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AMTX Aemetis

Filed: 12 Nov 21, 8:31am

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

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

 

For the quarterly period ended: September 30, 2021

 

OR

 

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

 

For the transition period from             to             

  

Commission File Number: 001-36475

 

AEMETIS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-1407544

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

20400 Stevens Creek Blvd., Suite 700

Cupertino, CA 95014

(Address of Principal Executive Offices, including zip code)

 

(408) 213-0940

(Registrant’s telephone number, including area code)

 

Title of each class of registered securities

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

AMTX

 

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

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

 

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

 

Large accelerated filer     ☐

Accelerated filer     ☐

Non-accelerated filer     ☐

Smaller reporting company     ☒

Emerging growth company     ☐

 

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

 

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

 

The number of shares outstanding of the registrant’s Common Stock on October 31, 2021 was 33,250,807 shares.

 

 

 

AEMETIS, INC.

 

FORM 10-Q

 

Quarterly Period Ended September 30, 2021

 

INDEX

 

PART I--FINANCIAL INFORMATION

 

Item 1

Financial Statements

 

4

 

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 34

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 45

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

 46

 

 

PART II--OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

 47

 

 

 

 

 

 

Item 1A.

Risk Factors

 

 47

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 47

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

 47

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

 47

 

 

 

 

 

 

Item 5.

Other Information

 

 47

 

 

 

 

 

 

Item 6.

Exhibits

 

 48

 

 

 

 

 

 

 

Signatures

 

 49

 

 

 
2

Table of Contents

 

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

 

On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q, including statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events or other statements that are not historical facts. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding management’s plans; trends in market conditions with respect to prices for inputs for our products versus prices for our products; our ability to leverage approved feedstock pathways; our ability to leverage our location and infrastructure; our ability to incorporate lower-cost, non-food advanced biofuels feedstock at the Keyes plant; our ability to adopt value-add by-product processing systems; our ability to expand into alternative markets for biodiesel and its by-products, including continuing to expand our sales into international markets; our ability to maintain and expand strategic relationships with suppliers; our ability to continue to develop new and to maintain and protect new and existing intellectual property rights; our ability to adopt, develop and commercialize new technologies; our ability to refinance our senior debt on terms reasonably acceptable to us 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 markets and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference as well as those business risks and factors described elsewhere in this report and in our other filings with the Securities and Exchange Commission (the “SEC”), including without limitation, our most recent Annual Report on Form 10-K.

 

 
3

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Financial Statements.

 

AEMETIS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands except for par value)

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Assets

 

(unaudited)

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents ($45 and $235 respectively from VIE)

 

$6,389

 

 

$592

 

Accounts receivable, net of allowance for doubtful accounts of $1,404 and $1,260 as of September 30, 2021 and December 31, 2020

 

 

1,621

 

 

 

1,821

 

Inventories

 

 

4,862

 

 

 

3,969

 

Prepaid expenses ($153 and $192 respectively from VIE)

 

 

3,596

 

 

 

750

 

Other current assets ($0 and $741 respectively from VIE)

 

 

545

 

 

 

1,551

 

Total current assets

 

 

17,013

 

 

 

8,683

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net ($33,402 and $22,628 respectively from VIE)

 

 

124,915

 

 

 

109,880

 

Operating lease right-of-use assets ($14 and $28 respectively from VIE)

 

 

2,572

 

 

 

2,889

 

Other assets ($24 and $24 respectively from VIE)

 

 

2,479

 

 

 

3,687

 

Total assets

 

$146,979

 

 

$125,139

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable ($4,829 and $6,271 respectively from VIE)

 

$13,887

 

 

$20,739

 

Current portion of long term debt

 

 

9,962

 

 

 

44,974

 

Short term borrowings

 

 

13,901

 

 

 

14,541

 

Mandatorily redeemable Series B convertible preferred stock

 

 

3,328

 

 

 

3,252

 

Accrued property taxes

 

 

6,801

 

 

 

5,674

 

Accrued contingent litigation fees

 

 

6,200

 

 

 

6,200

 

Current portion of operating lease liability ($13 and $10 respectively from VIE)

 

 

286

 

 

 

316

 

Current portion of Series A preferred units ($8,660 and $2,015 respectively from VIE)

 

 

8,660

 

 

 

2,015

 

Other current liabilities ($393 and $129 respectively from VIE)

 

 

11,580

 

 

 

4,524

 

Total current liabilities

 

 

74,605

 

 

 

102,235

 

Long term liabilities:

 

 

 

 

 

 

 

 

Senior secured notes and revolving notes

 

 

117,197

 

 

 

125,624

 

EB-5 notes

 

 

32,500

 

 

 

32,500

 

Other long term debt ($42 and $0 respectively from VIE)

 

 

11,418

 

 

 

11,980

 

Series A preferred units ($38,257 and $32,022 respectively from VIE)

 

 

38,257

 

 

 

32,022

 

Operating lease liability ($0 and $11 respectively from VIE)

 

 

2,381

 

 

 

2,578

 

Other long term liabilities ($0 and $74 respectively from VIE)

 

 

2,714

 

 

 

2,944

 

Total long term liabilities

 

 

204,467

 

 

 

207,648

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value; 7,235 authorized; 1,285 and 1,323 shares issued and outstanding each period, respectively (aggregate liquidation preference of $3,855 and $3,969 respectively)

 

 

1

 

 

 

1

 

Common stock, $0.001 par value; 40,000 authorized; 32,564 and 22,830 shares issued and outstanding each period, respectively

 

 

33

 

 

 

23

 

Additional paid-in capital

 

 

192,520

 

 

 

93,426

 

Accumulated deficit

 

 

(320,346)

 

 

(274,080)

Accumulated other comprehensive loss

 

 

(4,301)

 

 

(4,114)

Total stockholders' deficit

 

 

(132,093)

 

 

(184,744)

Total liabilities and stockholders' deficit

 

$146,979

 

 

$125,139

 

 

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

 

 
4

Table of Contents

 

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

(Unaudited, in thousands except for earnings per share)

 

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues

 

$49,895

 

 

$40,923

 

 

$147,586

 

 

$128,227

 

Cost of goods sold

 

 

54,680

 

 

 

40,152

 

 

 

152,333

 

 

 

113,830

 

Gross profit (loss)

 

 

(4,785)

 

 

771

 

 

 

(4,747)

 

 

14,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

22

 

 

 

37

 

 

 

66

 

 

 

175

 

Selling, general and administrative expenses

 

 

5,087

 

 

 

4,563

 

 

 

16,222

 

 

 

12,548

 

Operating income (loss)

 

 

(9,894)

 

 

(3,829)

 

 

(21,035)

 

 

1,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate expense

 

 

4,408

 

 

 

5,796

 

 

 

14,902

 

 

 

16,956

 

Debt related fees and amortization expense

 

 

1,140

 

 

 

674

 

 

 

3,045

 

 

 

2,578

 

Accretion and other expenses of Series A preferred units

 

 

2,185

 

 

 

1,765

 

 

 

7,928

 

 

 

4,087

 

Gain on debt extinguishment

 

 

0

 

 

 

0

 

 

 

(1,134)

 

 

0

 

Other expense (income)

 

 

(30)

 

 

153

 

 

 

483

 

 

 

393

 

Loss before income taxes

 

 

(17,597)

 

 

(12,217)

 

 

(46,259)

 

 

(22,340)

Income tax expense (benefit)

 

 

0

 

 

 

0

 

 

 

7

 

 

 

(263)

Net loss

 

$(17,597)

 

$(12,217)

 

$(46,266)

 

$(22,077)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

22

 

 

 

314

 

 

 

(187)

 

 

(381)

Comprehensive loss

 

$(17,575)

 

$(11,903)

 

$(46,453)

 

$(22,458)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$(0.55)

 

$(0.59)

 

$(1.55)

 

$(1.06)

Diluted

 

$(0.55)

 

$(0.59)

 

$(1.55)

 

$(1.06)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,857

 

 

 

20,861

 

 

 

29,818

 

 

 

20,732

 

Diluted

 

 

31,857

 

 

 

20,861

 

 

 

29,818

 

 

 

20,732

 

 

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

 

 
5

Table of Contents

 

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

For the nine months ended September 30,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

Net loss

 

 

(46,266)

 

$(22,077)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Share-based compensation

 

 

1,401

 

 

 

826

 

Depreciation

 

 

4,106

 

 

 

3,515

 

Debt related fees and amortization expense

 

 

3,045

 

 

 

2,578

 

Intangibles and other amortization expense

 

 

35

 

 

 

36

 

Accretion and other expenses of Series A preferred units

 

 

7,928

 

 

 

4,087

 

Gain on debt extinguishment

 

 

(1,134)

 

 

0

 

Deferred tax benefit

 

 

0

 

 

 

(263)

Provision for bad debts

 

 

144

 

 

 

647

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

50

 

 

 

(1,902)

Inventories

 

 

(902)

 

 

1,542

 

Prepaid expenses

 

 

(2,847)

 

 

66

 

Other assets

 

 

2,475

 

 

 

1,684

 

Accounts payable

 

 

(4,624)

 

 

330

 

Accrued interest expense and fees

 

 

9,256

 

 

 

16,011

 

Other liabilities

 

 

7,340

 

 

 

(24)

Net cash (used in) provided by operating activities

 

 

(19,993)

 

 

7,056

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(18,771)

 

 

(14,921)

Grant proceeds received for capital expenditures

 

 

1,224

 

 

 

0

 

Note receivable

 

 

0

 

 

 

(3,687)

Net cash used in investing activities

 

 

(17,547)

 

 

(18,608)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

0

 

 

 

12,135

 

Repayments of borrowings

 

 

(53,523)

 

 

(11,792)

TEC debt renewal and waiver fee payments

 

 

(1,008)

 

 

(300)

Grant proceeds received for capital expenditures

 

 

115

 

 

 

256

 

Payments on finance leases

 

 

(373)

 

 

(1,137)

Proceeds from issuance of common stock in equity offering

 

 

94,203

 

 

 

0

 

Proceeds from the exercise of stock options

 

 

1,104

 

 

 

260

 

Proceeds from Series A preferred units financing

 

 

3,130

 

 

 

11,564

 

Series A preferred financing redemption

 

 

(300)

 

 

0

 

Net cash provided by financing activities

 

 

43,348

 

 

 

10,986

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(11)

 

 

(11)

Net change in cash and cash equivalents for period

 

 

5,797

 

 

 

(577)

Cash and cash equivalents at beginning of period

 

 

592

 

 

 

656

 

Cash and cash equivalents at end of period

 

 

6,389

 

 

$79

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information, cash paid:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$5,646

 

 

$702

 

Income taxes paid

 

 

7

 

 

 

8

 

Supplemental disclosures of cash flow information, non-cash transactions:

 

 

 

 

 

 

 

 

Subordinated debt extension fees added to debt

 

 

680

 

 

 

680

 

Fair value of warrants issued to subordinated debt holders

 

 

1,546

 

 

 

181

 

TEC debt extension, waiver fees, promissory notes fees added to debt

 

 

608

 

 

 

1,793

 

Capital expenditures in accounts payable

 

 

4,695

 

 

 

1,182

 

Operating lease liabilities arising from obtaining right of use assets

 

 

0

 

 

 

2,688

 

Financing lease liabilities arising from obtaining right of use assets

 

 

113

 

 

 

2,988

 

Capital expenditures purchased on financing

 

 

55

 

 

 

5,652

 

Issuance of equity to pay off accounts payable

 

 

893

 

 

 

0

 

 

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

 

 
6

Table of Contents

 

AEMETIS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited, in thousands)

 

For the nine months ended September 30, 2021

 

 

 

Series B Preferred Stock

 

 

 

Common Stock

 

 

 Additional

 

 

 Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 Total Stockholders'

 

Description

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Loss

 

 

deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

$1,323

 

 

$1

 

 

$22,830

 

 

$23

 

 

$93,426

 

 

$(274,080)

 

$(4,114)

 

$(184,744)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

-

 

 

 

0

 

 

 

5,682

 

 

 

6

 

 

 

62,389

 

 

 

0

 

 

 

0

 

 

 

62,395

 

Stock options exercised

 

 

-

 

 

 

0

 

 

 

1,226

 

 

 

1

 

 

 

1,002

 

 

 

0

 

 

 

0

 

 

 

1,003

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

835

 

 

 

0

 

 

 

0

 

 

 

835

 

Issuance and exercise of warrants

 

 

-

 

 

 

0

 

 

 

113

 

 

 

0

 

 

 

281

 

 

 

0

 

 

 

0

 

 

 

281

 

Foreign currency translation loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(25)

 

 

(25)

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(18,112)

 

 

0

 

 

 

(18,112)

Balance at March 31, 2021

 

 

1,323

 

 

$1

 

 

 

29,851

 

 

$30

 

 

$157,933

 

 

$(292,192)

 

$(4,139)

 

$(138,367)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

-

 

 

 

0

 

 

 

976

 

 

 

1

 

 

 

24,773

 

 

 

0

 

 

 

0

 

 

 

24,774

 

Stock options exercised

 

 

-

 

 

 

0

 

 

 

745

 

 

 

1

 

 

 

28

 

 

 

0

 

 

 

0

 

 

 

29

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

 

 

 

 

0

 

 

 

281

 

 

 

0

 

 

 

0

 

 

 

281

 

Foreign currency translation loss

 

 

-

 

 

 

0

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(184)

 

 

(184)

Net loss

 

 

-

 

 

 

0

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

(10,557)

 

 

0

 

 

 

(10,557)

Balance at June 30, 2021

 

 

1,323

 

 

$1

 

 

 

31,572

 

 

$32

 

 

$183,015

 

 

$(302,749)

 

$(4,323)

 

$(124,024)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

576

 

 

 

1

 

 

 

7,883

 

 

 

0

 

 

 

0

 

 

 

7,884

 

Sereis B conversion to common stock

 

 

(38)

 

 

0

 

 

 

4

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Stock options exercised

 

 

 

 

 

 

 

 

 

 

299

 

 

 

0

 

 

 

72

 

 

 

0

 

 

 

0

 

 

 

72

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

-

 

 

 

0

 

 

 

285

 

 

 

0

 

 

 

0

 

 

 

285

 

Issuance and exercise of warrants

 

 

 

 

 

 

 

 

 

 

113

 

 

 

0

 

 

 

1,265

 

 

 

0

 

 

 

0

 

 

 

1,265

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

22

 

 

 

22

 

Net loss

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

0

 

 

 

(17,597)

 

 

0

 

 

 

(17,597)

Balance at September 30, 2021

 

 

1,285

 

 

$1

 

 

 

32,564

 

 

$33

 

 

$192,520

 

 

$(320,346)

 

$(4,301)

 

$(132,093)

 

For the nine months ended September 30, 2020

 

 

Series B Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

Total Stockholders'

 

Description

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Loss

 

 

deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

1,323

 

 

$1

 

 

 

20,570

 

 

$21

 

 

$86,852

 

 

$(237,421)

 

$(3,825)

 

$(154,372)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

310

 

 

 

0

 

 

 

0

 

 

 

310

 

Issuance and exercise of warrants

 

 

-

 

 

 

0

 

 

 

113

 

 

 

0

 

 

 

93

 

 

 

0

 

 

 

0

 

 

 

93

 

Foreign currency translation loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(668)

 

 

(668)

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(12,052)

 

 

0

 

 

 

(12,052)

Balance at March 31, 2020

 

 

1,323

 

 

$1

 

 

 

20,683

 

 

$21

 

 

$87,255

 

 

$(249,473)

 

$(4,493)

 

$(166,689)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

325

 

 

 

0

 

 

 

0

 

 

 

325

 

Issuance and exercise of warrants

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Foreign currency translation loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(27)

 

 

(27)

Net income

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

2,192

 

 

 

0

 

 

 

2,192

 

Balance at June 30, 2020

 

 

1,323

 

 

$1

 

 

 

20,683

 

 

$21

 

 

$87,580

 

 

$(247,281)

 

$(4,520)

 

$(164,199)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

-

 

 

 

0

 

 

 

232

 

 

 

0

 

 

 

260

 

 

 

0

 

 

 

0

 

 

 

260

 

Stock-based compensation

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

191

 

 

 

0

 

 

 

0

 

 

 

191

 

Issuance and exercise of warrants

 

 

-

 

 

 

0

 

 

 

112

 

 

 

0

 

 

 

88

 

 

 

0

 

 

 

0

 

 

 

88

 

Foreign currency translation gain

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

314

 

 

 

314

 

Net loss

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(12,217)

 

 

0

 

 

 

(12,217)

Balance at September 30, 2020

 

 

1,323

 

 

$1

 

 

 

21,027

 

 

$21

 

 

$88,119

 

 

$(259,498)

 

$(4,206)

 

$(175,563)

 

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

 

 
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Table of Contents

 

1. Nature of Activities and Summary of Significant Accounting Policies

 

Nature of Activities. Headquartered in Cupertino, California, Aemetis, Inc. (collectively with its subsidiaries on a consolidated basis, “Aemetis,” the “Company,” “we,” “our” or “us”) is an international renewable natural gas, renewable fuels and byproducts company focused on the acquisition, development and commercialization of innovative negative carbon intensity products and technologies that replace traditional petroleum-based products and reduce greenhouse gas emissions.

 

Founded in 2006, we have completed Phase 1 and are expanding a California biogas digester network and pipeline system to convert dairy waste gas into Renewable Natural Gas (RNG). We own and operate a 65 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. In the fourth quarter of 2021, an ethanol membrane dehydration system was commissioned at the Keyes Plant, a key part of increasing the electrification and decreasing natural gas usage at the facility. This project reduces greenhouse gas (“GHG”) emissions and decreases the carbon intensity of fuel produced at the Keyes Plant, allowing us to realize a higher price for the ethanol produced and sold.

 

We also own and operate a 50 million gallon per year renewable chemical and advanced fuel production facility (“Kakinada Plant”) on the East Coast of India that produces high quality distilled biodiesel and refined glycerin for customers in India and Europe. We are developing the Carbon Zero sustainable aviation fuel (SAF) and renewable diesel fuel biorefineries in California to utilize distillers corn oil and other renewable oils to produce low carbon intensity renewable jet and diesel fuel using cellulosic hydrogen from waste orchard and forest wood, while pre-extracting cellulosic sugars from the waste wood to be processed into high value cellulosic ethanol at the Keyes plant. Additionally, we operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and biochemicals. We hold a portfolio of patents and exclusive technology licenses to produce renewable fuels and biochemicals. 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.

 

During 2018, Aemetis Biogas, LLC (“ABGL”) was formed to construct bio-methane anaerobic digesters at local dairies near the Keyes Plant, many of whom also purchase WDG produced at the Keyes Plant. The digesters are connected via a pipeline owned by ABGL to a gas cleanup and compression unit being built at the Keyes Plant to produce Renewable Natural Gas (“RNG”). During the third quarter of 2020, ABGL completed construction on the first two dairy digesters along with the pipeline that carries bio-methane from these dairies to the Keyes Plant. Upon receiving the bio-methane from the dairies, impurities are removed, and the bio-methane is converted to RNG where it will be either injected into the local gas utility pipeline, supplied as renewable compressed natural gas (“RCNG”) that will service local trucking fleets, or used as renewable energy at the Keyes Plant.

 

During the first quarter of 2021, we announced our “Carbon Zero” biofuels production plants designed to produce biofuels, including renewable jet and diesel fuel utilizing cellulosic hydrogen and non-edible renewable oils sourced from our existing biofuels plants and other sources. The first plant, in Riverbank, California, “Carbon Zero 1”, is expected to utilize hydroelectric and other renewable power available onsite to produce 45 million gallons per year of jet fuel, renewable diesel, and other byproducts. The plant is expected to supply the aviation and truck markets with ultra-low carbon renewable fuels to reduce greenhouse gas (“GHG”) emissions and other pollutants associated with conventional petroleum-based fuels.

 

The Company is continuing to develop a biomass-to-fuel technology to build a carbon zero production facility. By producing ultra-low carbon renewable fuels, the Company expects to capture higher value D3 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.

 

 
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On April 1, 2021, we established Aemetis Carbon Capture, Inc. to build carbon sequestration projects to generate LCFS and IRS 45Q credits by injecting CO₂ into wells which are monitored for emissions to ensure the long-term sequestration of carbon underground. California’s Central Valley is well established as a major region for large-scale natural gas production and CO₂ injection projects due to the subsurface geologic formation that retains gases.

 

We also own and operate the Kakinada Plant with a nameplate capacity of 150 thousand metric tons per year, or about 50 million gallons per year, producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. 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.

 

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. 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. ABGL was assessed to be a VIE and through the Company's ownership interest in all of the outstanding common stock, the Company has been determined to be the primary beneficiary and accordingly, the assets, liabilities, and operations of ABGL are consolidated into those of the Company. All intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying consolidated condensed balance sheet as of September 30, 2021, the consolidated condensed statements of operations and comprehensive (loss) for the three and nine months ended September 30, 2021 and 2020, the consolidated condensed statements of cash flows for the nine months ended September 30, 2021 and 2020, and the consolidated condensed statements of stockholders’ deficit for the three and nine months ended September 30, 2021 and 2020 are unaudited. The consolidated condensed balance sheet as of December 31, 2020 was derived from the 2020 audited consolidated financial statements and notes thereto. The consolidated condensed financial statements in this report should be read in conjunction with the 2020 audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020. The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

 

In the opinion of Company’s management, the unaudited interim consolidated condensed financial statements for the three and nine months ended September 30, 2021 and 2020 have been prepared on the same basis as the audited consolidated statements as of December 31, 2020 and reflect all adjustments, consisting primarily of normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.

 

 
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Table of Contents

 

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

 

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

 

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

 

During the first quarter of 2020, Aemetis began selling high-grade alcohol for consumer applications directly to customers on the West Coast and Midwest using a variety of payment terms. These agreements and terms were evaluated according to ASC 606 guidance and such revenue is recognized upon satisfaction of the performance obligation by delivery of the product based on the terms of the agreement. Sales of high-grade alcohol were minimal for the third quarter and year to date revenue for 2021 and were aggregated with ethanol sales for the three and nine months ended September 30, 2021. Sales of high-grade alcohol represented 2% and 18% of revenue for the three and nine months ended September 30, 2020, respectively.

 

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

 

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Ethanol and high-grade alcohol sales

 

$39,131

 

 

$24,825

 

 

$111,220

 

 

$86,387

 

Wet distiller's grains sales

 

 

8,919

 

 

 

7,143

 

 

 

30,584

 

 

 

22,983

 

Other sales

 

 

1,782

 

 

 

1,163

 

 

 

5,086

 

 

 

4,856

 

 

 

$49,832

 

 

$33,131

 

 

$146,890

 

 

$114,226

 

 

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.

 

 
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Table of Contents

 

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

 

In North America, we buy corn as feedstock for the production of ethanol, from our working capital partner J.D. Heiskell. Prior to May 13, 2020, we sold all our ethanol, WDG, and corn oil to J.D. Heiskell. Subsequent to May 13, 2020, we sold most of our fuel ethanol to one customer, Kinergy, and sold all WDG and corn oil to J.D. Heiskell. During the second quarter, the Company signed a biofuels offtake agreement with Murex, LLC, and beginning on October 1, 2021 the Company will sell all of our fuel ethanol to that customer.

 

We consider the purchase of corn as a cost of goods sold and the sale of ethanol, upon transfer to the common carrier, as revenue on the basis that (i) we control and bear the risk of gain or loss on the processing of corn which is purchased at market prices into ethanol and (ii) we have legal title to the goods during the processing time. The pricing for both corn and ethanol is set independently. Revenues from sales of ethanol and its co-products are billed net of the related transportation and marketing charges. 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.

 

India: In India, we sell products pursuant to purchase orders (written or verbal) or by contract with governmental or international parties, in which performance is satisfied by delivery and acceptance of the physical product. Given that the contracts are sufficiently similar in nature, we have assessed these contracts as a portfolio of similar contracts as allowed under the practical expedient. Doing so does not result in a materially different outcome compared to individually accounting for each contract. All domestic and international deliveries are subject to certain specifications as identified in the contracts. The transaction price is determined daily based on reference market prices for biodiesel, refined glycerin, and palm fatty acid distillate (“PFAD”) net of taxes. Transaction price allocation is not needed.

 

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

 

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Biodiesel sales

 

$0

 

 

$7,325

 

 

$465

 

 

$12,267

 

Refined glycerin sales

 

 

0

 

 

 

449

 

 

 

125

 

 

 

909

 

PFAD sales

 

 

0

 

 

 

0

 

 

 

0

 

 

 

774

 

Other sales

 

 

63

 

 

 

18

 

 

 

106

 

 

 

51

 

 

 

$63

 

 

$7,792

 

 

$696

 

 

$14,001

 

 

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

 

 
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Table of Contents

 

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

 

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

 

The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivables are charged against the allowance for doubtful accounts once un-collectability has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate, additional allowances may be required. We reserved $1.4 million and $1.3 million in the allowances for doubtful accounts as of September 30, 2021 and December 31, 2020, respectively.

 

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.

 

Investments. The Company follows ASC 325-20, Cost Method Investments, to account for its ownership interest in noncontrolled entities. Under ASC 325-20, equity securities that do not have readily determinable guarants (i.e., non-marketable equity securities) and are not required to be accounted for under the equity method are typically carried at cost (i.e., cost method investments). Investments of this nature are initially recorded at cost. Income is recorded for dividends received that are distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. During 2020, the Company received 489,716 preferred stock shares and 5,000,000 common stock shares in Nevo Motors, a privately held company, in exchange for conversion of its existing debt, carried at zero value, into equity. Due to the lack of operations, the carrying amount of our investment is zero at September 30, 2021 and December 31, 2020.

 

Variable Interest Entities. We determine at the inception of each arrangement whether an entity in which we have made an investment or in which we have other variable interests in is considered a variable interest entity (“VIE”). We consolidate VIEs when we are the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE; and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, we assess whether any changes in our interest or relationship with the entity affect our determination of whether the entity is still a VIE and, if so, whether we are the primary beneficiary. If we are not the primary beneficiary in a VIE, we account for the investment or other variable interests in a VIE in accordance with applicable GAAP.

 

 
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Table of Contents

 

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 plant and buildings, furniture, machinery, equipment, land, and biogas dairy digesters. The Goodland Plant is partially completed and is not ready for operation. It is the Company’s policy to depreciate capital assets over their estimated useful lives using the straight-line method.

 

The Company evaluates the recoverability of long-lived assets with finite lives in accordance with ASC Subtopic 360-10-35 Property Plant and Equipment—Subsequent Measurements, which requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, based on estimated undiscounted cash flows, the impairment loss would be measured as the difference between the carrying amount of the assets and its estimated fair value. The Company has not recorded any impairment during the three and nine months ended September 30, 2021 and 2020.

 

California Energy Commission Low-Carbon Fuel Production Program. The Company has been awarded $4.2 million in matching grants from the California Energy Commission Low-Carbon Fuel Production Program (“LCFPP”). The LCFPP grant reimburses the Company for costs to design, procure, and install processing facility to clean-up, measure and verify negative-carbon intensity dairy renewable natural gas fuel at the production facility in Keyes, California. The Company has received $877 thousand from the LCFPP as of September 30, 2021 as reimbursement for actual costs incurred. Due to the uncertainty associated with the approval process under the grant program, the Company recognizes the grant as a reduction of the costs in the period when approval is received.

 

California Department of Food and Agriculture Dairy Digester Research and Development Grant. In 2019, the Company was awarded $3.2 million in matching grants from the California Department of Food and Agriculture (“CDFA”) Dairy Digester Research and Development program. The CDFA grant reimburses the Company for costs required to permit and construct two of the Company’s biogas capture systems under contract with central California dairies. The Company received all the awarded grant proceeds as of the second quarter 2021.

 

In October 2020, the Company was awarded $7.8 million in matching grants from the CDFA Dairy Digester Research and Development program. The CDFA grant reimburses the Company for costs required to permit and construct six of the Company’s biogas capture systems under contract with central California dairies. The Company has received $33 thousand from the CDFA 2020 grant program as of September 30, 2021 as reimbursement for actual costs incurred. Due to the uncertainty associated with the approval process under the grant program, the Company recognizes the grant as a reduction of the costs in the period when approval is received.

 

California Energy Commission Low Carbon Advanced Ethanol Grant Program. In May 2019, the Company was awarded the right to receive reimbursements from the California Energy Commission Community-Scale and Commercial-Scale Advanced Biofuels Production Facilities grant under the Alternative and Renewable Fuel and Vehicle Technology Program in an amount up to $5.0 million (the “CEC Reimbursement Program”) in connection with the Company’s expenditures toward the development of the Riverbank Cellulosic Ethanol Facility. To comply with the guidelines of the CEC Reimbursement Program, the Company must make a minimum of $7.9 million in matching contributions to the Riverbank project. The Company receives funds under the CEC Reimbursement Program for actual expenses incurred up to $5.0 million as long as the Company makes the minimum matching contribution. Given that the Company has not made the minimum matching contribution, the grant for reimbursement of capital expenditures of $115 thousand received during the first quarter of 2021, and $1.7 million from prior years were recorded as other long-term liabilities as of September 30, 2021. Due to the uncertainty associated with meeting the minimum matching contribution, the reimbursement will be recognized when the Company makes the minimum matching contribution.

 

 
13

Table of Contents

 

Basic and Diluted Net Loss per Share. Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the dilution of common stock equivalents such as options, convertible preferred stock, debt, and warrants to the extent the impact is dilutive. As the Company incurred net losses for the three and nine months ended September 30, 2021 and, 2020, potentially dilutive securities have been excluded from the diluted net loss per share computations as their effect would be anti-dilutive.

 

The following table shows the number of potentially dilutive shares excluded from the diluted net loss per share calculation as of September 30, 2021 and 2020:

 

 

 

As of

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

 

 

 

 

 

Series B preferred (post split basis)

 

 

129

 

 

 

132

 

Common stock options and warrants

 

 

3,929

 

 

 

5,846

 

Debt with conversion feature at $30 per share of common stock

 

 

1,280

 

 

 

1,294

 

Total number of potentially dilutive shares excluded from the diluted net (loss) per share calculation

 

 

5,338

 

 

 

7,272

 

 

Comprehensive Income (Loss). ASC 220 Comprehensive Income (Loss) 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 65 million gallons per year capacity Keyes Plant in California, the ultra-low carbon renewable fuel project in Riverbank, the biogas digesters on dairies near Keyes, California, the Goodland Plant in Kansas and the research and development facility in Minnesota.

 

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

 

 
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Fair Value of Financial Instruments. Financial instruments include accounts receivable, accounts payable, accrued liabilities, current and non-current portion of subordinated debt, notes receivable, notes payable, series A preferred units, 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 470-50 Debt–Modification and Extinguishments for modification and extinguishment accounting. This evaluation includes comparing the net present value of cash flows of the new debt to the old debt to determine if changes greater than 10 percent occurred. In instances where the net present value of future cash flows changed more than 10 percent, the Company applies extinguishment accounting and determines the fair value of its debt based on factors available to the Company.

 

Recently Issued Accounting Pronouncements.

 

ASU 2016-13: Measurement of Credit Losses on Financial Instruments. This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. This standard is effective for fiscal years beginning after December 15, 2022. We are assessing the impact of adopting this standard on our consolidated financial statements and related disclosures.

 

For a complete summary of the Company’s significant accounting policies, please refer to the Company’s audited financial statements and notes thereto for the years ended December 31, 2020 and 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2021.

 

2. Inventories

 

Inventories consist of the following:

 

 
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September 30, 2021

 

 

December 31, 2020

 

Raw materials

 

$1,363

 

 

$1,382

 

Work-in-progress

 

 

1,274

 

 

 

1,266

 

Finished goods

 

 

2,225

 

 

 

1,321

 

Total inventories

 

$4,862

 

 

$3,969

 

 

As of September 30, 2021, and December 31, 2020, the Company recognized a lower of cost or net realizable value impairment of none and $0.7 million respectively, related to inventory.

 

3. Property, Plant and Equipment

 

Property, plant and equipment consist of the following:

 

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Land

 

$4,084

 

 

$4,092

 

Plant and buildings

 

 

97,168

 

 

 

97,398

 

Furniture and fixtures

 

 

1,305

 

 

 

1,195

 

Machinery and equipment

 

 

5,298

 

 

 

5,188

 

Construction in progress

 

 

44,322

 

 

 

25,397

 

Property held for development

 

 

15,414

 

 

 

15,408

 

Finance lease right of use assets

 

 

2,317

 

 

 

2,308

 

Total gross property, plant & equipment

 

 

169,908

 

 

 

150,986

 

Less accumulated depreciation

 

 

(44,993)

 

 

(41,106)

Total net property, plant & equipment

 

$124,915

 

 

$109,880

 

 

For the three months ended September 30, 2021 and 2020, interest capitalized in property, plant, and equipment was $1.4 million and $0.1 million, respectively. For the nine months ended September 30, 2021 and 2020, interest capitalized in property, plant, and equipment was $2.9 million and $0.3 million, respectively.

 

Construction in progress contains incurred costs for the ABGL biogas project, Riverbank project, and energy efficient upgrades at the Keyes Plant. In the second quarter of 2020, the CO₂ Project commenced operations and was placed in service at that time. In the third quarter of 2020, two dairy digesters commenced operations and were placed in service at that time. Spending for ongoing capital projects is accumulated in construction in progress and will be capitalized with subsequent depreciation once the capital projects are finished and are in service. Depreciation on the components of property, plant and equipment is calculated using the straight-line method over their estimated useful lives as follows:

 

Years

 

Plant and buildings

 

20 - 30

 

Machinery and equipment

5 - 15

 

Furniture and fixtures

 

3 - 5

 

 

For the three months ended September 30, 2021 and 2020, the Company recorded depreciation expense of $1.3 million for each period. For the nine months ended September 30, 2021 and 2020, the Company recorded depreciation expense of $4.1 and $3.5 million, respectively.

 

Management is required to evaluate these long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Management determined there was no impairment on the long-lived assets during the three and nine months ended September 30, 2021 and 2020.

 

 
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4. Debt

 

Debt consists of the following:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Third Eye Capital term notes

 

$7,093

 

 

$7,066

 

Third Eye Capital revolving credit facility

 

 

71,732

 

 

 

80,310

 

Third Eye Capital revenue participation term notes

 

 

11,914

 

 

 

11,864

 

Third Eye Capital acquisition term notes

 

 

26,457

 

 

 

26,384

 

Third Eye Capital promissory note

 

 

0

 

 

 

1,444

 

Cilion shareholder seller notes payable

 

 

6,386

 

 

 

6,274

 

Subordinated notes

 

 

13,229

 

 

 

12,745

 

EB-5 promissory notes

 

 

42,462

 

 

 

43,120

 

GAFI Term and Revolving loans

 

 

0

 

 

 

33,626

 

Term loans on capital expenditures

 

 

5,705

 

 

 

5,652

 

PPP loans

 

 

0

 

 

 

1,134

 

Total debt

 

 

184,978

 

 

 

229,619

 

Less current portion of debt

 

 

23,863

 

 

 

59,515

 

Total long term debt

 

$161,115

 

 

$170,104

 

 

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 April 1, 2020, the Company exercised the option to extend the maturity of Third Eye Capital Notes to April 1, 2021 for a fee of 1% of the outstanding note balance instead of agreed fee of 5% in Amendment No.14 to the Note Purchase Agreement. We have evaluated the reduction in extension fee to 1% in accordance with ASC 470-60 Troubled Debt Restructuring. According to the guidance, we considered the 1% extension fee to be a troubled debt restructuring.

 

On August 11, 2020, Third Eye Capital agreed to Limited Waiver and Amendment No. 17 to the Note Purchase Agreement (“Amendment No. 17”), to (i) provide that the maturity date of the Third Eye Capital Notes may be further extended at our election to April 1, 2022 in exchange for an extension fee equal to 1% of the Note Indebtedness in respect to each Note, provided that such fee may be added to the outstanding principal balance of each Note on the effective date of each such extension, (ii) provide for a waiver of the ratio of note indebtedness covenant for the quarters ended March 31, 2021 and June 30, 2021. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.3 million in cash (the “Amendment No. 17 Fee”). On November 5, 2020, Third Eye Capital agreed to Limited Waiver and Amendment No. 18 to the Note Purchase Agreement (“Amendment No. 18”) to provide for a waiver of the ratio of note indebtedness covenant for the quarter ended September 30, 2021. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment fee of $50 thousand. We have evaluated the $0.3 million waiver fee in Amendment No. 17 and the $50 thousand waiver fee in Amendment No. 18 in accordance with ASC 470-60 Troubled Debt Restructuring.

 

 
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According to the guidance, we considered the $0.3 million fee in Amendment No.17 and the $50 thousand waiver fee in Amendment No. 18 to be troubled debt restructurings. In order to assess whether the creditor granted a concession, we calculated the post-restructuring effective interest rate by projecting cash flows on the new terms and calculated a discount rate equal to the carrying amount of pre-restructuring of debt, and by comparing this calculation to the terms of Amendment No. 15, we determined that Third Eye Capital provided a concession in accordance with the provisions of ASC 470-60 and thus applied troubled debt restructuring accounting, resulting in no gain or loss from the application of this accounting. Using the effective interest method of amortization, the Amendment No. 17 waiver fee of $0.3 million is being amortized over the stated remaining life of the Third Eye Capital Notes.

 

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 be due on demand by Third Eye Capital. In third quarter of 2019, the February 2019 Note was modified to include additional borrowings of $0.7 million. In first quarter of 2020, the February 2019 Note was modified to include additional borrowings of $0.6 million. The February 2019 note was fully repaid in the first quarter of 2021.

 

On March 14, 2021, Third Eye Capital agreed to Limited Waiver and Amendment No. 19 to the Note Purchase Agreement (“Amendment No. 19”), to (i) provide for a waiver of the ratio of note indebtedness covenant for the quarter ended December 31, 2021, (ii) provide for a waiver of the consolidated unfunded capital expenditures covenant for the quarters through March 31, 2021. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.1 million in cash (the “Amendment No. 19 Fee”). We gave the notice to extend the maturity date of the Notes to April 1, 2022 and the extension fee equal to 1% of the Note Indebtedness in respect to each Note, provided that half of such fee may be added to the outstanding principal balance of each Note on the effective date of each such extension and rest of the balance may be payable in cash or common stock within 60 days of the date of such relevant extension. We evaluated the terms of the Amendment No. 19 and the maturity date extension and applied modification accounting treatment in accordance with ASC 470-50 Debt – Modification and Extinguishment.

 

On August 9, 2021, Third Eye Capital agreed to the Limited Waiver and Amendment No. 20 to the Note Purchase Agreement (“Amendment No. 20”) to: (i) provide that, upon written notice to Third Eye Capital, the maturity date may be further extended to April 1, 2023 in exchange for an extension fee equal to 1% of the Note Indebtedness in respect of each Note, where half of such fee may be added to the outstanding principal balance of each Note on the effective date of each such extension; (ii) provide for a waiver of the ratio of note indebtedness covenant for the quarters ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022; and (iii) provide for a waiver of the unfunded capital expenditures covenant for the quarter ended June 30, 2021 in which the Company exceeded the $100,000 capital expenditures limit. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.3 million in cash. We evaluated the terms of the Amendment No.20 and applied modification accounting treatment in accordance with ASC 470-50 Debt – Modification and Extinguishment.

 

 
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On November 5, 2021, Third Eye Capital agreed to the Limited Waiver and Amendment No. 21 to the Note Purchase Agreement (“Amendment No. 21”) to: (i) provide a waiver for the Blocked Account Agreement Violation in which the Borrowers failed to deliver Blocked Account Control Agreements by August 31, 2021 and (ii) provide for a waiver for the Subordinated Debt Violation, in which the Company made a repayment to a Subordinated Debt lender. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.1 million in cash. We will evaluate the terms of the Amendment No.21 in accordance with ASC 470-50 Debt – Modification and Extinguishment.

 

As Amendments No. 19, No. 20, and No 21 waived certain covenants over the next four quarters, the notes are classified as long-term debt.

 

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. On March 14, 2021, Third Eye agreed to increase the amount available under the reserve liquidity facility to $70.0 million and extend the maturity date to April 1, 2022. Borrowings under the facility are available from March 14, 2021 until maturity on April 1, 2022. Interest on borrowed amounts accrues at a rate of 30% per annum, paid monthly in arrears and may be capitalized and due upon maturity, 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) 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 (b) April 1, 2022. Any amounts may be re-borrowed up to repaid amounts up until the maturity date of April 1, 2022. The promissory note is secured by liens and security interests upon the property and assets of the Company. In return, the Company will pay a non-refundable standby fee at 2% per annum of the difference between the aggregate principal amount outstanding and the commitment, payable monthly in cash. In addition, if any initial advances are drawn under the facility, the Company will pay a non-refundable one-time fee in the amount of $0.5 million provided that such fee may be added to the principal amount of the promissory note on the date of such initial advance. On August 9, 2021, Third Eye Capital agreed to decrease the amount available under the reserve liquidity notes governed by a promissory note to $40.0 million.

 

On August 9, 2021, Third Eye Capital agreed to decrease the amount available under the reserve liquidity facility notes governed by a promissory note to $40.0 million. Interest on borrowed amounts accrues at a rate of 30% per annum, paid monthly in arrears and may be capitalized and due upon maturity, 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) 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 (b) April 1, 2022. Any amounts may be re-borrowed up to repaid amounts up until the maturity date of April 1, 2022. The promissory note is secured by liens and security interests upon the property and assets of the Company. In return, the Company will pay a non-refundable standby fee at 2% per annum of the difference between the aggregate principal amount outstanding and the commitment, payable monthly in cash. In addition, if any initial advances are drawn under the facility, the Company will pay a non-refundable one-time fee in the amount of $0.5 million provided that such fee may be added to the principal amount of the promissory note on the date of such initial advance.

 

Terms of Third Eye Capital Notes

A.

Term Notes. As of September 30, 2021, the Company had $7.1 million in principal and interest outstanding net of $36 thousand unamortized debt issuance costs under the Term Notes. The Term Notes accrue interest at 14% per annum. The Term Notes mature on April 1, 2022*.

 

 

B

Revolving Credit Facility. The Revolving Credit Facility accrues interest at the prime rate plus 13.75% (17.00% as of September 30, 2021) payable monthly in arrears. The Revolving Credit Facility matures on April 1, 2022*. As of September 30, 2021, AAFK had $72.4 million in principal and interest and waiver fees outstanding net of $671 thousand unamortized debt issuance costs under the Revolving Credit Facility.

 

 
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C. 

Revenue Participation Term Notes. The Revenue Participation Term Note bears interest at 5% per annum and matures on April 1, 2022*. As of September 30, 2021, AAFK had $12.0 million in principal and interest outstanding net of $56 thousand unamortized debt issuance costs on the Revenue Participation Term Notes.

 

 

D.

Acquisition Term Notes. The Acquisition Term Notes accrue interest at the prime rate plus 10.75% (14.00% per annum as of September 30, 2021) and mature on April 1, 2022*. As of September 30, 2021, Aemetis Facility Keyes, Inc. had $26.6 million in principal and interest and redemption fees outstanding net of $95 thousand unamortized debt issuance costs. The outstanding principal balance includes a total of $7.5 million in redemption fees.

 

 

E.

Reserve Liquidity Notes. The Reserve Liquidity Notes, with available borrowing capacity in the amount of $40.0 million, accrues interest at the rate of 30% per annum and are due and payable upon the earlier of 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 April 1, 2022. We have no borrowings outstanding under the Reserve Liquidity Notes as of September 30, 2021.

    

*The note maturity date can be extended by the Company to April 2023. As a condition to any such extension, the Company would be required to pay a fee of 1% of the carrying value of the debt which can be paid 50% in cash or stock and 50% can be 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.

 

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

 

The Third Eye Capital Notes are secured by first priority liens on all real and personal property of, and assignment of proceeds from all government grants and guarantees from the Company’s North American subsidiaries. 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.

 

Cilion shareholder seller notes payable. In connection with the Company’s merger with Cilion, Inc., (“Cilion”) on July 6, 2012, the Company issued $5.0 million in notes payable to Cilion shareholders as merger compensation subordinated to the senior secured Third Eye Capital Notes. The liability bears interest at 3% per annum and is due and payable after the Third Eye Capital Notes have been paid in full. As of September 30, 2021, Aemetis Facility Keyes, Inc. had $6.4 million in principal and interest outstanding under the Cilion shareholder seller notes payable.

 

Subordinated Notes. On January 6 and January 9, 2012, AAFK entered into Note and Warrant Purchase Agreements with two accredited investors 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 may make any principal payments under the Subordinated Notes until all loans made by Third Eye Capital to AAFK are paid in full.

 

 

 
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On July 1, 2021, the Subordinated Notes were amended to extend the maturity date until the earlier of (i) December 31, 2021; (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. The Company evaluated the July 1, 2021 amendment and the refinancing terms of the Notes and determined in accordance with ASC 470-50 Debt – Modification and Extinguishment that the loans were extinguished, however, the Company was not required to record a gain or loss on the debt extinguishment.

 

At September 30, 2021 and December 31, 2020, the Company had, in aggregate, the amount of $14.1 million and $12.7 million in principal and interest outstanding net of discount issuance costs of $0.8 million and none, respectively, under the Subordinated Notes.

 

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

 

Advanced BioEnergy, LP arranges investments with foreign investors, who each make loans to the Keyes Plant in increments of $0.5 million. The Company has sold an aggregate principal amount of $36.0 million of EB-5 Notes under the EB-5 Phase I funding since 2012 to the date of this filing. As of September 30, 2021, $35.5 million has been released from the escrow amount to the Company, with $0.5 million remaining to be funded to escrow. During the three and nine months ended September 30, 2021 the Company repaid two investors who obtained green card approval under the program, none and $1.0 million, respectively, of the EB-5 Phase I funding. As of September 30, 2021, $34.5 million in principal and $3.9 million in accrued interest was outstanding on the EB-5 Notes sold under the EB-5 Phase I funding.

 

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

 

 
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Advanced BioEnergy II, LP arranges investments with foreign investors, who each make loans to the Riverbank 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 September 30, 2021, $4.0 million has been released from escrow to the Company and $46.8 million remains to be funded to escrow. As of September 30, 2021, $4.1 million was outstanding on the EB-5 Notes under the EB-5 Phase II funding.

 

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 cash advances bear interest at 12% and working capital can be induced through trading of feedstock or finished goods by Gemini, which does not have any interest accrual. In return, the Company agreed to pay Gemini an amount equal to 30% of the plant’s monthly net operating profit and recognized these as operational support charges in the financials. In the event that the Company’s biodiesel facility operates at a loss, Gemini owes the Company 30% of the losses as operational support charges. Either party can terminate the agreement at any time without penalty. Additionally, Gemini received a first priority lien on the assets of the Kakinada Plant. During the three and nine months ended September 30, 2021 and 2020, the Company has accrued no interest on Gemini. During the nine months ended September 30, 2021 and 2020, the Company made principal payments to Gemini of none and $8.5 million, respectively. As of September 30, 2021, and December 31, 2020, the Company had no outstanding balance under this agreement.

 

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 day 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 nine months ended September 30, 2021 and 2020, the Company made principal and interest payments to Secunderabad Oils of none and approximately $0.9 million, respectively. As of September 30, 2021, and December 31, 2020 the Company had no outstanding balance under this agreement.

 

GAFI Term loan and Revolving loan. On July 10, 2017, GAFI entered into a Note Purchase Agreement (“Note Purchase Agreement”) with Third Eye Capital. See further discussion regarding GAFI in Note 6. Pursuant to the Note Purchase Agreement, Third Eye Capital 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 $10 million dollars in the aggregate (the “Revolving Loans”). The interest rate applicable to the Term Loan is equal to 10% per annum. The interest rate applicable to the Revolving Loans is the greater of prime rate plus 7.75% and 12.00% per annum. The maturity date of the loans was extended to July 10, 2021 by exercising an option to extend the GAFI Loan Maturity Date for a fee of $0.5 million.

 

 
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The Company fully repaid the GAFI notes in the first quarter of 2021. As of September 30, 2021, and December 31, 2020, GAFI had none and $22.2 million net of debt issuance costs of none and $0.4 million outstanding on the Term Loan and none and $11.8 million on the Revolving Loan respectively, classified as current portion of long-term debt.

 

Payroll Protection Program. On May 5, 2020, certain wholly owned subsidiaries of the Company received loan proceeds of approximately $1.1 million; (“PPP Loans”) under the Paycheck Protection Program (“PPP”). In the second quarter of 2021, the Company received notification from the Small Business Administration that all loan proceeds received by the Company were forgiven. Due to the forgiveness of the loan, the Company recorded a gain on debt extinguishment in the statements of operations and comprehensive loss in the amount of approximately $1.1 million during the nine months ended September 30, 2021. For the three months ended September 30, 2021 and 2020, the company recorded no gain or loss on extinguishment.

 

Financing Agreement for capital expenditures. The Company entered into an agreement with Mitsubishi Chemical America, Inc. (“Mitsubishi”) to purchase membrane dehydration equipment to save energy used in the Keyes Plant. The Company also entered into a financing agreement with Mitsubishi for $5.7 million for this equipment. Payments pursuant to the financing transaction will commence after the installation date and interest will be charged based on the certain performance metrics after operation of the equipment. The equipment was delivered in March 2020; however, the installation has been delayed due to the COVID-19 pandemic. Hence, we recorded the asset in property, plant and equipment, net and the related liability of $0.7 million in short term borrowings and $5.0 million in other long-term debt, respectively as of September 30, 2021. In the fourth quarter of 2021, the dehydration equipment was commissioned.

 

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

 

Twelve months ended September 30,

 

Debt Repayments

 

2022

 

$23,863

 

2023

 

 

147,749

 

2024

 

 

7,445

 

2025

 

 

4,581

 

2026

 

 

945

 

There after

 

 

1,253

 

Total debt

 

 

185,836

 

Debt issuance costs

 

 

(858)

Total debt, net of debt issuance costs

 

$184,978

 

 

5. Commitments and Contingencies

 

Leases

 

We have identified assets as the corporate office, warehouse, monitoring equipment and laboratory facilities over which we have control and obtain economic benefits fully. We classified these identified assets as operating leases after assessing the terms under classification guidance. We have entered into several leases for trailers and carbon units with purchase option at the end of the term. We have concluded that it is reasonably certain that we would exercise the purchase option at the end of the term, hence the leases were classified as finance leases. All of our leases have remaining term of less than a year to 7 years.

 

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

 

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

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating lease cost

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease expense

 

$204

 

 

$201

 

 

$612

 

 

$561

 

Short term lease expense

 

 

28

 

 

 

75

 

 

 

138

 

 

 

104

 

Variable lease expense

 

 

30

 

 

 

29

 

 

 

84

 

 

 

89

 

Total operating lease cost

 

$262

 

 

$305

 

 

$834

 

 

$754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

$58

 

 

$94

 

 

$168

 

 

$155

 

Interest on lease liabilities

 

 

20

 

 

 

26

 

 

 

61

 

 

 

44

 

Total finance lease cost

 

$78

 

 

$120

 

 

$229

 

 

$199

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating cash flows used in operating leases

 

$179

 

 

$131

 

 

$519

 

 

$448

 

Operating cash flows used in finance leases

 

 

20

 

 

 

26

 

 

 

61

 

 

 

44

 

Financing cash flows used in finance leases

 

$126

 

 

 

435

 

 

$374

 

 

 

1,137

 

 

Supplemental non-cash flow information related to ROU asset and lease liabilities was as follows for the three and nine months ended September 30, 2021 and 2020:

 

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating leases

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of the lease liability

 

$93

 

 

$101

 

 

$288

 

 

$160

 

Amortization of right-of-use assets

 

 

111

 

 

 

100

 

 

 

324

 

 

 

402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

6.4 years

 

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

2.6 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

14.0%

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

 

5.9%

 

 

 

 

 

 

 

 

 

 
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Supplemental balance sheet information related to leases was as follows: 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Operating leases

 

 

 

 

 

 

Operating lease right-of-use assets

 

$2,572

 

 

$2,889

 

 

 

 

 

 

 

 

 

 

Current portion of operating lease liability

 

 

286

 

 

 

316

 

Long term operating lease liability

 

 

2,381

 

 

 

2,578

 

Total operating lease liabilities

 

 

2,667

 

 

 

2,894

 

 

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

 

 

 

Property and equipment, at cost

 

$2,317

 

 

$2,308

 

Accumulated depreciation

 

 

(313)

 

 

(249)

Property and equipment, net

 

 

2,004

 

 

 

2,059

 

 

 

 

 

 

 

 

 

 

Other current liability

 

 

541

 

 

 

417

 

Other long term liabilities

 

 

840

 

 

 

1,164

 

Total finance lease liabilities

 

 

1,381

 

 

 

1,581

 

 

Maturities of operating lease liabilities were as follows:

 

Twelve Months ended September 30,

 

Operating leases

 

 

Finance leases

 

 

 

 

 

 

 

 

2021

 

$632

 

 

$611

 

2022

 

 

572

 

 

 

528

 

2023

 

 

586

 

 

 

324

 

2024

 

 

603

 

 

 

31

 

2025

 

 

622

 

 

 

0

 

There after

 

 

1,076

 

 

 

0

 

Total lease payments

 

 

4,091

 

 

 

1,494

 

Less imputed interest

 

 

(1,424)

 

 

(113)

 

 

 

 

 

 

 

 

 

Total lease liability

 

$2,667

 

 

$1,381

 

 

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, the Company defaulted on the payment plan and as of September 30, 2021 and December 31, 2020, the balance in property tax accrual was $6.8 million and $5.7 million, respectively. Stanislaus County agreed not to enforce collection actions and we are now in discussions with Stanislaus County regarding a payment plan.

 

 
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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. Biogas LLC – Series A Preferred Financing and Variable Interest Entity

 

On December 20, 2018, ABGL entered into a Series A Preferred Unit Purchase Agreement for the sale of Series A Preferred Units to Protair-X Americas, Inc., with Third Eye Capital acting as an agent.

 

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 at $5.00 per common unit for a total of $30,000,000 in funding. Additionally, 5,000,000 common units of ABGL 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, with any outstanding preference payments shall have an interest per annum rate equal to ten percent (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 Series A 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. Until paid, the obligations of ABGL under the Preferred Unit Agreement are secured by the assets of ABGL in an amount not to exceed the sum of (i) $30,000,000, plus (ii) all interest, fees, charges, expenses, reimbursement obligations and indemnification obligations of ABGL.

 

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. As of September 30, 2021, ABGL has not generated minimum quarterly operating cash flows by operating the dairies. As a result of the violation of this covenant, free cash flows, when they occur, may be applied for redemption payments at the increased rate of 100% instead of the initial rate of 75% of free cash flows.

 

 
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From inception of the agreement to date, ABGL issued 3,200,000 Series A Preferred Units on first tranche for a value of $16.0 million and also issued 2,800,000 of Series A Preferred Units on second tranche for a value of $14.0 million, reduced by a redemption of 20,000 Series A Preferred Units for $0.3 million. The Company is accreting these two tranches to the redemption value of $89.7 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 September 30, 2021 and December 31, 2020 based on the evaluation of the other conditions included in the agreement.

 

During the three months ended September 30, 2021, ABGL issued no Series A Preferred Units. During the nine months ended September 30, 2021, ABGL issued 626,000 of Series A Preferred Units for incremental proceeds of $3.1 million as part of the second tranche of the Preferred Unit Agreement and redeemed 20,000 of Series A Preferred Units for $0.3 million. Consistent with the previous issuances which were treated as a liability as the conversion option was deemed to be non-substantive, the current issuances are treated as a liability as the conversion option was still deemed to be non-substantive.

   

The Company recorded Series A Preferred Unit liabilities, net of unit issuance costs and inclusive of accretive preference pursuant to this agreement, and accrued preference payments, classified as current portion of Series A Preferred Units, of $8.7 million and $2.0 million, and long-term liabilities of $38.3 million and $32.0 million as of September 30, 2021 and December 31, 2020, respectively.

 

For the three months ended September 30, 2021 and 2020 the Company recorded Series A Preferred Units accretion expense of $2.3 million and $1.8 million and accrued preference payments expense of $0.8 million and none. This was partially offset by capitalized interest of $1.0 million.

 

For the nine months ended September 30, 2021 and 2020 the Company recorded Series A Preferred Units accretion expense of $7.7 million and $4.1 million and accrued preference payments expense of $2.4 million and none. This was partially offset by capitalized interest of $2.1 million.

 

Variable interest entity assessment

 

After consideration of ABGL’s operations and the above agreement, we concluded that ABGL did not have enough equity to finance its activities without additional subordinated financial support. ABGL is capitalized with Series A Preferred Units that are recorded as liabilities under U.S. GAAP. Hence, we concluded that ABGL is a VIE. Through the Company's ownership interest in all of the outstanding common stock, its current ability to control the board of directors, the management fee paid to Aemetis and control of subordinated financing decisions, Aemetis has been determined to be the primary beneficiary and accordingly, the assets, liabilities, and operations of ABGL are consolidated into those of the Company. Total assets, before intercompany eliminations, of ABGL were $34.8 million primarily related to biodigesters at two dairies and a pipeline which serve as collateral for the Series A Preferred Unit totaling $46.9 million. The Series A Preferred Units are not collateralized by any other assets or guarantees from Aemetis or its subsidiaries.

 

7. Stock-Based Compensation

 

2019 Stock 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 of 2019 Stock plan 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 the transfer and grant of any available and unissued or expired options under the prior Amended and Restated 2007 Stock Plan in an amount up to 177,246 options.

 

 
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With the approval of the 2019 Stock Plan, the Zymetis 2006 Stock Plan and the Amended and Restated 2007 Stock Plan (the “Prior Plans,” and together with the 2019 Stock Plan, the “Stock Plans”) are terminated for granting any options under either plan. However, any options granted before the 2019 Stock Plan was approved will remain outstanding and can be exercised, and any expired options issued pursuant to the Prior Plans can be granted under the 2019 Stock Plan.

 

During the year ended December 31, 2020, 2,320,000 stock option grants were issued and approved by the Board for employees and directors under the 2019 Stock Plan with 10-year terms and vesting terms from immediately to 3 years.

 

On January 7, 2021, 945,000 incentive stock option grants were issued for employees and directors under the 2019 Stock Plan. In addition, 5,200 restricted stock award grants, with a fair value of $3.09 per award, were issued to the Company’s board of directors (“Board”) with the restriction that this grant would satisfy board compensation fees.

 

On April 8, 2021, 34,114 restricted stock award grants, with a fair value of $26.19 per award, were issued to the Board with the restriction that this grant would pay off outstanding accounts payable owed to the Board members and was included in the summary of awards granted.

 

On June 3, 2021, 30,000 stock option grants were approved by the Board for new employees under the 2019 Stock Plan with 10-year term and 3-year vesting.

 

As of September 30, 2021, 3.9 million options are outstanding under the Stock Plans.

 

Common Stock Reserved for Issuance

 

The following is a summary of awards granted under the Stock Plans:

 

 

 

Shares

Available for

Grant

 

 

Number of

Shares

Outstanding

 

 

Weighted-

Average

Exercise Price

 

Balance as of December 31, 2020

 

 

380

 

 

 

5,327

 

 

$1.14

 

Authorized

 

 

816

 

 

 

-

 

 

 

-

 

Options Granted

 

 

(975)

 

 

975

 

 

 

3.40

 

RSAs Granted

 

 

(39)

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

(2,228)

 

 

1.42

 

Forfeited/expired

 

 

200

 

 

 

(200)

 

 

1.78

 

Balance as of September 30, 2021

 

 

382

 

 

 

3,874

 

 

$

1.49

 

 

As of September 30, 2021, there were 2.4 million options vested under the Stock Plans.

 

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.

 

 
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For the three months ended September 30, 2021 and 2020, the Company recorded stock compensation expense in the amount of $285 thousand and $191 thousand, respectively. For the nine months ended September 30, 2021 and 2020, the Company recorded stock compensation expense in the amount of $1.4 million and $826 thousand, 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. Under ASU 2016-09 Improvements to Employee Share-Based Payments Accounting, we have elected to recognize forfeitures as they occur. 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 to be zero due to the small number of plan participants.

 

During the three months ended September 30, 2021 and 2020, none and 13,000 options were granted respectively. The weighted average fair value calculations for the options granted during the nine months ended September 30, 2021 and 2020 are based on the following assumptions:

 

 

For the nine months ended September 30,

 

Description

2021

 

 

2020

 

Dividend-yield

 

 

0%

 

 

0%

Risk-free interest rate

 

 

0.68%

 

 

0.94%

Expected volatility

 

 

98.23%

 

 

88.15%

Expected life (years)

 

 

6.53

 

 

 

6.55

 

Market value per share on grant date

 

$3.40

 

 

$0.69

 

Fair value per share on grant date

 

$2.72

 

 

$0.52

 

 

As of September 30, 2021, the Company had $2.1 million of total unrecognized compensation expense for employees, which the Company will amortize over the 2.1 years of weighted average remaining term.

 

8. 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, 2021 and the term can be automatically renewed for additional one-year terms. J.D. Heiskell further agrees to sell all WDG the Company produces to A.L. Gilbert. The Company markets and sells DCO to A.L. Gilbert and other third parties under the J.D. Heiskell Purchasing Agreement. The Company’s relationships with J.D. Heiskell, 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. These agreements are ordinary purchase and sale agency agreements for the Keyes Plant. On May 13, 2020, J.D. Heiskell and the Company entered into Amendment No.1 to the J.D. Heiskell Purchasing Agreement to remove J.D. Heiskell’s obligations to purchase ethanol from the Company under the J.D. Heiskell Purchasing Agreement.

 

 
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The J.D. Heiskell sales and purchases activity associated with the J.D. Heiskell Purchase Agreement and J.D. Heiskell Procurement Agreement during the three and nine months ended September 30, 2021 and 2020 were as follows:

 

 

 

As of and for the three months ended

September 30,

 

 

As of and for the nine months ended

September 30,

 

 

2021

 

 

2020

 

 

2021

 

2020

Ethanol sales

 

$0

 

 

$0

 

 

$0

 

 

$26,049

 

Wet distiller's grains sales

 

 

8,919

 

 

 

7,143

 

 

 

30,584

 

 

 

22,983

 

Corn oil sales

 

 

1,515

 

 

 

827

 

 

 

4,252

 

 

 

2,806

 

Corn purchases

 

 

39,058

 

 

 

25,513

 

 

 

119,217

 

 

 

77,268

 

Accounts receivable

 

 

88

 

 

 

161

 

 

 

88

 

 

 

161

 

Accounts payable

 

 

307

 

 

 

1,978

 

 

 

307

 

 

 

1,978

 

 

Ethanol and Wet Distillers Grains Marketing Arrangement. The Company entered into an Ethanol Marketing Agreement with Kinergy and a Wet Distillers Grains Marketing Agreement with A.L. Gilbert. Under the terms of the agreements the Wet Distillers Grains Marketing Agreement matures on December 31, 2021 with automatic one-year renewals thereafter. We terminated the Ethanol Marketing Agreement with Kinergy as of September 30, 2021. Effective October 1, 2021, we entered into Fuel Ethanol Purchase and Sale Agreement with Murex LLC. Under the terms of the agreement, the initial term matures on October 31, 2023 with automatic one-year renewals thereafter. For the three months ended September 30, 2021 and 2020, the Company expensed marketing costs of $0.7 million and $0.6 million respectively, under the terms of each agreement. For the nine months ended September 30, 2021 and 2020, the Company expensed marketing costs of $2.1 million and $1.7 million for each period respectively, under the terms of each agreement.

 

As of September 30, 2021, the Company has no forward sales commitments.

 

9. Segment Information

 

Aemetis recognizes two reportable geographic segments: “North America” and “India.” The “North America” operating segment includes the Company’s 65 million gallons per year capacity Keyes Plant in California, the ultra-low carbon renewable fuel project in Riverbank, the biogas digesters on dairies near Keyes, California, the Goodland Plant in Kansas and the research and development facility in Minnesota.

 

The “India” operating segment includes the Company’s 50 million gallon per year capacity Kakinada Plant in India, the administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius. The Company’s biodiesel is marketed and sold primarily to customers in India through brokers and by the Company directly.

 

Summarized financial information by reportable segment for the three and nine months ended September 30, 2021 and 2020 follows:

 

 
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For the three months ended September 30, 2021

 

 

For the three months ended September 30, 2020

 

 

 

 

North America

 

 

India

 

 

Total Consolidated

 

 

North America

 

 

India

 

 

Total Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

$49,832

 

 

$63

 

 

$49,895

 

 

$33,131

 

 

$7,792

 

 

$40,923

 

Cost of goods sold

 

 

 

54,664

 

 

 

16

 

 

 

54,680

 

 

 

33,534

 

 

 

6,618

 

 

 

40,152

 

Gross profit (loss)

 

 

 

(4,832)

 

 

47

 

 

 

(4,785)

 

 

(403)

 

 

1,174

 

 

 

771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

 

22

 

 

 

0

 

 

 

22

 

 

 

37

 

 

 

0

 

 

 

37

 

Selling, general and administrative expenses

 

 

 

4,637

 

 

 

450

 

 

 

5,087

 

 

 

4,340

 

 

 

223

 

 

 

4,563

 

Interest expense

 

 

 

5,548

 

 

 

0

 

 

 

5,548

 

 

 

6,461

 

 

 

9

 

 

 

6,470

 

 

Accretion and other expenses of Series A preferred units

 

 

 

2,185

 

 

 

0

 

 

 

2,185

 

 

 

1,765

 

 

 

0

 

1,765

 

Gain on debt extinguishment

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Other expense (income)

 

 

 

(1)

 

 

(29)

 

 

(30)

 

 

155

 

 

 

(2)

 

 

153

 

Income (loss) before income taxes

 

 

$(17,223)

 

$(374)

 

$(17,597)

 

$(13,161)

 

$944

 

 

$(12,217)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

$5,815

 

 

$21

 

 

$5,836

 

 

$6,187

 

 

$113

 

 

$6,300

 

Depreciation

 

 

 

1,187

 

 

 

155

 

 

 

1,342

 

 

 

1,085

 

 

 

168

 

 

 

1,253

 

 

 

 

For the nine months ended September 30, 2021

 

 

For the nine months ended September 30, 2020

 

 

 

North America

 

 

India

 

 

Total Consolidated

 

 

North America

 

 

India

 

 

Total Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$146,890

 

 

$696

 

 

$147,586

 

 

$114,226

 

 

$14,001

 

 

$128,227

 

Cost of goods sold

 

 

151,614

 

 

 

719

 

 

 

152,333

 

 

 

101,231

 

 

 

12,599

 

 

 

113,830

 

Gross profit (loss)

 

 

(4,724)

 

 

(23)

 

 

(4,747)

 

 

12,995

 

 

 

1,402

 

 

 

14,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

66

 

 

 

0

 

 

 

66

 

 

 

175

 

 

 

0

 

 

 

175

 

Selling, general and administrative expenses

 

 

15,016

 

 

 

1,206

 

 

 

16,222

 

 

 

11,206

 

 

 

1,342

 

 

 

12,548

 

Interest expense

 

 

17,947

 

 

 

0

 

 

 

17,947

 

 

 

19,490

 

 

 

44

 

 

 

19,534

 

Accretion and other expenses of Series A preferred units

 

 

7,928

 

 

 

0

 

 

 

7,928

 

 

 

4,087

 

 

 

0

 

 

 

4,087

 

Gain on debt extinguishment

 

 

(1,134)

 

 

0

 

 

 

(1,134)

 

 

0

 

 

 

0

 

 

 

0

 

Other (income) expense

 

 

561

 

 

 

(78)

 

 

483

 

 

 

416

 

 

 

(23)

 

 

393

 

Income (loss) before income taxes

 

$(45,108)

 

$(1,151)

 

$(46,259)

 

$(22,379)

 

$39

 

 

$(22,340)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$18,632

 

 

 

139

 

 

 

18,771

 

 

$13,571

 

 

$1,350

 

 

$14,921

 

Depreciation

 

 

3,593

 

 

 

513

 

 

 

4,106

 

 

 

3,030

 

 

 

485

 

 

 

3,515

 

 

North America. Sales of ethanol, WDG, and corn oil to two customers accounted for 77% and 21% of the Company’s North America segment revenues for the three months ended September 30, 2021. Sales of ethanol, WDG, and corn oil to two customers accounted for 75% and 24% of the Company’s North America segment revenues for the nine months ended September 30, 2021.

 

Sales of ethanol, WDG, corn oil, and high-grade alcohol to two customers accounted for 72% and 24% of the Company’s North America segment revenues for the three months ended September 30, 2020. Sales to three customers accounted for 45%, 32% and 11% of the Company’s North America segment revenues for the nine months ended September 30, 2020.

 

India. Two other sales customers accounted for 71% and 23% of the Company’s consolidated India segment revenues for the three months ended September 30, 2021. One biodiesel customer accounted for 66% of the Company’s consolidated India segment revenues while one refined glycerin customer accounted for 16% of such revenues for the nine months ended September 30, 2021.

 

 
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Two biodiesel customers accounted for 56% and 26% of the Company’s consolidated India segment revenues for the three months ended September 30, 2020, while none of the refined glycerin customers accounted for more than 10% of such revenues for the three months ended September 30, 2020. Two biodiesel customers accounted for 51% and 33% of the Company’s consolidated India segment revenues while none of the refined glycerin customers accounted for more than 10% of such revenues for the nine months ended September 30, 2020.

 

Total assets by segment consist of the following:

 

 

 

As of

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

North America

 

$135,720

 

 

$112,312

 

India

 

 

11,259

 

 

 

12,827

 

Total Assets

 

$146,979

 

 

$125,139

 

 

10. Related Party Transactions

 

The Company owes Eric McAfee, the Company’s Chairman and CEO, and McAfee Capital LLC (“McAfee Capital”), owned by Eric McAfee, $0.5 million in connection with employment agreements and expense reimbursements previously accrued as salaries expense and accrued liabilities. 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 September 30, 2021, $0.1 million remained as a prepaid expense.

 

On May 7, 2020, the Audit Committee of the Company approved a guaranty fee to Eric McAfee of 0.1% quarterly on the outstanding balance of Third Eye Capital Notes for 2020 annual fee. The balance of $0.2 million and $0.8 million, for guaranty fees, remained as an accrued liability as of September 30, 2021 and December 31, 2020, respectively.

 

The Company owes various members of the Board amounts totaling $0.1 million and $1.2 million as of September 30, 2021 and December 31, 2020, for each period, in connection with board compensation fees, which are included in accounts payable on the balance sheet. For the three months ended September 30, 2021 and 2020, the Company expensed $0.1 million, in connection with board compensation fees during each period. For the nine months ended September 30, 2021 and 2020, the Company expensed $0.3 million during each period, in connection with board compensation fees. During the nine months ended September 30, 2021 the company issued $0.9 million of restricted stock awards to pay off outstanding accounts payable owed to members of the Board.

 

11. Subsequent Events

 

Third Eye Capital Limited Waiver and Amendment No. 21

 

On November 5, 2021, Third Eye Capital agreed to the Limited Waiver and Amendment No. 21 to the Note Purchase Agreement (“Amendment No. 21”) to: (i) provide a waiver for the Blocked Account Agreement Violation in which the Borrowers failed to deliver Blocked Account Control Agreements by August 31, 2021 and (ii) provide for a waiver for the Subordinated Debt Violation, in which the Company made a repayment to a Subordinated Debt lender. As consideration for such amendment and waivers, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.1 million in cash.

 

 
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12. Management’s Plans

 

The accompanying financial statements have been prepared contemplating the realization of assets and satisfaction of liabilities in the normal course of business. As a result of negative capital and negative operating results, and collateralization of substantially all of the company assets, the Company has been reliant on its senior secured lender to provide additional funding and has been required to remit substantially all excess cash from operations to the senior secured lender. In order to meet its obligations during the next twelve months, the Company will need to either refinance the Company’s debt or receive the continued cooperation of its senior lender. This dependence on the senior lender raises substantial doubt about the Company’s ability to continue as a going concern. The Company plans to pursue the following strategies to improve the course of the business.

 

For the Keyes plant, we plan to operate the plant and continue to improve financial performance by adopting new technologies or process changes that allow for energy efficiency, cost reduction or revenue enhancements, execute upon awarded grants that improve energy and operational efficiencies resulting in lower cost, lower carbon demands and overall margin improvement.

 

For the ABGL biogas project, we plan to operate the biogas digesters to capture and monetize biogas as well as continue to build new dairy digesters and extend the existing pipeline in order to capture the higher carbon credits available in California. Funding for continued construction is based upon extending the existing Preferred Unit Purchase Agreement, obtaining government guaranteed loans and executing on existing and new state grant programs.

 

For the Riverbank project, we plan to raise the funds necessary to construct and operate the Carbon Zero 1 plant and the Riverbank Cellulosic Ethanol Facility using loan guarantees and public financings based upon the licensed technology that generate federal and state carbon credits available for ultra-low carbon fuels utilizing lower cost, non-food advanced feedstocks to significantly increase margins.

 

For the India plant, we plan to secure higher volumes of shipments of fuels at the India plant by developing the sales channels and expanding the existing domestic markets or exporting to North America markets.

 

In addition to the above we plan to continue to locate funding for existing and new business opportunities through a combination of working with our senior lender, restructuring existing loan agreements, selling equity through the ATM and otherwise, selling the current EB-5 Phase II offering, or by vendor financing arrangements.

 

 
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Item 2. 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 three and nine months ended September 30, 2021 and 2020.

 

 

 

 

·

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 II, 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, we are an international renewable natural gas, renewable fuels and byproducts company focused on the acquisition, development and commercialization of innovative negative carbon intensity products and technologies that replace traditional petroleum-based products. We operate in two reportable geographic segments: “North America” and “India.”

 

Founded in 2006, we have completed Phase 1 and are expanding a California biogas digester network and pipeline system to convert dairy waste gas into Renewable Natural Gas (RNG). We own and operate a 65 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. In the fourth quarter of 2021, an ethanol membrane dehydration system was commissioned at the Keyes Plant, a key part of increasing the electrification and decreasing natural gas usage at the facility. This project reduces greenhouse gas (“GHG”) emissions and decreases the carbon intensity of fuel produced at the Keyes Plant, allowing us to realize a higher price for the ethanol produced and sold.

 

During 2018, Aemetis Biogas, LLC (“ABGL”) was formed to construct bio-methane anaerobic digesters at local dairies near the Keyes Plant, many of whom also purchase WDG produced at the Keyes Plant. The digesters are connected via a pipeline owned by ABGL to a gas cleanup and compression unit being built at the Keyes Plant to produce Renewable Natural Gas (“RNG”). During the third quarter of 2020, ABGL completed construction on the first two dairy digesters along with the pipeline that carries bio-methane from these dairies to the Keyes Plant. Upon receiving the bio-methane from the dairies, we remove the impurities and convert it to RNG where it will be either injected into the local gas utility pipeline, supplied as renewable compressed natural gas (“RCNG”) that will service local trucking fleets, or used as renewable energy at the Keyes Plant.

 

 
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During the first quarter of 2021, we announced our “Carbon Zero” biofuels production plants designed to produce biofuels, including renewable jet and diesel fuel utilizing cellulosic hydrogen and non-edible renewable oils sourced from existing Aemetis biofuels plants and other sources. The first plant, in Riverbank, California, “Carbon Zero 1”, is expected to utilize hydroelectric and other renewable power available onsite to produce 45 million gallons per year of jet fuel, renewable diesel, and other byproducts. The plant is expected to supply the aviation and truck markets with ultra-low carbon renewable fuels to reduce GHG emissions and other pollutants associated with conventional petroleum-based fuels.

 

The Company is continuing to develop a biomass-to-fuel technology to build a carbon zero production facility. By producing ultra-low carbon renewable fuels, the Company expects to capture higher value D3 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.

 

On April 1, 2021, we established Aemetis Carbon Capture, Inc. to build carbon sequestration projects to generate LCFS and IRS 45Q credits by injecting CO₂ into wells which are monitored for emissions to ensure the long-term sequestration of carbon underground. California’s Central Valley is well established as a major region for large-scale natural gas production and CO₂ injection projects due to the subsurface geologic formation that retains gases.

 

We operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and biochemicals. We are continuing to develop a biomass-to-fuel technology to build a carbon zero production facility. By producing ultra-low carbon renewable fuels, we expect to capture higher value D3 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.

 

We also own and operate the Kakinada Plant with a nameplate capacity of 150 thousand metric tons per year, or about 50 million gallons per year, producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. 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.

 

North America Revenue

 

Our revenue development strategy in North America has historically relied 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 Carbon Zero Plants, the expansion of the Biogas Project, and the implementation of the Solar Microgrid System, the installation of the membrane 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.

 

During the first quarter of 2021, we produced five products at the Keyes Plant: denatured fuel ethanol, WDG, DCO, CO₂, and CDS. During the first quarter of 2020, we started transitioning from selling the ethanol we produce to J.D. Heiskell pursuant to the J.D. Heiskell Purchase Agreement, to a model where the ethanol is sold directly to our fuel marketing customers. We own the ethanol stored in our finished goods tank. WDG continues to be sold to A.L. Gilbert and DCO is sold to other customers under the J.D. Heiskell Purchase Agreement. Smaller amounts of CDS were sold to various local third parties. We began selling CO₂ to Messer in the second quarter of 2020. We began selling high-grade alcohol in March 2020 directly to various customers throughout the West Coast and we also produced and sold Aemetis hand sanitizer through our Aemetis Health Products, Inc. subsidiary in the fourth quarter of 2020.

 

 
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North American revenue is dependent on the price of ethanol, WDG high-grade alcohol, and DCO. Ethanol pricing is influenced by local and national inventory levels, local and national ethanol production, corn prices and gasoline demand, and is determined pursuant to a marketing agreement with a single fuel marketing customer and is generally based on daily and monthly pricing for ethanol delivered to the San Francisco Bay Area, California, as published by Oil Price Information Service, as well as quarterly contracts negotiated by our marketing customer with local fuel blenders. The price for WDG is influenced by the price of corn, the supply and price of distillers dried grains, and demand from the local dairy and feed markets and determined monthly pursuant to a marketing agreement with A.L. Gilbert and is generally determined in reference to the local price of dried distillers’ grains and other comparable feed products. High-grade alcohol pricing is based on the supply and demand restrictions in the current market. Our revenue is further influenced by our decision to operate the Keyes Plant at various capacity levels, conduct required maintenance, and respond to biological processes affecting output.

 

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 (“OMCs”) for bulk purchases of fuels. In 2020, the tenders were delayed due to COVID-19, and ultimately changed in format to allow for monthly bidding on volumes at a price set by the OMCs on an annual basis. The Company plans to participate in these tenders during 2021 when the price of feedstock allows for profitable operation at the OMCs set bid price.

 

During the first quarter of 2021, the Company was approved by the Andhra Pradesh State Road Transport Corp. (“APSRTC”), of India, to supply approximately 800,000 gallons per month of biodiesel to fuel public transport buses in the region. The arrangement is expected to be ongoing to meet the needs of APSRTC, however it has been delayed due to COVID-19.

 

Results of Operations

 

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

 

Revenues

 

Our revenues are derived primarily from sales of ethanol and WDG in North America and biodiesel and refined glycerin in India.

 

Three Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$49,832

 

 

$33,131

 

 

$16,701

 

 

 

50%

India

 

 

63

 

 

 

7,792

 

 

 

(7,729)

 

 

-99%

Total

 

$49,895

 

 

$40,923

 

 

$8,972

 

 

 

22%

 

 
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North America. The increase in revenues during the three months ended September 30, 2021, was due to a 79% increase in average price of ethanol to $2.84 per gallon, compared to $1.59 per gallon in the three months ended September 30, 2020, while the gallons of ethanol sold decreased to 13.8 million gallons from 15.0 million gallons. In the three months ended September 30, 2020, ethanol revenues included revenues from high grade alcohol. WDG sales volume decreased to 93 thousand tons during the three months ended September 30, 2021, compared to 94 thousand tons in the three months ended September 30, 2020, and the average price of WDG increased by 26% to $96 per ton in the three months ended September 30, 2021, compared to $76 per ton in the three months ended September 30, 2020. During the three months ended September 30, 2021, plant production averaged 100% of the 55 million gallon per year nameplate capacity, compared to 111% for the three months ended September 30, 2020. For the three months ended September 30, 2021, we generated 79% of our North America revenues from sales of ethanol, 18% from sales of WDG, and 3% from sales of DCO, CO₂, and CDS, compared to 72% of our North America revenues from sales of ethanol, 22% from sales of WDG, and 6% from sales of DCO, CO₂, and CDS for the three months ended September 30, 2020.

 

India. The decrease in revenues was primarily attributable to the COVID-19 shutdown and higher feedstock costs making conversion to biodiesel unviable. Biodiesel sales volume decreased to zero as no metric tons were sold in the three months ended September 30, 2021, compared to 8.1 thousand metric tons sold in the three months ended September 30, 2020. In addition, refined glycerin sales volume decreased to zero as no metric tons were sold in the three months ended September 30, 2021, compared to 556 metric tons sold in the three months ended September 30, 2020. For the three months ended September 30, 2021, we generated 100% of our revenues from other sales compared to 94% of our revenues from the sales of biodiesel and 6% of our revenues from the sale of refined glycerin for the three months ended September 30, 2020.

 

Cost of Goods Sold

 

Three Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$54,664

 

 

$33,534

 

 

$21,130

 

 

 

63%

India

 

 

16

 

 

 

6,618

 

 

 

(6,602)

 

 

-100%

Total

 

$54,680

 

 

$40,152

 

 

$14,528

 

 

 

36%

 

North America. We ground 4.8 million and 5.2 million bushels of corn in the three months ended September 30, 2021 and 2020, respectively. Our average cost of feedstock per bushel increased to $7.99 per bushel during the three months ended September 30, 2021 compared to $4.92 per bushel for the three months ended September 30, 2020. In addition, for the three months ended September 30, 2021, we incurred $1.0 million more in natural gas costs, and $0.5 million more in chemical costs.

 

India. The decrease in costs of goods sold was attributable to the decrease in biodiesel and refined glycerin sales as production of these products became unviable. Biodiesel feedstock volume was none in the three months ended September 30, 2021, compared to 7.8 thousand metric tons in the three months ended September 30, 2020. The average price of biodiesel feedstock was $621 per metric ton during the three months ended September 30, 2020. Refined glycerin feedstock volumes decreased to none in the three months ended September 30, 2021, compared to 632 metric tons in the three months ended September 30, 2020, while the average price of refined glycerin feedstock was $589 per metric ton in the three months ended September 30, 2020.

 

 
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Gross profit (loss)

 

Three Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$(4,832)

 

$(403)

 

$(4,429)

 

 

-1099%

India

 

 

47

 

 

 

1,174

 

 

 

(1,127)

 

 

-96%

Total

 

$(4,785)

 

$771

 

 

$(5,556)

 

 

-721%

 

North America. Gross profit decreased due a decrease in the volume of ethanol sold from 15.0 million gallons in the three months ended September 30, 2020, compared to 13.8 million gallons for the same period in 2021 coupled with an increase in feedstock cost per bushel from $4.92 in the three months ended September 30, 2020, to $7.99 in the same period in 2021.

 

India. The decrease in gross profit was attributable to the decrease of biodiesel and refined glycerin metric tons sold as production of these products became unviable.

 

Operating Expenses

 

R&D

 

Three Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$22

 

 

$37

 

 

$(15)

 

 

-41%

India

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0%

Total

 

$22

 

 

$37

 

 

$(15)

 

 

-41%

 

R&D expense remained consistent for the three months ended September 30, 2021 and 2020.

 

Selling, General and Administrative Expenses (SG&A)

 

Three Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$4,637

 

 

$4,340

 

 

$297

 

 

 

7%

India

 

 

450

 

 

 

223

 

 

 

227

 

 

 

102%

Total

 

$5,087

 

 

$4,563

 

 

$524

 

 

 

11%

 

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.

 

North America. The increase in SG&A expenses for the three months ended September 30, 2021 was due to increases in salaries and wages of $0.2 million, in insurance expense of $0.3 million, in other taxes, interest and penalties of $0.1 million, in professional fees of $0.1 million, and in marketing costs and other of $0.2 million. This was partially offset by a decrease in bad debt expense of $0.6 million. SG&A expenses as a percentage of revenue in the three months ended September 30, 2021 decreased to 9% as compared to 13% in the corresponding period of 2020.

 

India. SG&A expenses increased as result of an increase in exempt labor of $0.2 million. SG&A as a percentage of revenue in the three months ended September 30, 2021 increased to 714% as compared to 3% in the corresponding period of 2020 due to the decrease in revenue caused by the COVID-19 pandemic and unfavorable feedstock pricing in the three months ended September 30, 2021.

 

 
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Other Income and Expense

 

Three Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/dec

 

 

% change

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate expense

 

$4,408

 

 

$5,787

 

 

$(1,379)

 

 

-24%

Debt related fees and amortization expense

 

 

1,140

 

 

 

674

 

 

 

466

 

 

 

69%

Accretion and other expenses of Series A preferred units

 

 

2,185

 

 

 

1,765

 

 

 

420

 

 

 

24%

Other expense

 

 

(1)

 

 

155

 

 

 

(156)

 

 

101%

India

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate expense

 

 

-

 

 

 

9

 

 

 

(9)

 

 

-100%

Other income

 

 

(29)

 

 

(2)

 

 

(27)

 

 

-1350%

Total

 

$7,703

 

 

$8,388

 

 

$(685)

 

 

-8%

 

Other (Income)/Expense. Other (income) expense consists primarily of interest and amortization expense attributable to debt facilities acquired by our parent company and our subsidiaries. When the debt facilities include stock or warrants issued as fees, the fair value of stock and warrants is amortized as amortization expense, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment expense.

 

North America. Interest expense decreased in the three months ended September 30, 2021 due to principal debt payments made to Third Eye Capital in the second quarter of 2021. Debt related fees and amortization increased as the Subordinated Notes were extended in July of 2021 and were amortized during the third quarter. The increase in accretion and other expenses of the Series A Preferred Units was due to the issuance of additional units from September 30, 2020 to September 30, 2021, coupled with accrued preference payments. Other expenses decreased due to a non-recurring guarantee fee of $0.2 million during the three months ending September 30, 2020.

 

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

 

Revenues

 

Our revenues are derived primarily from sales of ethanol and WDG in North America and biodiesel and glycerin in India.

 

Nine Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$146,890

 

 

$114,226

 

 

$32,664

 

 

 

29%

India

 

 

696

 

 

 

14,001

 

 

 

(13,305)

 

 

-95%

Total

 

$147,586

 

 

$128,227

 

 

$19,359

 

 

 

15%

 

North America. For the nine months ended September 30, 2021, the Company generated 76% of revenue from sales of ethanol, 21% from sales of WDG, and 3% from sales of corn oil, CDS, CO₂, and other sales. During the nine months ended September 30, 2021, plant production averaged 108% of the 55 million gallon per year nameplate capacity. The increase in revenues for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to the increase in volume of ethanol sold to 44.6 million gallons for the nine months ended September 30, 2021, compared to 40.5 million gallons sold for the nine months ended September 30, 2020 coupled with an increase in the price of ethanol per gallon to $2.49 for the nine months ended September 30, 2021, compared to $1.55 for the nine months ended September 30, 2020. In the nine months ended September 30, 2020, 21% of revenue was from sales of high-grade alcohol which was included in ethanol revenues. The average price of WDG increased by 30% to $102 per ton for the nine months ended September 30, 2021 while WDG sales volume also increased by 2% to 299 thousand tons in the nine months ended September 30, 2021 compared to 292 thousand tons in the nine months ended September 30, 2020.

 

 
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India. For the nine months ended September 30, 2021, the Company generated 67% of revenue from sales of biodiesel, 18% of sales from refined glycerin, and 15% from other sales, compared to 88% of sales from biodiesel, 6% from sales of refined glycerin, and 6% from other sales during the nine months ended September 30, 2020. The decrease in revenues for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to a 97% decrease in the sales volume of biodiesel to 455 metric tons. The decrease in biodiesel volumes was due to the COVID-19 pandemic and unfavorable feedstock pricing. The average sales price of biodiesel increased to $1,024 per metric ton during the nine months ended September 30, 2021 compared to $855 per metric ton in the same period in 2020. The sales volume of refined glycerin decreased by 88% to 130 metric tons while the average price of glycerin increased by 17% to $956 per metric ton in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

 

Cost of Goods Sold

 

Nine Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$151,614

 

 

$101,231

 

 

$50,383

 

 

 

50%

India

 

 

719

 

 

 

12,599

 

 

 

(11,880)

 

 

-94%

Total

 

$152,333

 

 

$113,830

 

 

$38,503

 

 

 

34%

 

North America. We grounded 15.6 million bushels of corn during the nine months ended September 30, 2021 compared to 15.8 million bushels in the same period in 2020. Our average cost of corn per bushel increased by 56% to $7.62 per bushel in the nine months ended September 30, 2021 compared to the same period in 2020. In addition, for the nine months ended September 30, 2021, we incurred $2.1 million more in natural gas costs, and $1.2 million more in more chemical costs.

 

India. The decrease in cost of goods sold during the nine months ended September 30, 2021 compared to September 30, 2020 was attributable to a decrease in the volume of biodiesel feedstock by 97% to 465 metric tons during the nine months ended September 30, 2021 compared to 13.5 thousand tons during the nine months ended September 30, 2020 coupled with a decrease in the average price of biodiesel feedstock by 3% to $619 compared to $637 in the same period in 2020. In addition, the volume of refined glycerin feedstock decreased by 90% to 117 metric tons in the nine months ended September 30, 2021, partially offset by an increase in the average price of the refined glycerin feedstock by 12% to $619 per metric ton in the nine months ended September 30, 2021 compared to the same period in 2020.

 

Gross Profit (loss)

 

Nine Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$(4,724)

 

$12,995

 

 

$(17,719)

 

 

-136%

India

 

 

(23)

 

 

1,402

 

 

 

(1,425)

 

 

-102%

Total

 

$(4,747)

 

$14,397

 

 

$(19,144)

 

 

-133%

 

 
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North America. Gross profit for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 decreased due to the decrease in demand for high-grade alcohol coupled with the increased price of corn.

 

India. The decrease in gross profit was attributable to decrease in the sales volume of all products of 96% to 584 metric tons.

 

Operating Expenses

 

R&D

Nine Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$66

 

 

$175

 

 

$(109)

 

 

-62%

India

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0%

Total

 

$66

 

 

$175

 

 

$(109)

 

 

-62%

 

R&D expenses decreased in the nine months ended September 30, 2021 due to decreases in expenses related to research subcontract work of $84 thousand and lab supplies of $19 thousand.

 

Selling, General and Administrative Expenses (SG&A)

 

Nine Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/(dec)

 

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$15,016

 

 

$11,206

 

 

$3,810

 

 

 

34%

India

 

 

1,206

 

 

 

1,342

 

 

 

(136)

 

 

-10%

Total

 

$16,222

 

 

$12,548

 

 

$3,674

 

 

 

29%

 

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.

 

North America. SG&A expenses as a percentage of revenue in the nine months ended September 30, 2021 remained consistent at 10% in the nine months ended September 30, 2021 and 2020. The increase in SG&A expenses in the nine months ended September 30, 2021 was primarily due to an increase in salaries and stock compensation of $1.0 million, supplies, services and utilities of $0.1 million, insurance of $0.8 million, other taxes and penalties of $0.1 million, professional fees of $1.2 million, termination charges of $0.6 million and marketing fees of $0.4 million, which was partially offset by a decrease in bad debt expense of $0.5 million as compared to the SG&A expenses during nine months ended September 30, 2020.

 

India. SG&A expenses as a percentage of revenue in the nine months ended September 30, 2021 increased to 173% as compared to 10% in the corresponding period of 2020, due to the COVID-19 pandemic causing a slowdown in sales. The decrease in SG&A expenses on an absolute level was due to decreases in utilities and other of $119 thousand and professional fees of $260 thousand, partially offset by an increases in salaries and wages of $139 thousand and in miscellaneous expense and other of $231 thousand during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

 

 
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Other Income and Expense

 

Nine Months Ended September 30, (in thousands)

 

 

 

2021

 

 

2020

 

 

Inc/dec

 

 

% change

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate expense

 

$14,902

 

 

$16,912

 

 

$(2,010)

 

 

-12%

Debt related fees and amortization expense

 

 

3,045

 

 

 

2,578

 

 

 

467

 

 

 

18%

Accretion and other expenses of Series A preferred units

 

 

7,928

 

 

 

4,087

 

 

 

3,841

 

 

 

94%

Gain on debt extinguishment

 

 

(1,134)

 

 

-

 

 

 

(1,134)

 

 

-100%

Other expense

 

 

561

 

 

 

416

 

 

 

145

 

 

 

35%

India

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate expense

 

 

-

 

 

 

44

 

 

 

(44)

 

 

-100%

Other income

 

 

(78)

 

 

(23)

 

 

(55)

 

 

239%

Total

 

$25,224

 

 

$24,014

 

 

$1,210

 

 

 

5%

 

Other (Income)/Expense. Other (income) expense consists primarily of interest rate and amortization expenses attributable to our debt facilities and those of our subsidiaries, and interest accrued on the judgments obtained by Cordillera Fund and The Industrial Company. 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 loss or gain.

 

North America. Interest expense decreased in the nine months ended September 30, 2021 due to principal debt payments made to Third Eye Capital in the second quarter of 2021. Debt related fees and amortization increased due to debt and extension fees being incurred in 2021. The increase in accretion and other expenses of the Series A Preferred Units was due to the issuance of additional units from September 30, 2020 to September 30, 2021, coupled with accrued preference payments. Other income related to gain on debt extinguishment was due to the PPP Loans being forgiven. Other expense increased due to termination charges recognized during the nine months ending September 2021, while guarantee fees of $0.5 million were added during the nine months ending September 30, 2020.

 

India. Interest expense decreased as working capital lines have been repaid and other income increased because of interest income.

 

Liquidity and Capital Resources

 

Cash and Cash Equivalents

 

Cash and cash equivalents were $6.4 million at September 30, 2021, of which $4.6 million were held in North America and the rest was held at our Indian subsidiary. Our current ratio at September 30, 2021 was 0.23, compared to a current ratio of 0.08 at December 31, 2020. We expect that our future available liquidity resources will consist primarily of cash generated from operations, remaining cash balances, borrowings available, if any, under our senior debt facilities and our subordinated debt facilities, and any additional funds raised through sales of equity. The use of proceeds from all equity raises and debt financings are subject to approval by our senior lender.

 

Liquidity

 

Cash and cash equivalents, current assets, current liabilities and debt at the end of each period were as follows (in thousands):

 

 
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As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Cash and cash equivalents

 

$6,389

 

 

$592

 

Current assets (including cash, cash equivalents, and deposits)

 

 

17,013

 

 

 

8,683

 

Current and long term liabilities (excluding all debt)

 

 

94,094

 

 

 

80,264

 

Current & long term debt

 

 

184,978

 

 

 

229,619

 

 

Our principal sources of liquidity have been cash provided by the sale of equity, operations, and borrowings under various debt arrangements.

 

We launched an EB-5 Phase II funding in 2016, under which we expect to issue $50.8 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 amount was raised from $0.5 million per investor to $0.9 million per investor. As of September 30, 2021, EB-5 Phase II funding in the amount of $4.0 million had been released from escrow to us. 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.

 

As a result of negative capital and negative operating results, and collateralization of substantially all of the company assets, the Company has been reliant on its senior secured lender to provide additional funding. In order to meet its obligations during the next twelve months, the Company will need to either refinance the Company’s debt or receive the continued cooperation of senior lender. This dependence on the senior lender raises substantial doubt about the Company’s ability to continue as a going concern. The Company plans to pursue the following strategies to improve the course of the business.

 

For the Keyes Plant, we plan to operate the plant and continue to improve financial performance by adopting new technologies or process changes that allow for energy efficiency, cost reduction or revenue enhancements, execute upon awarded grants that improve energy and operational efficiencies resulting in lower cost, lower carbon demands and overall margin improvement.

 

For the Biogas Project, we plan to operate the biogas digesters to capture and monetize biogas as well as continue to build new dairy digesters and extend the existing pipeline in order to capture the higher carbon credits available in California. Funding for continued construction is based upon extending the existing Preferred Unit Purchase Agreement, obtaining government guaranteed loans and executing on existing and new state grant programs.

 

For the Riverbank project, we plan to raise the funds necessary to construct and operate the Carbon Zero 1 plant and the Riverbank Cellulosic Ethanol Facility using loan guarantees and public financings based upon the licensed technology that generate federal and state carbon credits available for ultra-low carbon fuels utilizing lower cost, non-food advanced feedstocks to significantly increase margins.

 

 
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Table of Contents

 

For the India plant, we plan to secure higher volumes of shipments of fuels at the India plant by developing the sales channels and expanding the existing domestic markets or exporting to North America markets.

 

In addition to the above we plan to continue to locate funding for existing and new business opportunities through a combination of working with our senior lender, restructuring existing loan agreements, selling equity through the ATM and otherwise, selling the current EB-5 Phase II offering, or by vendor financing arrangements.

 

At September 30, 2021, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes equaled $117 million. The current maturity date for all of the Third Eye Capital financing arrangements is April 1, 2022, however, the Company has the right to extend the maturity date of the Third Eye Capital Notes to April 1, 2023 upon notice and payment of a 1% extension fee, pursuant to Amendment No. 20. The GAFI notes were fully repaid in the first quarter of 2021.

 

As of the date of this report, the Company has $40.0 million additional borrowing capacity to fund future cash flow requirements under the Reserve Liquidity Notes due on April 1, 2022.

 

We also rely on our working capital lines with Gemini and Secunderabad Oils in India to fund our commercial arrangements for the acquisitions of feedstock. We currently provide our own working capital for the Keyes Plant; Gemini and Secunderabad Oils currently provide us with working capital for the Kakinada Plant. The ability of Gemini, and Secunderabad Oils to continue to provide us with working capital depends in part on both of their respective financial strength and banking relationships.

 

Change in Working Capital and Cash Flows

 

The below table (in thousands) describes the changes in current and long-term debt during the nine months ended September 30, 2021:

 

Increases to debt:

 

 

 

 

 

 

Accrued interest

 

$15,187

 

 

 

 

Maturity date extension fee added to senior debt and waiver fees

 

 

1,615

 

 

 

 

Sub debt extension fees

 

 

680

 

 

 

 

Financing for equipment term loan

 

 

55

 

 

 

 

Total increases to debt

 

 

$17,537

 

Decreases to debt:

 

 

 

 

 

 

 

 

Principal, fees, and interest payments to senior lender

 

$(23,859)

 

 

 

 

Principal and interest payments to EB-5 investors

 

 

(1,472)

 

 

 

 

GAFI interest and principal payments

 

 

(34,846)

 

 

 

 

PPP loan forgiveness

 

 

(1,134)

 

 

 

 

Term loan payments

 

 

(2)

 

 

 

 

Change in debt issuance costs, net of amortization

 

 

(865)

 

 

 

 

Total decreases to debt

 

 

$(62,178)

 

 

 

 

 

 

 

 

 

Change in total debt

 

 

$(44,641)

 

Working capital changes resulted in (i) a $0.9 million increase in inventories due to a $1.3 million increase in North America inventory, partially offset by a decrease of $0.4 million in India, (ii) a $0.2 million decrease in accounts receivable due a $0.7 million decrease in India’s accounts receivable, partially offset by a $0.5 million increase in North America’s accounts receivable, (iii) a $2.8 million increase in prepaid expenses mainly due to $2.0 million dollar prepayment to J.D. Heiskell coupled with a $0.8 million prepayment for natural gas, (iv) a decrease in other current assets in India operations of $0.6 million coupled with a decrease of $0.4 million in North America operations, and (v) a $5.8 million increase in cash due to funds raised through the at-the-market offering program.

 

 
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Net cash used in operating activities during the nine months ended September 30, 2021 was $20.0 million, consisting of non-cash charges of $15.5 million, net cash used in in operating assets and liabilities of $10.7 million, and net loss of $46.3 million. The non-cash charges consisted of: (i) $3.1 million in amortization of debt issuance costs and other intangible assets, (ii) $4.1 million in depreciation expenses, (iii) $1.4 million in stock-based compensation expense, (iv) $7.9 million in preferred unit accretion and other expenses of Series A preferred units, (v) a gain on debt extinguishment of $1.1 million, and (vi) an increase in the provision for bad debts of $0.1 million. Net changes in operating assets and liabilities consisted primarily of an increase in (i) inventories of $0.9 million, (ii) prepaid expenses of $2.8 million, and (iii) a decrease in accounts payable of $4.6 million, partially offset by (iv) an increase in other liabilities of $7.3 million, (v) a decrease in other assets of $2.5 million, and (vi) an increase in accrued interest of $9.3 million.

 

Cash used by investing activities was $17.5 million, of which $18.7 million were used by capital projects. This was partially offset by North America grant proceeds received of $1.2 million.

 

Cash provided by financing activities was $43.3 million, consisting primarily of $94.2 million raised from issuance of common stock in equity offerings, $3.1 million received for issuing Series A Preferred Units, $1.1 million from exercises of stock options, and $0.1 million received for grant matching program partially offset by repayments of borrowings of $53.5 million, Series A Preferred Units redemption of $0.3 million, debt renewal and waiver fee payments of $1.0 million, and payments on finance leases of $0.4 million.

 

Critical Accounting Policies

 

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with 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 net sales and expenses for each period. We believe that of our most significant 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 are: revenue recognition; recoverability of long-lived assets, and debt modification and extinguishment accounting. These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Recently Issued Accounting Pronouncements

 

None reported beyond those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Off Balance Sheet Arrangements

 

We had no off-balance sheet arrangements during the three months ended September 30, 2021.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not Applicable.

 

 
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Item 4. Controls and Procedures.

 

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 year ended December 31, 2020, 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.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

As discussed in greater detail under Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the year ended December 31, 2020, we initiated a remediation plan to address the material weakness in our internal control over financial reporting identified as of the fiscal year then ended. Our efforts to improve our internal controls are ongoing.

 

For a more comprehensive discussion of the material weakness in internal control over financial reporting identified by management as of December 31, 2020, and the remedial measures undertaken to address this material weakness, investors are encouraged to review Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

 
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PART II -- OTHER INFORMATION

 

Item 1. 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.

 

Item 1A. Risk Factors.

 

No change in risk factors since the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 15, 2021.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

No unresolved defaults on senior securities occurred during the three months ended September 30, 2021.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None.

 

 
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Item 6. Exhibits.

 

31.1

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

 

 

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 
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SIGNATURES

 

Pursuant to the requirements 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.

 

 

AEMETIS, INC.

 

 

 

 

 

 

By:

/s/ Eric A. McAfee

 

 

 

Eric A. McAfee

Chief Executive Officer

(Principal Executive Officer)

 

Date: November 12, 2021

 

 

By:

/s/ Todd Waltz

 

 

 

Todd Waltz

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

 

Date: November 12, 2021

 

 
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