
201,998
|
$
150,045
|
$
21,481
|
$
171,526
|
|
Cost
of goods sold
|
150,197
|
39,103
|
189,300
|
145,947
|
20,174
|
166,121
|
|
Gross
profit
|
3,951
|
8,747
|
12,698
|
4,098
|
1,307
|
5,405
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
Research
and development expenses
|
205
|
-
|
205
|
246
|
-
|
246
|
|
Selling,
general and administrative expenses
|
13,279
|
4,145
|
17,424
|
15,204
|
881
|
16,085
|
|
Interest
expense
|
25,404
|
351
|
25,755
|
25,076
|
614
|
25,690
|
|
Accretion
of Series A preferred units
|
2,257
|
-
|
2,257
|
44
|
-
|
44
|
|
Loss
contingency on litigation
|
6,200
|
-
|
6,200
|
-
|
-
|
-
|
|
Loss
on impairment of intangibles
|
-
|
-
|
-
|
865
|
-
|
865
|
|
Other
expense (income)
|
25
|
(822
)
|
(797
)
|
(1,208
)
|
(37
)
|
(1,245
)
|
|
Income
(loss) before income taxes
|
$
(43,419
)
|
$
5,073
|
$
(38,346
)
|
$
(36,129
)
|
$
(151
)
|
$
(36,280
)
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
$
7,519
|
$
1,059
|
$
8,578
|
$
2,746
|
$
1,328
|
$
4,074
|
|
Depreciation
|
3,822
|
612
|
4,434
|
3,968
|
612
|
4,580
|
Total assets by segment are as follows:
|
|
As
of
|
|
|
|
December
31,
|
December
31,
|
|
|
2019
|
2018
|
|
|
|
|
|
North
America
|
$
82,990
|
$
78,149
|
|
India
|
16,906
|
13,672
|
|
Total
Assets
|
$
99,896
|
$
91,821
|
North America:
In 2019 and
2018, the majority of
the Company’s
revenues from sales of ethanol, WDG and corn oil
were sold to J.D. Heiskell pursuant to the Corn Procurement and
Working Capital Agreement. Sales to J.D. Heiskell accounted for
99.1% and 99.7% of
the Company’s North America segment
consolidated revenues in 2019 and 2018
respectively.
India:
During 2019,
three customers accounted for 33%, 15%, and 13%, of the
consolidated India segment revenues compared to two customers
accounting for 53% and 13% of the consolidated India segment
revenues in 2018.
13. Related Party Transactions
The
Company owes Eric McAfee, the Company’s Chairman and CEO, and
McAfee Capital, owned by Eric McAfee, $0.4 million in connection
with employment agreements and expense reimbursements previously
accrued as salaries expense and currently held as an accrued
liability. The balance accrued related to these employment
agreements was $0.4 million as of December 31, 2019 and 2018. For
the years ended December 31, 2019 and 2018, the Company expensed
$36 thousand and $39 thousand, respectively, to reimburse actual
expenses incurred by McAfee Capital and related entities. The
Company previously prepaid $0.2 million to Redwood Capital, a
company controlled by Eric McAfee, for the Company’s use of
flight time on a corporate jet. As of December 31, 2019, $0.1
million remained as a prepaid expense.
As
consideration for the reaffirmation of guaranties required by
Amendments No. 13 and 14 to the Note Purchase Agreement entered
into by the Company with Third Eye Capital on March 1, 2017 and
March 27, 2018 respectively, the Company also agreed to pay $0.2
million for each year in consideration to McAfee Capital in
exchange for their willingness to provide the guaranties. The
balance of $304 thousand and $400 thousand for guaranty fee
remained as an accrued liability as of December 31, 2019 and
December 31, 2018 respectively.
The
Company owes various Board Members amounts totaling $1.2 million
and $1.1 million as of December 31, 2019 and 2018, respectively, in
connection with board compensation fees, which are included in
accounts payable on the balance sheet. For each of the years ended
December 31, 2019 and 2018, the Company expensed $0.4 million each
year, in connection with board compensation fees.
72
14. Income Tax
The Company files a consolidated federal income tax return
including all its domestic subsidiaries. State tax returns are
filed on a consolidated, combined or separate basis depending on
the applicable laws relating to the Company and its
subsidiaries.
Current income tax expense for the years ended December 31, 2019
and 2018 consisted of $8 thousand and $7 thousand, respectively of
state and local taxes. Foreign deferred tax expense for the years
ended December 31, 2019 and 2018 consisted of approximately $1.1
million and none, respectively.
|
|
2019
|
2018
|
|
Current:
|
|
|
|
Federal
|
$
-
|
$
-
|
|
State
and Local
|
8
|
7
|
|
Foreign
|
-
|
-
|
|
|
$
8
|
$
7
|
|
Deferred:
|
|
|
|
Federal
|
$
-
|
$
-
|
|
State
and Local
|
-
|
-
|
|
Foreign
|
1,123
|
-
|
|
Income
tax expense
|
$
1,131
|
$
7
|
The
Company recorded an approximate $1.1 million deferred tax liability
as of December 31, 2019 that is recorded in other long term
liabilites in the Consolidated Balance Sheets. The deferred tax
liability resulted as India subsidiary had income for the year
ended December 31, 2019.
U.S. loss and
foreign income (loss) before income taxes are as
follows:
|
|
Year Ended
December 31,
|
|
|
|
2019
|
2018
|
|
United States
loss
|
$
(43,419
)
|
$
(36,129
)
|
|
Foreign
income (loss)
|
5,073
|
(151
)
|
|
Total pretax
loss
|
$
(38,346
)
|
$
(36,280
)
|
73
Income tax benefit differs from the amounts computed by applying
the statutory U.S. federal income tax rate (21%) to loss before
income taxes as a result of the following:
|
|
Year Ended December
31,
|
|
|
|
2019
|
2018
|
|
Income
tax (benefit) at the federal statutory rate
|
$
(8,052
)
|
$
(7,619
)
|
|
State
tax (benefit)
|
(48
)
|
(632
)
|
|
Foreign
tax differential
|
900
|
450
|
|
Stock-based
compensation
|
133
|
150
|
|
Interest
Expense
|
478
|
-
|
|
GILTI
Inclusion
|
849
|
97
|
|
Other
|
166
|
(47
)
|
|
Prior
year true-ups
|
1,493
|
-
|
|
Valuation
Allowance
|
5,212
|
7,608
|
|
|
|
|
|
Income
Tax Expense
|
$
1,131
|
$
7
|
|
Effective Tax
Rate
|
-2.95
%
|
-0.02
%
|
The components of the net deferred tax asset or (liability) are as
follows:
|
|
Year Ended December
31,
|
|
|
|
2019
|
2018
|
|
Deferred
tax Assets:
|
|
|
|
Organization,
Startup and Intangible Assets
|
$
3,997
|
$
4,723
|
|
Stock Based
Compensation
|
328
|
301
|
|
NOLs
and R&D Credits
|
53,400
|
56,270
|
|
Interest expense
carryover
|
9,131
|
4,722
|
|
Ethanol
Credits
|
1,500
|
1,500
|
|
Other,
net
|
2,622
|
450
|
|
Total
deferred tax assets
|
70,978
|
67,966
|
|
Valuation
Allowance
|
(59,547
)
|
(54,335
)
|
|
Net
deferred tax assets
|
11,431
|
13,631
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Property,
Plant, and Equipment
|
(12,554
)
|
(13,631
)
|
|
Total deferred tax
liabilities
|
(12,554
)
|
(13,631
)
|
|
Net
deferred tax liabilities
|
$
(1,123
)
|
$
-
|
74
The Company does not provide for U.S. income taxes for any
undistributed earnings of
the Company’s
foreign subsidiaries, as the Company considers
these permanently reinvested in the operations of such subsidiaries
and have a cumulative foreign loss. At December 31, 2019 and
2018, these undistributed losses totaled $7.0 million, and $12.1
million, respectively. If any earnings were distributed, some
countries may impose withholding taxes. Following the passage
of the 2017 U.S. Tax Cuts and Jobs Act, the U.S. imposed a
transition tax on the accumulated earnings of the Company’s
foreign subsidiaries through December 31, 2017. Since the
foreign subsidiaries have a cumulative loss, there was no U.S.
federal tax impact related to the transition tax. Not all
future earnings of the foreign subsidiaries will be subject to U.S.
income taxes as the U.S. has moved to a modified territorial system
for tax years beginning after December 31, 2017. Finally, due
to the Company’s overall deficit in foreign cumulative
earnings and its U.S. loss position, the Company does not believe a
material net unrecognized U.S. deferred tax liability
exists.
In 2018 and 2019, the U.S. imposed a tax on Global Intangible
Low-Taxed Income “GILTI” which imposes a tax on foreign
income in excess of a deemed return on tangible assets of a foreign
corporation.
The
Company has evaluated this provision
and recognized an inclusion of $0.4 million and $4.0 million of
income for the years ended December 31, 2018 and 2019,
respectively, in relation to GILTI. This inclusion decreased the
Company’s net loss. Due to the Company’s overall
deficit in foreign cumulative earnings and its U.S. loss position,
the Company does not believe a material net unrecognized U.S.
deferred tax liability exists.
ASC 740
Income Taxes
provides that the tax effects from an
uncertain tax position can be recognized in
the
Company’s
financial statements
only if the position is more-likely-than-not of being sustained on
audit, based on the technical merits of the position. Tax positions
that meet the recognition threshold are reported at the largest
amount that is more-likely-than-not to be realized. This
determination requires a high degree of judgment and estimation.
The Company periodically analyzes and adjusts amounts recorded
for
the Company’s
uncertain tax positions as events occur to warrant
adjustment when the statutory period for assessing tax on a given
tax return, period expire or if tax authorities provide
administrative guidance or a decision is rendered in the courts.
The Company does not reasonably expect the total amount of
uncertain tax positions to significantly increase or decrease
within the next 12 months. As of December 31, 2019,
the
Company’s
uncertain tax
positions were not significant for income tax
purposes.
We conduct business globally and, as a result, one or more
of
the Company’s
subsidiaries file income tax returns in the U.S.
federal jurisdiction and various state and foreign jurisdictions.
In the normal course of business, the Company is subject to
examination by taxing authorities throughout the world, including
such major jurisdictions as India, Mauritius, and the United
States. The Company files a U.S. federal income tax return and tax
returns in three U.S. states, as well as in two foreign
jurisdictions. Penalties and interest are classified as general and
administrative expenses.
The following describes the open tax years, by major tax
jurisdiction, as of December 31, 2019:
|
United States — Federal
|
|
2007 – present
|
|
|
United States — State
|
|
2008– present
|
|
|
India
|
|
2010 – present
|
|
|
Mauritius
|
|
2006 – present
|
|
As of December 31, 2019, the Company had U.S. federal NOL
carryforwards of approximately $197.1 million and state NOL
carryforwards of approximately $213.4 million. The Company also has
approximately $1.5 million of alcohol and cellulosic biofuel credit
carryforwards. As of December 31, 2019, the federal NOL’s of
$195.1 million and the state NOL’s of $213.4 million expire
on various dates between 2027 and 2039. Due to the 2017 U.S. Tax
Reform, U.S. federal NOLs post 2017 in the amount of $2.0 million
have no expiration date. Under the current tax law, net operating
loss and credit carryforwards available to offset future income in
any given year may be limited by U.S. or India statute regarding
net operating loss carryforwards and timing of expirations or upon
the occurrence of certain events, including significant changes in
ownership interests. The Company’s India subsidiary has net
operating loss carryforwards as of December 31, 2019 of
approximately $1.9 million in U.S. dollars, which expire through
December 31, 2026.
15. Parent Company Financial Statements (Unaudited)
The following is a summary of the Parent Company financial
statements for the years ended December 31, 2019 and
2018:
75
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Aemetis, Inc. (Parent Company)
Balance Sheets
As of December 31, 2019 and 2018
|
Assets
|
2019
|
2018
|
|
Current
assets
|
|
|
|
Cash
and cash equivalents
|
$
-
|
$
-
|
|
Receivables
due from subsidiaries
|
-
|
5,057
|
|
Prepaid
expenses
|
290
|
364
|
|
Other
current assets
|
29
|
-
|
|
Total
current assets
|
319
|
5,421
|
|
|
|
|
|
Investment
in AE Advanced Products Keyes , Inc.
|
293
|
1,057
|
|
Investment
in Aemetis International, Inc.
|
3,638
|
-
|
|
Total
investments in Subsidiaries, net of advances
|
3,931
|
1,057
|
|
|
|
|
|
Property,
plant and equipment, net
|
4
|
12
|
|
Other
assets
|
257
|
54
|
|
Total Assets
|
$
4,511
|
$
6,544
|
|
|
|
|
|
Liabilities & stockholders' deficit
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$
5,097
|
$
5,026
|
|
Payables
due to subsidiaries
|
3,176
|
-
|
|
Mandatorily
redeemable Series B convertible preferred
|
3,149
|
3,048
|
|
GAFI
- Payables, net of SARs discount issurance costs
|
-
|
1,090
|
|
SARs
liability
|
-
|
1,132
|
|
Other
current liabilities
|
9,217
|
2,215
|
|
Total
current liabilities
|
20,639
|
12,511
|
|
|
|
|
|
Parent Company long term debt portion of secured notes, net of
discount for issuance cost
|
||
|
Subsidiary
obligation in excess of investment
|
|
|
|
Investment
in AE Advanced Fuels, Inc.
|
112,041
|
89,854
|
|
Investment
in Aemetis Americas, Inc
|
205
|
205
|
|
Investment
in Aemetis Biofuels, Inc.
|
2,738
|
2,738
|
|
Investment
in Aemetis Technologies, Inc.
|
4,234
|
4,030
|
|
Investment
in Aemetis Property Keyes, Inc.
|
564
|
432
|
|
Investment
in Biofuels Marketing, Inc.
|
349
|
349
|
|
Investment
in Aemetis International, Inc.
|
-
|
963
|
|
Investment
in Goodland Advanced Fuels, Inc.
|
8,501
|
-
|
|
Investment
in Aemetis Biogas LLC
|
9,612
|
6,304
|
|
Total
subsidiary obligation in excess of investment
|
138,244
|
104,875
|
|
|
|
|
|
Total
long term liabilities
|
138,244
|
104,875
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
Series
B Preferred convertible stock
|
1
|
1
|
|
Common
stock
|
21
|
20
|
|
Additional
paid-in capital
|
86,852
|
85,917
|
|
Accumulated
deficit
|
(237,421
)
|
(193,204
)
|
|
Accumulated
other comprehensive loss
|
(3,825
)
|
(3,576
)
|
|
Total
stockholders' deficit
|
(154,372
)
|
(110,842
)
|
|
Total liabilities & stockholders' deficit
|
$
4,511
|
$
6,544
|
76
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Aemetis, Inc. (Parent Company)
Statements of Operations and Comprehensive Loss
For the
Years Ended December 31, 2019 and 2018
|
|
2019
|
2018
|
|
|
|
|
|
Equity
in subsidiary losses
|
$
(21,745
)
|
$
(29,009
)
|
|
Selling,
general and administrative expenses
|
6,673
|
8,742
|
|
|
|
|
|
Operating
loss
|
(28,418
)
|
(37,751
)
|
|
|
|
|
|
Other
expense
|
|
|
|
Interest
expense
|
1,392
|
1,281
|
|
Other
(income) expense
|
5,899
|
(6,023
)
|
|
|
|
|
|
Loss
before income taxes
|
(35,709
)
|
(33,009
)
|
|
|
|
|
|
Income
tax expense
|
7
|
7
|
|
|
|
|
|
Net
loss
|
(35,716
)
|
(33,016
)
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
Foreign
currency translation adjustment
|
(249
)
|
(672
)
|
|
Comprehensive
loss
|
$
(35,965
)
|
$
(33,688
)
|
77
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Aemetis, Inc. (Parent Company)
Statements of Cash Flows
For the
years ended December 31, 2019 and 2018
|
|
2019
|
2018
|
|
Operating activities:
|
|
|
|
Net
loss
|
$
(35,716
)
|
$
(33,016
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Stock-based
compensation
|
774
|
981
|
|
Stock
issued for services
|
-
|
22
|
|
SARs
Amortization
|
800
|
477
|
|
Depreciation
|
8
|
8
|
|
Subsidiary
portion of net losses
|
21,745
|
29,009
|
|
Change
in fair value of SARs liability
|
(82
)
|
(145
)
|
|
Changes
in assets and liabilities:
|
|
|
|
Prepaid
expenses
|
74
|
(113
)
|
|
Accounts
payable
|
71
|
1,459
|
|
Accrued
interest expense
|
1,184
|
209
|
|
Other
liabilities
|
5,891
|
275
|
|
Other
assets
|
(232
)
|
-
|
|
Net
cash used in operating activities
|
(5,483
)
|
(834
)
|
|
|
|
|
|
Investing activities:
|
|
|
|
Subsidiary
advances, net
|
6,781
|
2,119
|
|
Net
cash provided by investing activities
|
6,781
|
2,119
|
|
|
|
|
|
Financing activities:
|
|
|
|
Proceeds
from borrowings under secured debt facilities
|
-
|
1,500
|
|
Repayments
of borrowings under secured debt facilities
|
(1,298
)
|
(2,814
)
|
|
Net
cash used by financing activities
|
(1,298
)
|
(1,314
)
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
-
|
(29
)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
-
|
29
|
|
Cash
and cash equivalents at end of period
|
$
-
|
$
-
|
|
|
|
|
|
Supplemental
disclosures of cash flow information, cash paid:
|
|
|
|
Interest
payments
|
-
|
-
|
|
Income
tax expense
|
8
|
7
|
|
|
|
|
|
Supplemental
disclosures of cash flow information, non-cash
transactions:
|
|
|
|
|
|
|
|
Fair
value of warrants issued to subordinated debt holders
|
162
|
235
|
|
Exercise
of Stock Appreciation Rights added to GAFI debt
|
1,050
|
-
|
|
Stock
Appreciation Rights issued for GAFI Amendment No. 1
|
-
|
1,277
|
|
Reclassification
of GAFI Non-controlling interest
|
8,501
|
-
|
78
16. Subsequent Events
Subordinated Notes
On January 1, 2020, the maturity on two accredited investors
Subordinated Notes’ was extended until the earlier of (i)
June 30, 2020; (ii) completion of an equity financing by AAFK or
Aemetis in an amount of not less than $25 million; (iii) the
completion of an Initial Public Offering by AAFK or Aemetis; or
(iv) after the occurrence of an Event of Default, including failure
to pay interest or principal when due and breaches of note
covenants. A 10 percent cash extension fee was paid by adding the
fee to the balance of the new Note and 113 thousand common stock
warrants were granted with a term of two years and an exercise
price of $0.01 per share.
Third Eye Reserve Liquidity Facility
On March 6, 2020, Third Eye agreed to increase the amount available
under a one-year reserve liquidity facility governed by a
promissory note for up to $18 million and extend the maturity date
to April 1, 2021. Borrowings under the facility are available from
March 6, 2020 until maturity on April 1, 2021. Interest on borrowed
amounts accrues at a rate of 30% per annum, paid monthly in
arrears, or 40% if an event of default has occurred and continues.
The outstanding principal balance of the indebtedness evidenced by
the promissory note, plus any accrued but unpaid interest and any
other sums due thereunder, shall be due and payable in full at the
earlier to occur of (a) the closing of any new debt or equity
financing, refinancing or other similar transaction between Third
Eye Capital or any fund or entity arranged by them and the Company
or its affiliates, (b) receipt by the Company or its affiliates of
proceeds from any sale, merger, equity or debt financing,
refinancing or other similar transaction from any third party and
(c) April 1, 2021. The promissory note is secured by liens and
security interests upon the property and assets of the Company. If
any amounts are drawn under the facility, the Company will pay a
non-refundable fee in the amount of $500,000, payable from the
proceeds of the first drawing under the facility.
17
.
Management’s Plan
The
accompanying financial statements have been prepared contemplating
the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has been reliant on their
senior secured lender to provide additional funding and has been
required to remit substantially all excess cash from operations to
the senior secured lender. As of December 31, 2019, the Company had
$8.0 million available under Reserve Liquidity Facility to fund
future cash flow requirements. On March 6, 2020, the maturity of
the Reserve Liquidity facility was extended to April 1, 2021 and
the available amount under the facility was increased to $18.0
million.
Management
believes that through the following actions, the Company will have
the ability to generate capital liquidity to carry out the business
plan:
●
Operate the Keyes
Plant and continue to improve operational performance, including
the adoption of new technologies or process changes that allow for
energy efficiency, cost reduction or revenue enhancements to the
current operations.
●
Expand the ethanol
sold at the Keyes Plant to include the cellulosic ethanol to be
generated at the Riverbank Cellulosic Ethanol Facility, a
cellulosic ethanol production facility in nearby Riverbank,
California, and to utilize lower cost, non-food advanced feedstocks
to significantly increase margins by 2020.
●
Monetize the
CO
2
produced at the Keyes Plant by executing on the agreement with
Messer for the delivery of gas to their neighboring facility during
the second quarter of 2020.
●
Construct and
operate biogas digesters to capture and monetize biogas which is
expected to begin operations in the second quarter of
2020.
●
Raise the funds
necessary to construct and operate the Riverbank Cellulosic Ethanol
Facility using the licensed technology from LanzaTech and InEnTec
Technology to generate federal and state carbon credits available
for ultra-low carbon fuels.
●
Secure higher
volumes of shipments of fuels at the India plant by developing the
sales channels and expanding the existing domestic
markets.
●
Continue to locate
funding for existing and new business opportunities through a
combination of working with our senior lender, restructuring
existing loan agreements, selling the current offering for $50
million from the Phase II EB-5 program, or by vendor financing
arrangements.
Management
believes that a combination of the above-mentioned actions as well
as the subsequent debt financing described in Note 16, will provide
the funding necessary to alleviate substantial doubt about the
Company’s ability to continue as a going
concern.
79
S
IGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 12, 2020
|
|
Aemetis, Inc.
|
|
|
|
|
|
/s/ E
RIC
A. M
C
A
FEE
|
|
|
Eric A. McAfee
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Eric A. McAfee and
Todd A. Waltz, and each of them, his true and lawful
attorneys-in-fact, each with full power of substitution, for him in
any and all capacities, to sign any amendments to this report on
Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
/s/ E
RIC
A. M
C
A
FEE
|
|
Chairman/Chief Executive Officer
|
|
March 12, 2020
|
|
Eric A. McAfee
|
|
(Principal Executive Officer and Director)
|
|
|
|
|
|
|
|
|
|
/s/
Todd
Waltz
|
|
Chief Financial Officer
|
|
March 12, 2020
|
|
Todd Waltz
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Francis
Barton
|
|
Director
|
|
March 12, 2020
|
|
Fran Barton
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lydia I.
Beebe
|
|
Director
|
|
March 12, 2020
|
|
Lydia I. Beebe
|
|
|
|
|
|
/s/
John R.
Block
|
|
Director
|
|
March 12, 2020
|
|
John R. Block
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesNote 4. DebtItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsNote 4. DebtItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules