Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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☑ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2017
Commission file number: 000-51354
AEMETIS, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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26-1407544
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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20400 Stevens Creek Blvd., Suite 700
Cupertino, CA 95014
(Address of principal executive offices)
Registrant’s telephone number (including area code):
(408)
213-0940
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, Par Value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☑
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐
No ☑
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
☑ No
☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated
filer
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☐ (Do not check if a smaller reporting
company)
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Smaller reporting company
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☒
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Emerging
growth company
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☐
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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 aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was approximately
$16,715,351 as of June 30, 2017 based on the average bid and asked
price on the NASDAQ Markets reported for such date. This
calculation does not reflect a determination that certain persons
are affiliates of the registrant for any other
purpose.
The number of shares outstanding of the registrant’s Common
Stock on March 15, 2018 was 20,222,890 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the Registrant’s 2017 Annual
Meeting of Stockholders are incorporated by reference in
Part III of this Form 10-K.
TABLE OF CONTENTS
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Page
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PART I
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Special Note Regarding Forward-Looking Statements
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3
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Item 1. Business
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3
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Item 1A. Risk Factors
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12
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Item 2. Properties
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24
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Item 3. Legal Proceedings
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25
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Item 4. Mine Safety Disclosures
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25
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PART II
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Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
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26
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Item 6. Selected Financial Data
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27
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Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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27
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Item 8. Financial Statements and Supplementary Data
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37
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Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
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37
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Item 9A. Controls and Procedures
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37
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Item 9B. Other Information
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38
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PART III
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Item 10. Directors, Executive Officers and Corporate
Governance
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39
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Item 11. Executive Compensation
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39
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Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
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39
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Item 13. Certain Relationships and Related Transactions, and
Director Independence
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39
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Item 14. Principal Accounting Fees and Services
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39
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PART IV
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Item 15. Exhibits and Financial Statement Schedules
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40
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Index to Financial Statements
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46
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Signatures
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81
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2
PART I
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
On one or more occasions, we may make forward-looking statements in
this Annual Report on Form 10-K, including statements regarding our
assumptions, projections, expectations, targets, intentions or
beliefs about future events or other statements that are not
historical facts. Forward-looking statements in this Annual Report
on Form 10-K include, without limitation, statements
regarding management’s plans; trends in demand for renewable
fuels; 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; the impact of changes in
regulatory policies on our performance, including the Indian
government’s recent changes to tax policies, diesel prices
and related subsidies; our ability to continue to develop new, and
to maintain and protect new and existing, intellectual property
rights; our ability to adopt, develop and commercialize new
technologies; our ability to refinance our senior debt on more
commercial terms or at all; our ability to continue to fund
operations and our future sources of liquidity and capital
resources; our ability to sell additional notes under our EB-5 note
program and our expectations regarding the release of funds from
escrow under our EB-5 note program; our ability to improve margins;
and our ability to raise additional capital. Words or phrases such
as “anticipates,” “may,”
“will,” “should,” “believes,”
“estimates,” “expects,”
“intends,” “plans,” “predicts,”
“projects,” “targets,” “will likely
result,” “will continue” or similar expressions
are intended to identify forward-looking statements. These
forward-looking statements are based on current assumptions and
predictions and are subject to numerous risks and uncertainties.
Actual results or events could differ materially from those set
forth or implied by such forward-looking statements and related
assumptions due to certain factors, including, without limitation,
the risks set forth under the caption “Risk Factors”
below, which are incorporated herein by reference as well as those
business risks and factors described elsewhere in this report and
in our other filings with the Securities and Exchange Commission
(the “SEC”).
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
We obtained the market data used in this report from internal
company reports and industry publications. Industry publications
generally state that the information contained in those
publications has been obtained from sources believed to be
reliable, but their accuracy and completeness are not guaranteed,
and their reliability cannot be assured. Although we believe market
data used in this 10-K is reliable, it has not been independently
verified.
Unless the context requires otherwise, references to
“we,” “us,” “our,” and
“the Company” refer specifically to Aemetis, Inc. and
its subsidiaries.
Item 1. Business
General
We are
an international renewable fuels and biochemicals company focused
on the production of advanced renewable fuels and chemicals through
the acquisition, development, and commercialization of innovative
technologies that replace traditional petroleum-based products
through the conversion of first-generation ethanol and biodiesel
plants into advanced biorefineries. We
operate in two reportable geographic segments: “North
America” and “India.” For revenue and other
information regarding our operating segments, see Note 11- Segment
Information, of the Notes to Consolidated Financial Statements in
Part II, Item 8 of this Form 10-K.
We were incorporated in Nevada in 2006.
We own
and operate a 60 million gallon per year ethanol production
facility located in Keyes, California (the Keyes plant or Keyes
facility). The facility produces its own combined heat and power
through the use of a natural gas-powered steam turbine, and reuses
100% of its process water with zero water discharge. In addition to
ethanol, the Keyes plant produces Wet Distillers Grains (WDG),
Distillers Corn Oil (DCO), and Condensed Distillers Solubles or
corn syrup (CDS), all of which are sold to local dairies and
feedlots as animal feed. The primary feedstock used for the
production of low carbon renewable fuel ethanol at the Keyes
facility is number #2 yellow dent corn. The corn is procured by
J.D. Heiskell from various Midwestern grain facilities and shipped,
via Union Pacific Rail Road, to an unloading facility adjacent to
the Keyes plant.
3
We also
lease a site in Riverbank, CA, near the Keyes plant, where we plan
to utilize biomass-to-fuel technology that we have licensed from
LanzaTech Technology (“LanzaTech”) and InEnTec
Technology (“InEnTec”) to build a cellulosic ethanol
production facility (the Riverbank Cellulosic Ethanol Facility)
capable of converting local California surplus biomass –
principally agricultural waste – into ultra-low carbon
renewable cellulosic ethanol. The Riverbank Cellulosic Ethanol
Facility plans to utilize the existing distillation and logistics
infrastructure at our nearby Keyes plant. By producing ultra-low
carbon intensity renewable cellulosic fuel ethanol, we expect to
capture higher value D3 cellulosic renewable identification numbers
(RINs) and California’s Low Carbon Fuel Standard (LCFS)
carbon credits. Renewable fuels such as corn-based ethanol (D6 RIN)
and cellulosic-based ethanol (D3 RIN) receive a higher price in the
marketplace when RINs and LCFS incentives are sold with the
renewable fuel based on the unique carbon score attributed to the
plant generating the fuel. D3 RINs have a higher value in the
marketplace than D6 RINs due to D3 RINs’ relative
scarcity.
During
2017, Goodland Advanced Fuels, Inc., (GAFI) was formed to acquire
land, buildings and process equipment in Goodland, Kansas. At
acquisition, the assets were valued at $15.4 million and provide a
base for the construction and development of a next generation
biofuel facility. GAFI entered into a Note Purchase Agreement with
Third Eye Capital Corporation. GAFI, the Company and its subsidiary
Aemetis Advanced Product Keyes (AAPK) also entered into separate
Intercompany Revolving Notes, pursuant to which GAFI may lend a
portion of the proceeds of the Revolving Loan under the Note
Purchase Agreement. Aemetis has the power to direct the activities
of GAFI and has future plans to apply cellulosic ethanol technology
to the partially completed Goodland plant.
We also
own and operate a biodiesel production facility in Kakinada, India
(the Kakinada plant) with a nameplate capacity of 150,000 metric
tons per year, which is equal to about 50 million gallons per year.
We believe this facility 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 oil 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, and sells the valuable lubricant into the pharmaceutical,
lotions, paint, adhesive and other industries. Our objective is to
continue to capitalize on the substantial growth potential of the
biodiesel industry in India and address established markets in the
European Union (EU) and United States of America (U.S.) by
leveraging relationships with a large oil company and trading
partners.
Strategy
Key
elements of our strategy include:
North America
Leverage technology for the development and
production of additional advanced biofuels and renewable
chemicals. We hold the exclusive rights to the LanzaTech
Technology and InEnTec Technology for the conversion of surplus
agricultural waste, forest waste, dairy waste, and construction and
demolition waste into ultra-low carbon renewable fuel referred to
in the biofuels industry as “cellulosic ethanol”. We
intend to utilize this technology to produce cellulosic ethanol
from central California agricultural biomass waste abundantly
available from end-of-life orchard debris or nutshells. We have
initiated a project to adopt the LanzaTech Technology and the
InEnTec Technology at the Riverbank Cellulosic Ethanol Facility.
Our first phase has an estimated eight million gallons per year
name-plate capacity. We intend to expand the site to an estimated
32 million gallons per year name-plate capacity production plant.
We also plan on licensing the technologies deployed at the Keyes
Cellulosic Ethanol Facility to other existing California-based
ethanol plants. In addition, we continue to evaluate new technology
and develop technology under our existing patents, patent pending
and in-process research and development to produce renewable
chemicals and advanced fuels from renewable feedstocks. Our
objective is to continue to commercialize our portfolio of
technologies and expand the adoption of these advanced biofuels and
bio-chemicals technologies throughout the United
States.
Diversify and expand revenue and cash flow by
continuing to develop and adopt value-added by-product processing
systems and optimize other processing systems in our existing
plants. In April 2012, we installed a distillers corn oil
(DCO) extraction unit at the Keyes plant and began extracting corn
oil for sale into the livestock feed market. During 2014, we
installed a second oil extraction system to further improve corn
oil yields from this process. During 2017, we entered into
agreements to sell substantially all of the carbon dioxide
(CO2)
produced at the Keyes plant to a leading industrial gas supplier
who is building a liquid CO2 capture plant
adjacent to the Keyes plant. We continue to evaluate and, as
allowed by available financing and free cash flow from operations,
adopt additional value-added processes that increase the value of
the ethanol, distillers grain, corn oil and CO2 produced at the
Keyes plant.
4
Acquire, license our technologies to, or joint
venture with other ethanol and biodiesel plants. There are
approximately 200 operating ethanol plants and one hundred
biodiesel plants in the U.S., as well as plants in Brazil,
Argentina, India and elsewhere in the world, that could be upgraded
to expand revenues and improve their cash flow using technology
commercially deployed or licensed by us. After developing and
commercially demonstrating technologies at the Keyes and/or
Kakinada plants, we will evaluate on an opportunistic basis the
benefit of acquiring ownership stake in other biofuel production
facilities and entering into joint venture or licensing agreements
with other ethanol, renewable diesel or renewable jet fuel
facilities.
Evaluate and pursue technology acquisition
opportunities. We intend to evaluate and pursue
opportunities to acquire technologies and processes that result in
accretive value opportunities as financial resources and business
prospects make the acquisition of these technologies advisable. In
addition, we may also seek to acquire companies, or enter into
licensing agreements or form joint ventures with companies that
offer prospects for the adoption of technologies that would be
accretive to earnings.
India
Capitalize on recent policy changes by the
Government of India, particularly those reducing the subsidies on
diesel, reducing unfair taxation of feedstock, reducing
restrictions on sales of fuel into the transportation markets, and
promoting the use of renewable transportation fuels. We plan
to continue to pursue the traditional bulk and transportation
biodiesel markets in India, which may become more economically
attractive as a result of potential changes to government tax
structures and policies. With the rationalization of indirect
taxation by the introduction of Goods and Services Tax, business to
government Oil Marketing Company contracts and contracts with major
oil consumers will become more readily available.
Continue to develop international
markets. We expect to increase sales by selling our
biodiesel into international markets, principally by building
relationships with major oil companies and trading partners. During
2014, we completed the construction of a biodiesel distillation
column, which allows us to produce high-quality biodiesel that
meets European Union standards. We have the necessary
certifications to meet the International Sustainability and Carbon
Certification (ISCC) standard, which allows us access to European
markets for export of our biodiesel products. During 2015, we
obtained the pathway certification to import biodiesel into
California. In 2016, the European Commission adopted a list of new
product categories originating in GSP (Generalized System of
Preferences) beneficiary countries where GSP tariff preferences
will be suspended from January 1, 2017 until December 31, 2019. Our
distilled biodiesel falls within the category that provides at
least a 6.5% tariff suspension beginning January 2017. In July
2017, India's Goods and Services Tax (GST) raised the combined tax
rate from 11% to 18% on our sales into the Indian domestic markets,
and then subsequently lowered the tax to 12% in early 2018. The
temporary GST tax increase hampered domestic India revenue
expansion for a large portion of 2017 and caused lower margins. On
January 25, 2018, legislation reduced the GST from 18% to 12%,
which has the potential to positively impact our revenues and
margins in 2018.
Diversify our feedstocks from India and
international sources. We designed our Kakinada plant with
the capability to produce biodiesel from multiple feedstocks. In
2009, we began to produce biodiesel from non-refined palm oil
(NRPO). During 2014, we further diversified our feedstock with the
introduction of animal oils and fats, which we used for the
production of biodiesel to be sold into the European markets. In
2016 and 2017, we used refined, bleached & deodorized Palm
Stearin (RBD Palm Stearin), which is derived from refining palm oil
from crude and was imported from Indonesia. Additionally, the
Kakinada plant is capable of producing biodiesel from used cooking
oil (UCO); however, the importation of UCO is not currently allowed
in India, and as a result, we are looking for a local supply
source.
Develop and commercially deploy technologies
to produce high-margin products. The technology applicable
to the Keyes plant for the upgrade of corn oil into valuable,
high-margin products can also be deployed at our Kakinada plant in
India. By using the existing equipment, process controls, utilities
and personnel at the Kakinada plant, we plan to produce high-value
products more quickly and at a lower capital and operating cost
than Greenfield projects.
Evaluate and pursue technology acquisition
opportunities. We intend to evaluate and pursue
opportunities to acquire technologies and processes that result in
accretive to earnings opportunities as financial resources and
business prospects make the acquisition of these technologies
advisable. In addition, we may also seek to acquire companies, or
enter into licensing agreements or form joint ventures with
companies that offer prospects for the adoption of accretive to
earnings business opportunities.
5
2017 Highlights
North America
During
2017, we produced four products at the Keyes
plant: denatured fuel ethanol, WDG, DCO, and
CDS. We sold 100% of the ethanol and WDG produced to
J.D. Heiskell pursuant to a Purchase Agreement established with
J.D. Heiskell. J.D. Heiskell in turn sells 100% of our
ethanol to Kinergy Marketing LLC (“Kinergy”) and 100%
of our WDG to A.L. Gilbert Co. (“A.L. Gilbert”), a
local feed and grain business. We sell DCO directly to local animal
feedlots (primarily poultry) as well as other feed mills for use in
various animal feed products. Smaller amounts of CDS were sold to
various local third parties as an animal feed
supplement.
The following table sets forth information about our production and
sales of ethanol and its by-products in 2017 and 2016:
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2017
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2016
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%
Change
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Ethanol
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Gallons Sold (in
thousands)
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60,774
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55,641
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9.2%
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Average Sales
Price/Gallon
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$1.75
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$1.78
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-1.7%
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WDG
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Tons Sold (in
thousands)
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407
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372
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9.4%
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Average Sales
Price/Ton
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$64.93
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$70.61
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-8.0%
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Ethanol
pricing for sales to J.D. Heiskell is determined pursuant to a
marketing agreement between Kinergy and us, and is generally based
on daily and monthly pricing for ethanol delivered to the San
Francisco Bay Area as published by the Oil Price Information
Service (OPIS), as well as quarterly contracts negotiated by
Kinergy with numerous fuel blenders. The price for WDG
is determined monthly pursuant to a marketing agreement between
A.L. Gilbert and us, and is generally determined in reference to
the local price of dry distillers grains (DDG), corn, and other
protein feedstuffs.
India
In 2017, we produced two products at the Kakinada plant: biodiesel
and refined glycerin. Crude glycerin produced as a by-product of
the production of biodiesel was further processed into refined
glycerin.
The following table sets forth information about our production and
sales of biodiesel and refined glycerin in 2017 and
2016:
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2017
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2016
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%
Change
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Biodiesel
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Tons sold
(1)
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12,161
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16,080
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-24%
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Average Sales
Price/Ton
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$851
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$739
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15%
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Refined
Glycerin
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Tons
sold
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3,793
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4,413
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-14%
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Average Sales
Price/Ton
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$810
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$582
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39%
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(1)
1 metric ton is
equal to 1,000 kilograms (approximately 2,204 pounds).
In 2017, the introduction of GST increased the tax rate to 18% from
11% and affected our revenues and gross margins. On January
25, 2018, GST was reduced from 18% to 12% which is expected to
drive revenues and margins higher in 2018.
Competition
North America
According
to the U.S. Energy Information Agency, there were approximately 200
operating commercial ethanol production facilities in the U.S. with
a combined nameplate production of approximately 15.5 billion
gallons per year at the beginning of 2017. The production of
ethanol is a commodity-based business where producers compete on
the basis of price. We sell ethanol into the Northern California
market; however, since insufficient production capacity exists in
California to supply the state’s total fuel ethanol
consumption (in excess of 1.5 billion gallons annually), we compete
with ethanol transported into California from Midwestern producers.
Similarly, our co-products, principally WDG and DCO, are sold into
local California markets and they compete with DDG and corn oil
imported into the California markets as well as alternative feed
products.
6
India
With respect to biodiesel sold as fuel, we compete primarily with
the producers of petroleum diesel, consisting of the three
state-controlled oil companies: Indian Oil Corporation, Bharat
Petroleum and Hindustan Petroleum, and two private oil companies:
Reliance Petroleum and Essar Oil, all of whom have significantly
larger market shares than we do and control a significant share of
the distribution network. These competitors may also purchase our
product for blending and further sales to their customers. We
compete primarily on the basis of price.
With respect to biodiesel sold for manufacturing purposes, we
compete with specialty chemical manufacturers selling products into
the textile industries primarily on the basis of price. With
respect to crude and refined glycerin, we compete with other
glycerin producers and refiners selling products into the personal
care, paints and adhesive markets primarily on the basis of price
and product quality.
Customers
North America
All of our ethanol and WDG are sold to J.D. Heiskell pursuant to a
purchase agreement. J.D. Heiskell in turn sells all of our ethanol
to Kinergy and all of our WDG to A.L. Gilbert. Kinergy markets and
sells our ethanol to petroleum refiners and blenders in Northern
California. A.L. Gilbert markets and sells our WDG to approximately
100 dairy and feeding operators in Northern
California.
India
During 2017, we derived 77% and 23% of our sales from biodiesel and
refined glycerin respectively. Two of our biodiesel customers
accounted for more than 10% of our consolidated India segment
revenues at 47% and 13%. None of our refined glycerin customers
have accounted for more than 10% of our consolidated India segment
revenues in 2017. During 2016, we derived 82% and 18% of our sales
from biodiesel and refined glycerin respectively. Two of our
biodiesel customers accounted for more than 10% of our consolidated
India segment revenues at 51% and 12%. None of our refined glycerin
customers accounted for more than 10% of our sales on the
consolidated India segment revenues in 2016.
Pricing
North America
We sell
100% of the ethanol and WDG we produce
to J.D. Heiskell. Ethanol pricing is determined pursuant to a
marketing agreement between Kinergy and us and is generally based
on daily and monthly pricing for ethanol delivered to the San
Francisco Bay area in California, as published by OPIS, as well as
the terms of quarterly contracts negotiated by Kinergy with local
fuel blenders and available premiums for fuel with low carbon
intensity as provided by California’s LCFS. The price for WDG
is determined monthly pursuant to a marketing agreement between
A.L. Gilbert and us and is generally determined in reference to the
price of DDG and other protein feedstuffs, based on local pricing
in California’s Central Valley.
India
In India, the price of biodiesel is based on the price of petroleum
diesel, which floats with changes in the price determined by the
international markets. Biodiesel sold into Europe is based on the
spot market price. We sell our biodiesel primarily to resellers,
distributors and refiners on an as-needed basis. We have no
long-term sales contracts. Our biodiesel pricing is related
to the price of petroleum diesel, and the increase in the price of
petroleum diesel is expected to favorably impact the profitability
of our India operations.
7
Raw Materials and Suppliers
North America
We
entered into a Corn Procurement and Working Capital Agreement with
J.D. Heiskell in March 2011, which we amended in May 2013
(Heiskell Agreement). Under the Heiskell Agreement, we agreed to
procure number two yellow dent corn from J.D. Heiskell. We have the
ability to obtain corn from other sources subject to certain
conditions; however, in 2017, all of our corn supply was purchased
from J.D. Heiskell. Title to the corn and risk of loss pass to us
when the corn is deposited into our weigh scale. The agreement is
automatically renewed for additional one-year terms. The current
term is set to expire on December 31, 2018.
India
In 2017, a significant amount of our biodiesel was derived from
processing RBD palm stearin, which was imported from Indonesia, and
the remaining portion from refining feedstocks based on animal
fats. During 2017 and 2016, we imported crude glycerin for further
processing into refined glycerin. In addition to feedstock, the
Kakinada plant requires quantities of methanol and chemical
catalysts for use in the biodiesel production process. These
chemicals are also readily available and sourced from a number of
suppliers surrounding the Kakinada plant. We are not dependent on
sole source or limited source suppliers for any of our raw
materials or chemicals.
Sales and Marketing
North America
As part of our obligations under the Heiskell
Agreement, we entered into a purchase
agreement with J.D. Heiskell, pursuant to which we granted J.D.
Heiskell exclusive rights to purchase 100% of the ethanol and WDG
we produce at prices based upon the price established by the
marketing agreements with Kinergy and A.L. Gilbert. In turn, J.D.
Heiskell agreed to resell all the ethanol to Kinergy (or any other
purchaser we designate) and all of the WDG to A.L.
Gilbert.
In March 2011, we entered into a WDG Purchase and Sale Agreement
with A.L. Gilbert, pursuant to which A.L. Gilbert agreed to market,
on an exclusive basis, all of the WDG we produce. The
agreement is automatically renewed for additional one-year terms.
The current term is set to expire on December 31,
2018.
In
October 2010, we entered into an
exclusive marketing agreement with Kinergy to market and sell our
ethanol. The agreement is automatically renewed for
additional one-year terms. The current term is set to expire on
August 31, 2018.
We sell
our DCO and CDS directly to local third-party animal
feedlots.
India
We sell our biodiesel and refined glycerin (i) to end-users
utilizing our own sales force and independent sales agents and (ii)
to brokers who resell the product to end-users. We pay a sales
commission on sales arranged by independent sales
agents.
Commodity Risk Management Practices
North America
The cost of corn and the price of ethanol are volatile and the
correlation of the pricing of these commodities form the basis for
the profit margin at our Keyes plant. We are, therefore, exposed to
commodity price risk. Our risk management strategy is to operate in
the physical market by purchasing corn and selling ethanol on a
daily basis at the then prevailing market price. We monitor these
prices daily to test for an overall positive variable contribution
margin. We periodically explore and utilize methods of mitigating
the volatility of our commodity prices. During 2017, we offered
three-month WDG contracts to our customers, which we offset with
the purchase of corn basis, allowing us to fix a portion of the
margin at the Keyes plant. Similarly, with the EPA certification
received in August 2013, we intend to opportunistically purchase
the combination of milo and biogas to generate advanced biofuel RIN
credits, when market conditions present favorable
margins.
8
India
The cost of NRPO, RBD palm stearin and the price of biodiesel are
volatile and are generally uncorrelated. We therefore are exposed
to ongoing and substantial commodity price risk. Our risk
management strategy is to produce biodiesel in India only when we
believe we can generate positive gross margins and to idle the
Kakinada plant during periods of low or negative gross margins.
Additionally, we are pursuing relationships with large oil
companies and trading partners pursuant to which we would process
feedstocks and produce biofuels for sales into international
markets on a fixed margin basis. Beginning in 2014, we began using
animal oil and fats as a means of further diversifying our
feedstock supply and improving margins.
In addition, to minimize our commodity risk, we modified the
processes within our facility to utilize lower cost NRPO and
imported RBD palm stearin (waste from refined palm oil), which
enables us to reduce our feedstock costs. The price of our
biodiesel is generally indexed to the price of petroleum diesel,
which floats with changes in the price determined by the
international markets.
We have in the past, and we may in the future, use forward purchase
contracts and other hedging strategies; however, the extent to
which we engage in these risk management strategies may vary
substantially from time to time depending on market conditions and
other factors.
Research and Development
Our R&D efforts consist of working to develop and commercialize
our existing microbial technology, to evaluate third party
technologies, and to expand the production of ethanol and other
renewable bio-chemicals in the United States. The primary objective
of this development activity is to optimize the production of
ethanol using either our proprietary, patent-pending enzyme
technology for large-scale commercial production or the evaluation
of third party technologies which have promise for large-scale
commercial adoption at one of our operating facilities. Our
innovations are protected by several issued or pending patents. We
are in the process of filing additional patents that will further
strengthen our portfolio.
We also engaged in building an Integrated Demonstration Testing
Unit for our cellulosic ethanol project in 2017, which was
successfully built and tested for producing renewable cellulosic
ethanol by combining the Lanza Tech Technology and the InEnTec
Technology with our own technology. The expense of building this
unit was charged to R&D expense in 2017.
R&D expense was $2.4 million and $0.4 million respectively, in
the years ended 2017 and 2016.
Patents and Trademarks
We
filed a number of trademark applications within the U.S. We
do not consider the success of our business, as a whole, to be
dependent on these trademarks. In addition, we hold ten
awarded patents in the United States. Our patents cover the
Z-microbeTM and production of
cellulosic ethanol and a technology to convert carbon chain
chemical structures. We intend to develop, maintain and
secure further intellectual property rights, and pursue new patents
to expand upon our current patent base.
We have
acquired exclusive rights to patented technology in support of the
development and commercialization of our products, and we also rely
on trade secrets and proprietary technology in developing potential
products. We continue to place significant emphasis on
securing global intellectual property rights and we are pursuing
new patents to expand upon our strong foundation for
commercializing products in development.
We have received, and in the future, we may receive additional,
claims of infringement of other parties’ proprietary rights.
See Item 3. Legal Proceedings, below. Infringement or other claims
could be asserted or prosecuted against us in the future, and it is
possible that future assertions or prosecutions could harm our
business. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of
technical and management personnel, cause delays in the development
of our products, or require us to develop non-infringing technology
or enter into royalty or licensing arrangements. Such royalty or
licensing arrangements, if required, may require us to license back
our technology or may not be available on terms acceptable to us,
or at all.
9
Environmental and Regulatory Matters
North America
In
November 2017, the EPA finalized the volume requirements and
associated percentage standards that apply under the RFS program in
calendar year 2018 for cellulosic biofuel, biomass-based diesel,
advanced biofuel, and total renewable fuel.
The
final volumes requirements are set forth below and represent
continued growth over historic levels, although the requirement for
cellulosic biofuel was slightly lowered to match expected
production in 2018. The final percentage standards meet or
exceed the volume targets specified by Congress for total renewable
fuel, biomass-based diesel and advanced biofuel.
|
Renewable Fuel Volume Requirements for 2014-2018
|
|||||
|
Year
|
2014
|
2015
|
2016
|
2017
|
2018
|
|
Cellulosic
biofuel (million gallons)
|
33
|
123
|
230
|
311
|
288
|
|
Biomass-based
diesel (billion gallons)
|
1.63
|
1.73
|
1.9
|
2.0
|
2.1
|
|
Advanced
biofuel (billion gallons)
|
2.67
|
2.88
|
3.61
|
4.28
|
4.29
|
|
Renewable
fuel (billion gallons)
|
16.28
|
16.93
|
18.11
|
19.28
|
19.29
|
Source:
Environmental Protection Agency
We are subject to federal, state and local environmental laws,
regulations and permit conditions, including those relating to the
discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of
hazardous materials, and the health and safety of our employees.
These laws, regulations and permits may, from time to time, require
us to incur significant capital costs. These include, but are not
limited to, testing and monitoring plant emissions, and where
necessary, obtaining and maintaining mitigation processes to comply
with regulations. They may also require us to make operational
changes to limit actual or potential impacts to the environment. A
significant violation of these laws, regulations, permits or
license conditions could result in substantial fines, criminal
sanctions, permit revocations and/or facility shutdowns. In
addition, environmental laws and regulations change over time, and
any such changes, more vigorous enforcement policies or the
discovery of currently unknown conditions may require substantial
additional environmental expenditures.
We are also subject to potential liability for the investigation
and cleanup of environmental contamination at each of the
properties that we own or operate and at off-site locations where
we arrange for the disposal of hazardous wastes. If significant
contamination is identified at our properties in the future, costs
to investigate and remediate this contamination as well as costs to
investigate or remediate associated damage could be significant. If
any of these sites are subject to investigation and/or remediation
requirements, we may be responsible under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”) or other environmental laws for all or part
of the costs of such investigation and/or remediation, and for
damage to natural resources. We may also be subject to related
claims by private parties alleging property damage or personal
injury due to exposure to hazardous or other materials at or from
such properties. While costs to address contamination or related
third-party claims could be significant, based upon currently
available information, we are not aware of any material
contamination or any such third-party claims. Based on our current
assessment of the environmental and regulatory risks, we have not
accrued any amounts for environmental matters as of December 31,
2017. The ultimate costs of any liabilities that may be identified
or the discovery of additional contaminants could materially
adversely impact our results of operation or financial
condition.
10
In addition, the production and transportation of our products may
result in spills or releases of hazardous substances, which could
result in claims from governmental authorities or third parties
relating to actual or alleged personal injury, property damage, or
damage to natural resources. We maintain insurance coverage against
some, but not all, potential losses caused by our operations. Our
general and umbrella liability policy coverage includes, but is not
limited to, physical damage to assets, employer’s liability,
comprehensive general liability, automobile liability and
workers’ compensation. We do not carry environmental
insurance. We believe that our insurance is adequate for our
industry, but losses could occur for uninsurable or uninsured risks
or in amounts in excess of existing insurance coverage. The
occurrence of events which result in significant personal injury or
damage to our property, natural resources or third parties that is
not covered by insurance could have a material adverse impact on
our results of operations and financial condition.
Our air emissions are subject to the federal Clean Air Act, and
similar state laws, which generally require us to obtain and
maintain air emission permits for our ongoing operations as well as
for any expansion of existing facilities or any new facilities.
Obtaining and maintaining those permits requires us to incur costs,
and any future more stringent standards may result in increased
costs and may limit or interfere with our operating flexibility.
These costs could have a material adverse effect on our financial
condition and results of operations. Because other ethanol
manufacturers in the U.S. are and will continue to be subject to
similar laws and restrictions, we do not currently believe that our
costs to comply with current or future environmental laws and
regulations will adversely affect our competitive position with
other U.S. ethanol producers. However, because ethanol is produced
and traded internationally, these costs could adversely affect us
in our efforts to compete with foreign producers who are not
subject to such stringent requirements.
New laws or regulations relating to the production, disposal or
emission of carbon dioxide and other greenhouse gases may require
us to incur significant additional costs with respect to ethanol
plants that we build or acquire. For example, in 2007, Illinois and
four other Midwestern states entered into the Midwestern
Greenhouse Gas Reduction Accord, which directs participating states
to develop a multi-sector cap-and-trade mechanism to help achieve
reductions in greenhouse gases, including carbon dioxide. We
currently conduct our North American commercial activities
exclusively in California; however, it is possible that other
states in which we plan to conduct business could join this accord
or require other carbon dioxide emissions reductions. Climate
change legislation is being considered in Washington, D.C. this
year which may significantly impact the biofuels industry’s
emissions regulations, as will the Renewable Fuel Standard,
California’s Low Carbon Fuel Standard, and other potentially
significant changes in existing transportation fuels
regulations.
India
We are subject to national, state and local environmental laws,
regulations and permits, including with respect to the generation,
storage, handling, use, transportation and disposal of hazardous
materials, and the health and safety of our employees. These laws
may require us to make operational changes to limit actual or
potential impacts to the environment. A violation of these laws,
regulations or permits can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations and/or
facility shutdowns. In addition, environmental laws and regulations
(and interpretations thereof) change over time, and any such
changes, more vigorous enforcement policies or the discovery of
currently unknown conditions may require substantial additional
environmental expenditures.
Employees
At December 31, 2017, we had a total of 140 employees, comprised of
14 full-time employees and one part-time equivalent employee in our
corporate offices, 44 full-time equivalent employees at the Keyes
plant, and 81 full-time equivalent employees in India.
We
believe that our employees are highly skilled, and our success will
depend in part upon our ability to retain our employees and attract
new qualified employees, many of whom are in great demand. We have
never had a work stoppage or strike, and no employees are presently
represented by a labor union or covered by a collective bargaining
agreement. We believe relations with
our employees are strong.
Available Information
We file
reports with the Securities and Exchange Commission
(“SEC”). We make available on our website under
“Investor Relations,” free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports as soon as
reasonably practicable after we electronically file such materials
with or furnish them to the SEC. Our website address is
www.aemetis.com. Our website address is provided as an inactive
textual reference only, and the contents of that website are not
incorporated in or otherwise to be regarded as part of this report.
You can also read and copy any materials we file with the SEC at
the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may also obtain additional information
about the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
(www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC, including us.
11
Item 1A. Risk
Factors
We
operate in an evolving industry that presents numerous risks beyond
our control that are driven by factors that cannot be predicted.
Should any of the risks described in this section or in the
documents incorporated by reference in this report actually occur,
our business, results of operations, financial condition, or stock
price could be materially and adversely affected. Investors should
carefully consider the risk factors discussed below, in addition to
the other information in this report, before making any investment
in our securities.
Risks Related to our Overall Business
We are currently not profitable and historically, we have
incurred significant losses. If we incur continued
losses, we may have to curtail our operations, which may prevent us
from successfully operating and expanding our
business.
Historically,
we have relied upon cash from debt and equity financing activities
to fund substantially all of the cash requirements of our
activities. As of December 31, 2017, we had an
accumulated deficit of approximately $160.2 million. For our fiscal
years ended December 31, 2017 and 2016, we reported a net loss of
$31.8 million and $15.6 million, respectively. We may incur losses
for an indeterminate period of time and may not achieve consistent
profitability. We expect to
rely on cash on hand, cash, if any, generated from our operations,
borrowing availability under our lines of credit and proceeds from
future financing activities, if any, to fund all of the cash
requirements of our business. In some market environments, we
may have limited access to incremental financing, which could defer
or cancel growth projects, reduce business activity or cause us to
default on our existing debt agreements if we are unable to meet
our payment schedules. An extended period of losses or
negative cash flow may prevent us from successfully operating and
expanding our business.
Our indebtedness and interest expense could limit cash flow and
adversely affect operations and our ability to make full payment on
outstanding debt.
For the
year ended December 31, 2017, we recognized $13.9 million in
interest expense, primarily due to higher debt balances in 2017.
Our high levels of interest expense pose potential risks such
as:
●
A substantial
portion of cash flows from operations are used to pay principal and
interest on debt, thereby reducing the funds available for working
capital, capital expenditures, acquisitions, research and
development and other general corporate purposes;
●
Insufficient cash
flows from operations may force us to sell assets, or seek
additional capital, which we may not be able to accomplish on
favorable terms, if at all; and
●
The level of
indebtedness may make us more vulnerable to economic or industry
downturns.
Additionally,
we have guaranteed the obligations of a variable interest entity
that is included in our consolidated financial statements, which
could require us to make payments on the outstanding debt of the
variable interest entity that would limit our cash flow and could
adversely affect our operations. In July 2017, we entered into a
limited guaranty with Third Eye Capital in connection with a note
purchase agreement entered into by our variable interest entity
GAFI and Third Eye Capital (the “GAFI Debt”). As of
December 31, 2017, GAFI’s outstanding balance of principal,
interest and fees on the GAFI Debt equaled $24.4 million. Any
inability by GAFI to repay the GAFI debt would require us to
fulfill our guarantee to Third Eye Capital, which would limit our
cash flow and adversely affect our operations.
Our business is dependent on external financing and cash from
operations to service debt and provide future growth.
The
adoption of new technologies at our ethanol and biodiesel plants
and our working capital requirements are financed in part through
debt facilities. We may need to seek additional
financing to continue or grow our operations. However,
generally unfavorable credit market conditions may make it
difficult to obtain necessary capital or additional debt financing
on commercially viable terms or at all. If we are unable
to pay our debt, we may be forced to delay or cancel capital
expenditures, sell assets, restructure our indebtedness, seek
additional financing, or file for bankruptcy
protection. Debt levels or debt service requirements may
limit our ability to borrow additional capital, make us vulnerable
to increases in prevailing interest rates, subject our assets to
liens, limit our ability to adjust to changing market conditions,
or place us at a competitive disadvantage to our
competitors. Should we be unable to generate enough cash
from our operations or secure additional financing to fund our
operations and debt service requirements, we may be required to
postpone or cancel growth projects, reduce our operations, or may
be unable to meet our debt repayment schedules. Any one
of these events would likely have a material adverse effect on our
operations and financial position.
12
There
can be no assurance that our existing cash flow from operations
will be sufficient to sustain operations and to the extent that we
are dependent on credit facilities to fund operations or service
debt, there can be no assurances that we will be successful at
securing funding from our senior lender or significant
shareholders. Should we require additional financing, there can be
no assurances that the additional financing will be available on
terms satisfactory to us. Our ability to identify and
enter into commercial arrangements with feedstock suppliers in
India depends on maintaining our operations agreement with Gemini
Edibles and Fats India Private Limited (Gemini) and Secunderabad
Oils Limited (SOL), who are currently providing us with working
capital for our Kakinada facility and BP operations
respectively. If we are unable to maintain this
strategic relationship, our business may be negatively
affected. In addition, the ability of Gemini and SOL to
continue to provide us with working capital depends in part on the
financial strength of them and their banking
relationships. If Gemini and SOL are unable or unwilling
to continue to provide us with working capital, our business may be
negatively affected. Our ability to enter into
commercial arrangements with feedstock suppliers in California
depends on maintaining our operations agreement with J.D. Heiskell,
who is currently providing us with working capital for our Keyes
plant. If we are unable to maintain this strategic
relationship, our business may be negatively
affected. In addition, the ability of J.D. Heiskell to
continue to provide us with working capital depends in part on the
financial strength of J.D. Heiskell and its banking
relationships. If J.D. Heiskell is unable or unwilling
to continue to provide us with working capital, our business may be
negatively affected. Our consolidated
financial statements do not include any adjustments to the
classification or carrying values of our assets or liabilities that
might be necessary as a result of the outcome of this
uncertainty.
We may be unable to repay or refinance our Third Eye Capital
Notes upon maturity.
Under
our note facilities with Third Eye Capital Corporation (Third Eye
Capital), we owe approximately $74.9 million, excluding debt
discounts, as of December 31, 2017. Our indebtedness and interest
payments under these note facilities are currently substantial and
may adversely affect our cash flow, cash position and stock
price. The maturity date of these notes has been
extended to April 2018, although the maturity can be further
extended to April 2019 upon payment of certain fees. We
have been able to extend our indebtedness in the past, but we may
not be able to continue to extend the maturity of these
notes. We may not have sufficient cash available at the
time of maturity to repay this indebtedness. We have
default covenants that may accelerate the maturities of these
notes. We may not have sufficient assets or cash flow
available to support refinancing these notes at market rates or on
terms that are satisfactory to us. If we are unable to
extend the maturity of the notes or refinance on terms satisfactory
to us, we may be forced to refinance on terms that are materially
less favorable, seek funds through other means such as a sale of
some of our assets or otherwise significantly alter our operating
plan, any of which could have a material adverse effect on our
business, financial condition and results of
operations. Additionally, if we are unable to amend our
current note purchase agreement with Third Eye Capital, our ability
to pay dividends could be restrained.
We are
dependent upon our working capital agreements with J.D. Heiskell
and Gemini Edibles and Fats India Private Limited and Secunderabad
Oils Limited.
Our
ability to operate our Keyes plant depends on maintaining our
working capital agreement with J.D. Heiskell, and our ability to
operate the Kakinada plant depends on maintaining our working
capital agreement with Gemini and SOL. The Heiskell Agreement
provides for an initial term of one year with automatic one-year
renewals; provided, however, that J.D. Heiskell may terminate the
agreement by notice 90 days prior to the end of the initial term or
any renewal term. The current term extends through
December 31, 2018. In addition, the agreement may be
terminated at any time upon an event of default, such as payment
default, bankruptcy, acts of fraud or material breach under one of
our related agreements with J.D. Heiskell. The Gemini
and SOL agreements may be terminated at any time by either party
upon written notice. If we are unable to maintain these
strategic relationships, we will be required to locate alternative
sources of working capital and corn or milo supply, which we may be
unable to do in a timely manner or at all. If we are
unable to maintain our current working capital arrangements or
locate alternative sources of working capital, our ability to
operate our plants will be negatively affected.
Disruptions in ethanol production infrastructure may adversely
affect our business, results of operations and financial
condition.
Our
business depends on the continuing availability of rail, road,
port, and storage and distribution infrastructure. In particular,
due to limited storage capacity at the Keyes plant and other
considerations related to production efficiencies, the Keyes plant
depends on just-in-time delivery of corn and milo. The delivery and
transformation of feedstock requires a significant and
uninterrupted supply of corn and milo, principally delivered by
rail, as well as other raw materials and energy, primarily
electricity and natural gas. The prices of rail, electricity and
natural gas have fluctuated significantly in the past and may
fluctuate significantly in the future. The national rail system, as
well as local electricity and gas utilities, may not be able to
reliably supply the rail logistics, electricity and natural gas
that the Keyes plant will need or may not be able to supply those
resources on acceptable terms. Any disruptions in the ethanol
production infrastructure, whether caused by labor difficulties,
earthquakes, storms, other natural disasters, or human error or
malfeasance or other reasons, could prevent timely deliveries of
corn, milo or other raw materials and energy and may require the
Keyes plant to halt production, which could have a material adverse
effect on our business, results of operations and financial
condition.
13
Our results from operations are primarily dependent on the spread
between the feedstock and energy we purchase and the fuel, animal
feed and other products we sell.
The
results of our ethanol production business in the U.S. are
significantly affected by the spread between the cost of the corn
and natural gas that we purchase and the price of the ethanol, WDG
and DCO that we sell. Similarly, in India our biodiesel business is
primarily dependent on the price difference between the costs of
the feedstock we purchase (principally NRPO and crude glycerin) and
the products we sell (principally distilled biodiesel and refined
glycerin). The markets for ethanol, biodiesel, WDG, DCO
and glycerin are highly volatile and subject to significant
fluctuations. Any decrease in the spread between prices
of the commodities we buy and sell, whether as a result of an
increase in feedstock prices or a reduction in ethanol or biodiesel
prices, would adversely affect our financial performance and cash
flow and may cause us to suspend production at either of our
plants.
The price of ethanol is volatile and subject to large
fluctuations, and increased ethanol production may cause a decline
in ethanol prices or prevent ethanol prices from rising, either of
which could adversely impact our results of operations, cash flows
and financial condition.
The
market price of ethanol is volatile and subject to large
fluctuations. The market price of ethanol is dependent upon many
factors, including the supply of ethanol and the demand for
gasoline, which is in turn dependent upon the price of petroleum,
which is also highly volatile and difficult to
forecast. Fluctuations in the market price of ethanol
may cause our profitability or losses to fluctuate
significantly. In addition, domestic ethanol production
capacity increased significantly in the last
decade. Demand for ethanol may not increase
commensurately with increases in supply, which could lead to lower
ethanol prices. Demand for ethanol could be impaired due to a
number of factors, including regulatory developments and reduced
United States gasoline consumption. Reduced gasoline consumption
has occurred in the past and could occur in the future as a result
of increased gasoline or oil prices.
Decreasing gasoline prices
may negatively impact the selling price of ethanol which could
reduce our ability to operate profitably.
The
price of ethanol tends to change in relation to the price of
gasoline. Recently, as a result of a number of factors including
the current world economy, the price of gasoline has decreased. In
correlation to the decrease in the price of gasoline, the price of
ethanol has also decreased. Decreases in the price of ethanol
reduce our revenue. Our profitability depends on a favorable spread
between our corn and natural gas costs and the price we receive for
our ethanol. If ethanol prices fall during times when corn and/or
natural gas prices are high, we may not be able to operate
profitably.
We may be unable to execute our business plan.
The
value of our long-lived assets is based on our ability to execute
our business plan and generate sufficient cash flow to justify the
carrying value of our assets. Should we fall short of
our cash flow projections, we may be required to write down the
value of these assets under accounting rules and further reduce the
value of our assets. We can make no assurances that
future cash flows will develop and provide us with sufficient cash
to maintain the value of these assets, thus avoiding future
impairment to our asset carrying values. As a result, we
may need to write down the carrying value of our long-lived
assets.
In
addition, we intend to modify or adapt third party technologies at
the Keyes plant and at the Kakinada plant to accommodate
alternative feedstocks and improve operations. After we
design and engineer a specific integrated upgrade to either or both
plants to allow us to produce products other than their existing
products, we may not receive permission from the regulatory
agencies to install the process at one or both
plants. Additionally, even if we are able to install and
begin operations of an integrated advanced fuels and/or
bio-chemical plant, we cannot assure you that the technology will
work and produce cost effective products because we have never
designed, engineered nor built this technology into an existing
bio-refinery. Similarly, our plans to add a
CO2
conversion unit at the Keyes plant may not be successful as a
result of financing, issues in the design or construction process,
or our ability to sell liquid CO2 at cost effective
prices. Any inability to execute our business plan may have a
material adverse effect on our operations, financial position,
ability to pay dividends, and ability to continue as a going
concern.
14
We may not be able to recover the costs of our substantial
investments in capital improvements and additions, and the actual
cost of such improvements and additions may be significantly higher
than we anticipate.
Our
strategy calls for continued investment in capital improvements and
additions. For example, we are currently developing the Riverbank
Cellulosic Ethanol Facility in Riverbank, CA to utilize the
LanzaTech and InEnTec Technologies to convert local California
surplus biomass into ultra-low carbon renewable cellulosic ethanol.
We may finish construction on partially completed Goodland Facility
and apply celluloic technology there in the future. The
construction of the capital improvements and additions involve
numerous regulatory, environmental, political and legal
uncertainties, many of which are beyond our control and may require
the expenditure of significant amounts of capital, which may exceed
our estimates. These projects may not be completed at the planned
cost, on schedule or at all. The construction of new ethanol and
other biofuel facilities is subject to construction cost overruns
due to labor costs, costs of equipment and materials such as steel,
labor shortages or weather or other delays, inflation or other
factors, which could be material. In addition, the construction of
these facilities is typically subject to the receipt of approvals
and permits from various regulatory agencies. Those agencies may
not approve the projects in a timely manner, if at all, or may
impose restrictions or conditions on the projects that could
potentially prevent a project from proceeding, lengthen its
expected completion schedule and/or increase its anticipated cost.
Moreover, our revenues and cash flows may not increase immediately
upon the expenditure of funds on a particular project. For
instance, if we expand an existing facility or construct a new
facility, the construction may occur over an extended period of
time, and we may not receive any material increases in revenues or
cash flows until the project is completed. As a result, the new
facilities may not be able to achieve our expected investment
return, which could adversely affect our results of
operations.
We are dependent on, and
vulnerable to any difficulties of, our principal suppliers and
customers.
We buy
all of the feedstock for the Keyes plant from one supplier, J.D.
Heiskell. Under the Heiskell Agreement, we are only
permitted to purchase feedstock from other suppliers upon the
satisfaction of certain conditions. In addition, we have
contracted to sell all of the WDG, CDS, corn oil and ethanol we
produce at the Keyes plant to J.D. Heiskell. J.D.
Heiskell, in turn, sells all ethanol produced at the Keyes plant to
Kinergy Marketing and all WDG and syrup to A.L.
Gilbert. If J.D. Heiskell were to fail to deliver
adequate feedstock to the Keyes plant or fail to purchase all the
product we produce, if Kinergy were to fail to purchase all of the
ethanol we produce, if A.L. Gilbert were to fail to purchase all of
the WDG and syrup we produce, or if any of them were otherwise to
default on our agreements with them or fail to perform as expected,
we may be unable to find replacement suppliers or purchasers, or
both, in a reasonable time or on favorable terms, any of which
could materially adversely affect our results from operations and
financial results.
We may not receive the funds we expect under our EB-5
program.
Our
EB-5 Phase I program allows for the issuance of up to 72
subordinated convertible promissory notes, each in the amount of
$0.5 million due and payable four years from the date of the note
for a total aggregate principal amount of up to $36.0 million. As
of December 31, 2017, $35.5 million has been raised through the
EB-5 program, of which $34.5 million have been released from
escrow, $1.0 million in investor funds remain in an escrow account
pending release approval by the U.S. Citizenship and Immigration
Services (USCIS) and $0.5 million remain to be funded to escrow.
The $1.0 million in EB-5 program funds remaining in escrow may be
released in first half of 2018. Additionally, the USCIS could deny
approval of the loans, and then we would not receive some or all of
the subscribed funds. If the USCIS takes longer to approve the
release of funds in escrow, or does not approve the loans at all,
it would have a material adverse effect on our cash flows available
for operations, and thus could have a material adverse effect on
our results of operations.
On
October 16, 2016, we launched our EB-5 Phase II program, allowing
for the issuance of up to 100 subordinated convertible promissory
notes, on substantially similar terms and conditions as those
issued under our EB-5 Phase I program, for a total aggregate
principal amount of up to $50.0 million. There can be no assurance
that we will be able to successfully raise additional funds under
our EB-5 Phase II program or that such funds, if raised, will be
approved by USCIS. If we are unable to raise, receive approval for,
or receive any funds under our EB-5 Phase II program, our business
may be negatively affected.
We face competition for our
bio-chemical and transportation fuels products from providers of
petroleum-based products and from other companies seeking to
provide alternatives to these products, many of whom have greater
resources and experience than we do, and if we cannot compete
effectively against these companies we may not be
successful.
Our
renewable products compete with both the traditional, largely
petroleum-based bio-chemical and fuels products that are currently
being used in our target markets and with the alternatives to these
existing products that established enterprises and new companies
are seeking to produce. The oil companies, large
chemical companies and well-established agricultural products
companies with whom we compete are much larger than we are, and
have, in many cases, well developed distribution systems and
networks for their products.
15
In the
transportation fuels market, we compete with independent and
integrated oil refiners, advanced biofuels companies and biodiesel
companies. Refiners compete with us by selling traditional fuel
products and some are also pursuing hydrocarbon fuel production
using non-renewable feedstocks, such as natural gas and coal, as
well as processes using renewable feedstocks, such as vegetable oil
and biomass. We also expect to compete with companies that are
developing the capacity to produce diesel and other transportation
fuels from renewable resources in other ways.
With
the emergence of many new companies seeking to produce chemicals
and fuels from alternative sources, we may face increasing
competition from alternative fuels and chemicals companies. As they
emerge, some of these companies may be able to establish production
capacity and commercial partnerships to compete with us. If we are
unable to establish production and sales channels that allow us to
offer comparable products at attractive prices, we may not be able
to compete effectively with these companies.
The high concentration of our sales within the ethanol production
industry could result in a significant reduction in sales and
negatively affect our profitability if demand for ethanol
declines.
We
expect our U.S. operations are to be substantially focused on the
production of ethanol and its co-products for the foreseeable
future. We may be unable to shift our business focus away from the
production of ethanol to other renewable fuels or competing
products. Accordingly, an industry shift away from ethanol or the
emergence of new competing products may reduce the demand for
ethanol. A downturn in the demand for ethanol could materially and
adversely affect our sales and profitability.
Our operations are subject to environmental, health, and safety
laws, regulations, and liabilities.
Our
operations are subject to various federal, state and local
environmental laws and regulations, including those relating to the
discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of
hazardous materials, access to and impacts on water supply, and the
health and safety of our employees. In addition, our
operations and sales in India subject us to risks associated with
foreign laws, policies and regulations. Some of these
laws and regulations require our facilities to operate under
permits or licenses that are subject to renewal or
modification. These laws, regulations and permits can
require expensive emissions testing and pollution control equipment
or operational changes to limit actual or potential impacts to the
environment. Violations of these laws, regulations or permit,
or license conditions can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations and
facility shutdowns. We may not be at all times in
compliance with these laws, regulations, permits or licenses or we
may not have all permits or licenses required to operate our
business. We may be subject to legal actions brought by
environmental advocacy groups and other parties for actual or
alleged violations of environmental laws, permits or
licenses. In addition, we may be required to make
significant capital expenditures on an ongoing basis to comply with
increasingly stringent environmental laws, regulations, permit and
license requirements.
We may
be liable for the investigation and cleanup of environmental
contamination at the Keyes plant and at off-site locations where we
arrange for the disposal of hazardous substances. If
hazardous substances have been or are disposed of or released at
sites that undergo investigation or remediation by regulatory
agencies, we may be responsible under CERCLA or other environmental
laws for all or part of the costs of investigation and remediation,
and for damage to natural resources. We also may be
subject to related claims by private parties alleging property
damage and personal injury due to exposure to hazardous or other
materials at or from those properties. Some of these matters may
require us to expend significant amounts for investigation, cleanup
or other costs.
New
laws, new interpretations of existing laws, increased governmental
enforcement of environmental laws or other developments could
require us to make additional significant
expenditures. Continued government and public emphasis
on environmental issues can be expected to result in increased
future investments for environmental controls at our production
facilities. Environmental laws and regulations
applicable to our operations now or in the future, more vigorous
enforcement policies and discovery of currently unknown conditions
may require substantial expenditures that could have a negative
impact on our results of operations and financial
condition.
Emissions
of carbon dioxide resulting from manufacturing ethanol are not
currently subject to permit requirements. If new laws or
regulations are passed relating to the production, disposal or
emissions of carbon dioxide, we may be required to incur
significant costs to comply with such new laws or
regulations.
Our business is affected by greenhouse gas and climate change
regulation.
The
operations at our Keyes plant will result in the emission of carbon
dioxide into the atmosphere. In March 2010, the EPA
released its final regulations on the Renewable Fuels Standard
Program, or RFS. We believe the EPA’s final RFS
regulations grandfather the Keyes facility we operate at its
current capacity, however, compliance with future legislation may
require us to take action unknown to us at this time that could be
costly, and require the use of working capital, which may or may
not be available, preventing us from operating as planned, which
may have a material adverse effect on our operations and cash
flow.
16
A change in government policies may cause a decline in the demand
for our products.
The
domestic ethanol industry is highly dependent upon a myriad of
federal and state regulations and legislation, and any changes in
legislation or regulation could adversely affect our results of
operations and financial position. Other federal and
state programs benefiting ethanol generally are subject to U.S.
government obligations under international trade agreements,
including those under the World Trade Organization Agreement on
Subsidies and Countervailing Measures, and may be the subject of
challenges, in whole or in part. Growth and demand for
ethanol and biodiesel is largely driven by federal and state
government mandates or blending requirements, such as the Renewable
Fuel Standard (RFS). Any change in government policies
could have a material adverse effect our business and the results
of our operations.
Ethanol
can be imported into the United States duty-free from some
countries, which may undermine the domestic ethanol
industry. Production costs for ethanol in these
countries can be significantly less than in the United States and
the import of lower price or lower carbon value ethanol from these
countries may reduce the demand for domestic ethanol and depress
the price at which we sell our ethanol.
Waivers
of the RFS minimum levels of renewable fuels included in gasoline
could have a material adverse effect on our results of
operations. Under the Energy Policy Act, the U.S.
Department of Energy, in consultation with the Secretary of
Agriculture and the Secretary of Energy, may waive the renewable
fuels mandate with respect to one or more states if the
Administrator of the EPA determines that implementing the
requirements would severely harm the economy or the environment of
a state, a region or the nation, or that there is inadequate supply
to meet the requirement. Any waiver of the RFS with
respect to one or more states would reduce demand for ethanol and
could cause our results of operations to decline and our financial
condition to suffer.
We may encounter unanticipated difficulties in converting the Keyes
plant to accommodate alternative feedstocks, new chemicals used in
the fermentation and distillation process or new mechanical
production equipment.
In
order to improve the operations of the Keyes plant and execute on
our business plan, we intend to modify the Keyes plant to
accommodate alternative feedstocks and new chemical and/or
mechanical production processes. We may not be able to
successfully implement these modifications, and they may not
function as we expect them to. These modifications may cost
significantly more to complete than our estimates. The
Keyes plant may not operate at nameplate capacity once the changes
are complete. If any of these risks materialize, they
could have a material adverse impact on our results of operation
and financial position.
We may be subject to
liabilities and losses that may not be covered by
insurance.
Our
employees and facilities are subject to the hazards associated with
producing ethanol and biodiesel. Operating hazards can
cause personal injury and loss of life, damage to, or destruction
of, property, plant and equipment and environmental
damage. We maintain insurance coverage in amounts and
against the risks that we believe are consistent with industry
practice. However, we could sustain losses for
uninsurable or uninsured risks, or in amounts in excess of existing
insurance coverage. Events that result in significant
personal injury or damage to our property or to property owned by
third parties or other losses that are not fully covered by
insurance could have a material adverse effect on our results of
operations and financial position.
Insurance
liabilities are difficult to assess and quantify due to unknown
factors, including the severity of an injury, the determination of
our liability in proportion to other parties, the number of
incidents not reported and the effectiveness of our safety
program. If we were to experience insurance claims or
costs above our coverage limits or that are not covered by our
insurance, we might be required to use working capital to satisfy
these claims rather than to maintain or expand our
operations. To the extent that we experience a material
increase in the frequency or severity of accidents or
workers’ compensation claims, or unfavorable developments on
existing claims, our operating results and financial condition
could be materially and adversely affected.
Our success depends in part
on recruiting and retaining key personnel and, if we fail to do so,
it may be more difficult for us to execute our business
strategy.
Our
success depends on our continued ability to attract, retain and
motivate highly qualified management, manufacturing and scientific
personnel, in particular our Chairman and Chief Executive Officer,
Eric McAfee. We do not maintain any key person insurance.
Competition for qualified personnel in the renewable fuel and
bio-chemicals manufacturing fields is intense. Our
future success will depend on, among other factors, our ability to
retain our current key personnel, and attract and retain qualified
future key personnel, particularly executive
management. Failure to attract or retain key personnel
could have a material adverse effect on our business and results of
operations.
17
Our operations subject us to risks associated with foreign laws,
policies, regulations, and markets.
Our
sales and manufacturing operations in foreign countries are subject
to the laws, policies, regulations, and markets of the countries in
which we operate. As a result, our foreign manufacturing
operations and sales are subject to inherent risks associated with
the countries in which we operate. Risks involving our
foreign operations include differences or unexpected changes in
regulatory requirements, political and economic instability,
terrorism and civil unrest, work stoppages or strikes, natural
disasters, interruptions in transportation, restrictions on the
export or import of technology, difficulties in staffing and
managing international operations, variations in tariffs, quotas,
taxes, and other market barriers, longer payment cycles, changes in
economic conditions in the international markets in which our
products are sold, and greater fluctuations in sales to customers
in developing countries. If we are unable to effectively
manage the risks associated with our foreign operations, our
business may experience a material adverse effect on the results of
our operations or financial condition.
We could be adversely affected by violations of the U.S. Foreign
Corrupt Practices Act.
Our
operations in countries outside the United States, including our
operations in India, are subject to anti-corruption laws and
regulations, including restrictions imposed by the U.S. Foreign
Corrupt Practices Act (”FCPA”). The FCPA and similar
anti-corruption laws in other jurisdictions generally prohibit
companies and their intermediaries from making improper payments to
government officials for the purpose of obtaining or retaining
business. We operate in parts of the world that have experienced
governmental corruption to some degree and, in certain
circumstances; strict compliance with anti-corruption laws may
conflict with local customs and practices.
Our
employees and agents interact with government officials on our
behalf, including interactions necessary to obtain licenses and
other regulatory approvals necessary to operate our business. These
interactions create a risk that actions may occur that could
violate the FCPA or other similar laws.
Although
we have policies and procedures designed to promote compliance with
local laws and regulations as well as U.S. laws and regulations,
including the FCPA, there can be no assurance that all of our
employees, consultants, contractors and agents will abide by our
policies. If we are found to be liable for violations of the FCPA
or similar anti-corruption laws in other jurisdictions, either due
to our own acts or out of inadvertence, or due to the acts or
inadvertence of others, we could suffer from criminal or civil
penalties which could have a material and adverse effect on our
results of operations, financial condition and cash
flows.
A substantial portion of our assets and operations are located in
India, and we are subject to regulatory, economic and political
uncertainties in India.
Certain
of our principal operating subsidiaries are incorporated in India,
and substantial portions of our assets are located in India. We
intend to continue to develop and expand our facilities in
India. The Indian government has exercised and continues
to exercise significant influence over many aspects of the Indian
economy. India’s government has traditionally maintained an
artificially low price for certain commodities, including diesel
fuel, through subsidies, but has recently begun to reduce such
subsidies, which benefits us. We cannot assure you that
liberalization policies will continue. Various factors, such as
changes in the current federal government, could trigger
significant changes in India’s economic liberalization and
deregulation policies and disrupt business and economic conditions
in India generally and our business in particular. Our
financial performance may be adversely affected by general economic
conditions and economic and fiscal policy in India, including
changes in exchange rates and controls, interest rates and taxation
policies, as well as social stability and political, economic or
diplomatic developments affecting India in the future.
Currency fluctuations between the Indian Rupee and the U.S. dollar
could have a material adverse effect on our results of
operations.
A
substantial portion of our revenues is denominated in Rupees. We
report our financial results in U.S. dollars. The exchange rates
between the Rupee and the U.S. dollar have changed substantially in
recent years and may fluctuate substantially in the
future. We do not currently engage in any formal
currency hedging of our foreign currency exposure, and our results
of operations may be adversely affected if the Rupee fluctuates
significantly against the U.S. dollar.
18
We are a holding company and there are significant limitations on
our ability to receive distributions from our
subsidiaries.
We
conduct substantially all of our operations through subsidiaries
and are dependent on cash distributions, dividends or other
intercompany transfers of funds from our subsidiaries to finance
our operations. Our subsidiaries have not made significant
distributions to us and may not have funds available for dividends
or distributions in the future. The ability of our subsidiaries to
transfer funds to us will be dependent upon their respective
abilities to achieve sufficient cash flows after satisfying their
respective cash requirements, including subsidiary-level debt
service on their respective credit agreements. Our current credit
agreement, the Third Eye Capital Note Purchase Agreement, as
amended from time to time, described in the Notes to Consolidated
Condensed Financial Statements, requires us to obtain the prior
consent of Third Eye Capital, as the Administrative Agent of the
Note holders, to make cash distributions or any intercompany fund
transfers. The ability of our Indian operating subsidiary to
transfer funds to us is restricted by Indian laws and may be
adversely affected by U.S. federal income tax laws. Under Indian
laws, our capital contributions, or future capital contributions,
to our Indian operation cannot be remitted back to the U.S.
Remittance of funds by our Indian subsidiary to us may subject us
to significant tax liabilities under U.S. federal income tax
laws.
Our Chief Executive Officer has outside business interests that
could require time and attention.
Eric
McAfee, our Chairman and Chief Executive Officer, has outside
business interests which include his ownership of McAfee
Capital. Although Mr. McAfee’s employment
agreement requires that he devote reasonable business efforts to
our company and prohibits him from engaging in any competitive
employment, occupational and consulting services, this agreement
also permits him to devote time to his outside business interests
consistent with past practice. As a result, these
outside business interests could interfere with
Mr. McAfee’s ability to devote time to our business and
affairs.
Our business may be subject to natural forces beyond our
control.
Earthquakes,
floods, droughts, tsunamis, and other unfavorable weather
conditions may affect our operations. Natural
catastrophes may have a detrimental effect on our supply and
distribution channels, causing a delay or preventing of our receipt
of raw materials from our suppliers or delivery of finished goods
to our customers. In addition, weather conditions may
adversely impact the planting, growth, harvest, storage, and
general availability of any number of the products we may process
at our facilities or sell to our customers. The severity
of these occurrences, should they ever occur, will determine the
extent to which and if our business is materially and adversely
affected.
Our ability to utilize our NOL carryforwards may be
limited.
Under
the Internal Revenue Code of 1986, as amended (the
“Code”), a corporation is generally allowed a deduction
in any taxable year for net operating losses (“NOL”)
carried over from prior taxable years. As of December 31, 2017, we had U.S. federal NOL
carryforwards of approximately $188.0 million and state NOL
carryforwards of approximately $178.0 million. The federal and
state net operating loss and other tax credit carryforwards expire
on various dates between 2027 and 2037.
Our
ability to deduct these NOL carryforwards against future taxable
income could be limited if we experience an “ownership
change,” as defined in Section 382 of the Code. In general,
an ownership change may result from one or more transactions
increasing the aggregate ownership of certain persons (or groups of
persons) in our stock by more than 50 percentage points over a
testing period (generally three years). Future direct or indirect
changes in the ownership of our stock, including sales or
acquisitions of our stock by certain stockholders and purchases and
issuances of our stock by us, some of which are not in our control,
could result in an ownership change. Any resulting limitation on
the use of our NOL carryforwards could result in the payment of
taxes above the amounts currently estimated and could have a
negative effect on our future results of operations and financial
position.
19
U.S. tax law changes could materially affect the tax aspects of our
business and the industries in which we compete.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the
“2017 Tax Act”) was signed into law by President Trump.
Under the 2017 Tax Act, certain corporate tax provisions were
amended, including a reduction in the corporate tax rate, the
implementation of a territorial tax system and the creation of a
one-time repatriation tax on foreign earnings. As a result of the enacted reduction in the
federal corporate income tax rate, we recorded a one-time, non-cash
increase to deferred income tax expense of $19.6 million to revalue
the Company’s net deferred tax asset and it was offset by a
decrease in the valuation allowance. The one-time revaluation was
based on our current knowledge, interpretation and understanding of
the 2017 Tax Act and its impact to our business. Other aspects of
the 2017 Tax Act, including, but not limited to the state tax
effect of adjustments made to federal taxes and the interest
expense deduction limitation
may have additional material impacts on our effective tax
rate and net income as reported under GAAP, and there can be no
assurances that such impacts will be favorable. Additional changes
under the 2017 Tax Act could result in
a potentially significant reduction in the value and utility of our
U.S. federal NOLs and other tax assets, significant one-time
charges in the current or future taxable years, and could increase
our future tax expense. The foregoing items could have a material
adverse effect on our business, cash flow, results of operations or
financial conditions.
Non-U.S. stockholders of our common
stock, in certain situations, could be subject to U.S. federal
income tax on the gain from the sale, exchange or other disposition
of our common stock.
Our
ethanol plant in Keyes, California (which constitutes a U.S. real
property interest for purposes of determining whether we are a U.S.
real property holding corporation (a “USRPHC”) under
the Foreign Investment in Real Property Tax Act
(“FIRPTA”)), currently accounts for a significant
portion of our assets. The value of our plant in Keyes, California
relative to our real property located outside of the United States
and other assets used in our trade or business may be uncertain and
may fluctuate over time. Therefore, we may be, now or at any time
while a non-U.S. stockholder owns our common stock, a USRPHC. If we
are a USRPHC, certain non-U.S. stockholders may be subject to U.S.
federal income tax on gain on the disposition of our stock under
FIRPTA, in which case such non-U.S. stockholders would also be
required to file U.S. federal income tax returns with respect to
such gain. Whether the FIRPTA provisions apply depends our stock
that a non-U.S. stockholder owns and whether, at the time it
disposes of our common stock, such common stock is regularly traded
on an established securities market within the meaning of the
applicable U.S. Treasury regulations. Non-U.S. stockholders
should consult with their own tax advisors concerning the U.S.
federal income tax consequences of the sale, exchange or other
disposition of our common stock.
We are subject to covenants and other operating restrictions under
the terms of our debt, which may restrict our ability to engage in
some business transactions.
Our
debt facilities contain covenants restricting our ability, among
others, to:
●
incur additional
debt;
●
make certain
capital expenditures;
●
incur or permit
liens to exist;
●
enter into
transactions with affiliates;
●
guarantee the debt
of other entities, including joint ventures;
●
pay
dividends;
●
merge or
consolidate or otherwise combine with another company;
and
●
transfer, sell or
lease our assets.
These
restrictions may limit our ability to engage in business
transactions that may be beneficial to us, or may restrict our
ability to execute our business plan.
Operational difficulties at our facilities may negatively impact
our business.
Our
operations may experience unscheduled downtimes due to technical or
structural failure, political and economic instability, terrorism
and civil unrest, natural disasters, and other operational hazards
inherent to our operations. These hazards may cause
personal injury or loss of life, severe damage to or destruction of
property, equipment, or the environment, and may result in the
suspension of operations or the imposition of civil or criminal
penalties. Our insurance may not be adequate to cover
such potential hazards and we may not be able to renew our
insurance on commercially reasonable terms or at all. In
addition, any reduction in the yield or quality of the products we
produce could negatively impact our ability to market our
products. Any decrease in the quality, reduction in
volume, or cessation of our operations due to these hazards would
have a material adverse effect on the results of our business and
financial condition.
20
Our success depends on our ability to manage the growth of our
operations.
Our
strategy envisions a period of rapid growth that may impose a
significant burden on our administrative and operational resources
and personnel, which, if not effectively managed, could impair our
growth. The growth of our business will require
significant investments of capital and management’s close
attention. If we are unable to successfully manage our
growth, our sales may not increase commensurately with capital
expenditures and investments. Our ability to effectively
manage our growth will require us to substantially expand the
capabilities of our administrative and operational resources and to
attract, train, manage and retain qualified management, technicians
and other personnel. In addition to our plans to adopt
technologies that expand our operations and product offerings at
our biodiesel and ethanol plants, we may seek to enter into
strategic business relationships with companies to expand our
operations. If we are unable to successfully manage our
growth, we may be unable to achieve our business goals, which may
have a material adverse effect on the results of our operations and
financial condition.
Our mergers, acquisitions, partnerships, and joint ventures may not
be as beneficial as we anticipate.
We have
increased our operations through mergers, acquisitions,
partnerships and joint ventures and intend to continue to explore
these opportunities in the future. The anticipated
benefits of these transactions might take longer to realize than
expected and these may never be fully realized, or even realized at
all. Furthermore, partnerships and joint ventures
generally involve restrictive covenants on the parties involved,
which may limit our ability to manage these agreements in a manner
that is in our best interest. Future mergers,
acquisitions, partnerships, and joint ventures may involve the
issuance of debt or equity, or a combination of the two, as payment
for or financing of the business or assets involved, which may
dilute ownership interest in our business. Any failure
to adequately evaluate and address the risks of and execute on our
mergers, acquisitions, partnerships, and joint ventures could have
an adverse material effect on our business, results of operations,
and financial position. In connection with such
acquisitions and strategic transactions, we may incur unanticipated
expenses, fail to realize anticipated benefits, have difficulty
incorporating the acquired businesses, our management may become
distracted from our core business, and we may disrupt relationships
with current and new employees, customers and vendors, incur
significant debt, or have to delay or not proceed with announced
transactions. The occurrence of any of these events
could have an adverse effect on our business.
EdenIQ’s attempt to terminate and failure to close the EdenIQ
Merger, and litigation pertaining to the EdenIQ Merger, may
negatively impact our business and operations.
On
August 31, 2016, the Company filed a lawsuit in Santa Clara County
Superior Court against EdenIQ and its CEO, Brian D. Thome. The
lawsuit is based on EdenIQ’s wrongful termination of a merger
agreement that would have effectuated the merger of the Company and
EdenIQ (the EdenIQ Merger). The relief sought includes specific
performance of the merger agreement and monetary damages, as well
as punitive damages, attorneys’ fees, and costs. We have
incurred and may continue to incur additional costs in connection
with the prosecution of the currently pending, and any future,
litigation relating to the EdenIQ Merger. We believe that our
lawsuit against EdenIQ is an enforcement of our rights under the
Merger Agreement. We cannot predict the outcome of such litigation.
Such litigation may also create a distraction for our management
team and board of directors and require time and attention. Any
litigation relating to the EdenIQ Merger or EdenIQ’s wrongful
termination of and failure to close the EdenIQ Merger would
adversely affect our ability to leverage EdenIQ’s
technologies for the development of additional advanced biofuels
and renewable chemicals and could adversely impact our ability to
execute our business plan and our financial condition and results
of operations.
Our business may be significantly disrupted upon the occurrence of
a catastrophic event or cyberattack.
Our
Keyes and Kakinada plants are highly automated and they rely
extensively on the availability of our network infrastructure and
internal technology systems. The failure of our systems due to a
catastrophic event, such as an earthquake, fire, flood, tsunami,
weather event, telecommunications failure, power failure,
cyberattack or war, could adversely impact our business, financial
results and financial condition. We have developed disaster
recovery plans and maintain backup systems in order to reduce the
potential impact of a catastrophic event; however, there can be no
assurance that these plans and systems would enable us to return to
normal business operations.
We may be unable to protect our intellectual property.
We rely
on a combination of patents, trademarks, trade name,
confidentiality agreements, and other contractual restrictions on
disclosure to protect our intellectual property
rights. We also enter into confidentiality agreements
with our employees, consultants, and corporate partners, and
control access to and distribution of our confidential
information. These measures may not preclude the
disclosure of our confidential or proprietary
information. Despite efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain and use our proprietary information. Monitoring
unauthorized use of our confidential information is difficult, and
we cannot be certain that the steps we have taken to prevent
unauthorized use of our confidential information, particularly in
foreign countries where the laws may not protect proprietary rights
as fully as in the U.S., will be effective.
21
Companies
in our industry aggressively protect and pursue their intellectual
property rights. From time to time, we receive notices
from competitors and other operating companies, as well as notices
from “non-practicing entities,” or NPEs, that claim we
have infringed upon, misappropriated or misused other
parties’ proprietary rights. Our success and
future revenue growth will depend, in part, on our ability to
protect our intellectual property. It is possible that
competitors or other unauthorized third parties may obtain copy,
use or disclose our technologies and processes, or confidential
employee, customer or supplier data. Any of our existing
or future patents may be challenged, invalidated or
circumvented.
We may not be able to successfully develop and commercialize
our technologies, which may require us to curtail or cease our
research and development activities.
Since
2007, we have been developing patent-pending enzyme technology to
enable the production of ethanol from a combination of starch and
cellulose, or from cellulose alone. In July 2011, we acquired
Zymetis, Inc., a biochemical research and development firm, with
several patents pending and in-process R&D utilizing the
Z-microbe™ to produce renewable chemicals and advanced fuels
from renewable feedstocks. Although, the viability of our
technology has been demonstrated in the lab, there can be no
assurance that we will be able to commercialize our
technology. To date, we have not completed a large-scale
commercial prototype of our technology and are uncertain at this
time when completion of a commercial scale prototype will
occur. Commercialization risks include economic
financial feasibility at commercial scale, availability of funding
to complete large-scale commercial prototype, ability of
Z-microbeTM to function at
commercial scale and ability to obtain regulatory approvals, and
market acceptance of product.
Risks related to ownership of our stock
If the trading price of our common stock fails to comply with the
continued listing requirements of NASDAQ, we could face
possible delisting.
NASDAQ delisting could materially adversely affect the market
for our shares.
On
October 6, 2017, we received a letter from the Listing
Qualifications Department of the Nasdaq Stock Market indicating
that, based
upon the closing bid price of our common stock for the last
30 consecutive business days, we did not meet the minimum bid
price of $1.00 per share required for continued listing on The
NASDAQ Global Market pursuant to Nasdaq Listing Rule 5450(a)
(1). On November 9, 2017, we received a letter from the
Listing Qualifications Department of the Nasdaq Stock Market
indicating that, based upon the most
recent publicly held shares information and the closing bid price
of our common stock for the last 30 consecutive business days, we
did not meet the minimum market value of publicly held shares
(“MVPHS”)
of $15,000,000 required for continued listing on The NASDAQ Global
Market pursuant to Nasdaq Listing Rule 5450(b) (3) (C). We have a
compliance period of 180 calendar days, or April 3, 2018 with
regards to the minimum bid price requirement and May 8, 2018 with
regards to the MVPHS requirement, in which to regain compliance. In
the event that we do not regain compliance by the dates above, we
will receive written notification that our stock is subject to
delisting. At that time, we would have the right to request
a hearing to appeal
the NASDAQ determination.
We
cannot be sure that we will be able to regain compliance with the
requirements for continued listing of our common shares on
The NASDAQ Global Market, or that any appeal of a
decision to delist our common shares will be successful.
If our common shares lose their listed status on
The NASDAQ Global Market and we are not successful in
obtaining a listing on another exchange, our common shares would
likely trade in the over-the-counter market.
If our
shares were to trade on the over-the-counter market, selling our
common shares could be more difficult because smaller quantities of
shares would likely be bought and sold, transactions could be
delayed, and security analysts’ coverage of us may be
reduced. In addition, in the event our common shares are delisted,
broker-dealers have certain regulatory burdens imposed upon them,
which may discourage broker-dealers from effecting transactions in
our common shares, further limiting the liquidity thereof. These
factors could result in lower prices and larger spreads in the bid
and ask prices for common shares.
Future sales and issuances of rights to purchase common stock by us
could result in additional dilution of the percentage ownership of
our stockholders and could cause our stock price to
fall.
We may
issue equity or convertible securities in the future. To the
extent, we do so, our stockholders may experience substantial
dilution. We may sell common stock, convertible securities, or
other equity securities in one or more transactions at prices and
in a manner, we determine from time to time. If we sell common
stock, convertible securities, or other equity securities in more
than one transaction, investors may be materially diluted by
subsequent sales and new investors could gain rights superior to
our existing stockholders.
22
Our stock price is highly volatile, which could result in
substantial losses for investors purchasing shares of our common
stock and in litigation against us.
The
market price of our common stock has fluctuated significantly in
the past and may continue to fluctuate significantly in the future.
The market price of our common stock may continue to fluctuate in
response to one or more of the following factors, many of which are
beyond our control:
●
fluctuations in
the market prices of ethanol and its co-products including WDG and
corn oil;
●
the cost of key
inputs to the production of ethanol, including corn and natural
gas;
●
the volume and
timing of the receipt of orders for ethanol from major
customers;
●
competitive
pricing pressures;
●
our ability to
produce, sell and deliver ethanol on a cost-effective and timely
basis;
●
the
announcement, introduction and market acceptance of one or more
alternatives to ethanol;
●
losses resulting
from adjustments to the fair values of our outstanding warrants to
purchase our common stock;
●
changes in
market valuations of companies similar to us;
●
stock market
price and volume fluctuations generally;
●
regulatory
developments or increased enforcement;
●
fluctuations in
our quarterly or annual operating results;
●
additions or
departures of key personnel;
●
our inability to
obtain financing; and
●
our financing
activities and future sales of our common stock or other
securities.
The
price at which you purchase shares of our common stock may not be
indicative of the price that will prevail in the trading market.
You may be unable to sell your shares of common stock at or above
your purchase price, which may result in substantial losses to you
and which may include the complete loss of your investment. In the
past, securities class action litigation has often been brought
against a company following periods of high stock price volatility.
We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert
management’s attention and our resources away from our
business.
Any of
the risks described above could have a material adverse effect on
our results of operations or the price of our common stock, or
both.
We do not intend to pay dividends.
We have
not paid any cash dividends on any of our securities since
inception and we do not anticipate paying any cash dividends on any
of our securities in the foreseeable future.
Our principal shareholders hold a substantial amount of our common
stock.
Eric A.
McAfee, our Chief Executive Officer and Chairman of the Board, and
Laird Q. Cagan, a former board member, in the aggregate,
beneficially own 24.7% of our common stock outstanding. In
addition, the other members of our Board of Directors and
management, in the aggregate, excluding Eric McAfee, beneficially
own approximately 3.0% of our common stock. Our lender, Third Eye
Capital, acting as principal and an agent, beneficially owns 5.8%
of our common stock. As a result, these shareholders, acting
together, will be able to influence many matters requiring
shareholder approval, including the election of directors and
approval of mergers and acquisitions and other significant
corporate transactions. See “Security Ownership of Certain
Beneficial Owners and Management.” The interests of these
shareholders may differ from yours and this concentration of
ownership enables these shareholders to exercise influence over
many matters requiring shareholder approval, may have the effect of
delaying, preventing or deterring a change in control, and could
deprive you of an opportunity to receive a premium for your
securities as part of a sale of the company and may affect the
market price of our securities.
23
The conversion of convertible securities and the exercise of
outstanding options and warrants to purchase our common stock could
substantially dilute your investment and reduce the voting power of
your shares, impede our ability to obtain additional financing and
cause us to incur additional expenses.
Our
Series B convertible preferred stock is convertible into our common
stock. As of December 31, 2017, there were 1.3 million shares of
our Series B convertible Preferred Stock outstanding, convertible
into 132 thousand shares of our common stock on 10 to 1 ratio.
Certain of our financing arrangements, such as our EB-5 notes are
convertible into shares of our common stock at fixed prices.
Additionally, there are outstanding warrants and options to acquire
our common stock issued to employees, directors and others. As of
December 31, 2017, there were outstanding warrants and options to
purchase 2.5 million shares of our common stock.
Such
securities allow their holders an opportunity to profit from a rise
in the market price of our common stock such that conversion of the
securities will result in dilution of the equity interests of our
common stockholders. The terms on which we may obtain additional
financing may be adversely affected by the existence and
potentially dilutive impact of our outstanding convertible and
other promissory notes, Series B convertible preferred stock,
options and warrants. In addition, holders of our outstanding
promissory notes and certain warrants have registration rights with
respect to the common stock underlying those notes and warrants,
the registration of which involves substantial
expense.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
North America
Corporate Office. Our corporate
headquarters are located at 20400 Stevens Creek Blvd., Suite 700,
Cupertino, CA. The Cupertino facility office space consists of
9,238 rentable square feet. We extended the lease in February 2015
for an additional five years ending on May 31, 2020. From July 2009
through July 2012, we sublet office space consisting of 3,104
rentable square feet to Solargen, Inc., then from June 1, 2013
through December 31, 2016, we sublet office space consisting of
3,104 rentable square feet to Splunk Inc., at a monthly rent rate
equal to the rent charged to us by our
landlord.
Ethanol Plant in Keyes, CA. On
July 6, 2012, we acquired Cilion, Inc., including the Keyes plant.
The Keyes plant is situated on approximately 11 acres of land and
it contains 25,284 square feet of plant building and structures.
The property is located next to Union Pacific railroad system to
facilitate the transportation of raw materials. Our tangible and
intangible assets, including the Keyes plant, are subject to
perfected first liens and mortgages as further described in Note 4.
Debt, of the Notes to Consolidated Financial Statements in Part II,
Item 8 of this Form 10-K.
Cellulosic Ethanol Plant in Modesto, CA. On February 3, 2017, we entered into lease
agreement with City of Riverbank Local Redevelopment Authority for
leasing of approximately 77,000 square feet. The space is leased
for 5 years with 10 five-year extensions allowed. The space will be
utilized to build the plant to process cellulosic ethanol. We
sublet 43,277 rentable square feet to Bay Area Traffic Solutions,
Inc., at a monthly rent rate equal to the rent charged to us by our
landlord for one year with one-year extensions with 60 day notice
to extend.
Land, Building and Equipment in Goodland, KS. On July 10,
2017, we obtained an option to acquire all of the capital stock of
Goodland Advanced Fuels, Inc., (GAFI), comprising of approximately
93 acres of land, approximately 34,992 square feet of buildings and
equipment as part of a partially completed 40 million gallon per
year dry-mill ethanol plant. Aemetis has the power to direct the
activities of GAFI and has future plans to deploy the cellulosic
ethanol technology at the Goodland plant.
We productively utilize the majority of the space in our corporate
offices and the ethanol plant facilities. The lease with the City
of Riverbank and the option to acquire GAFI are intended for future
expansion and deployment of the cellulosic ethanol
technology.
India
Biodiesel Plant in Kakinada, India. The Kakinada plant is situated on approximately
32,000 square meters of land in Kakinada, India. The property is
located 7.5 kilometers from the local seaport with connectivity
through a third-party pipeline to the port jetty. The pipeline
facilitates the importing of raw materials and exporting finished
product.
24
India Administrative Office. Our principal administrative, sales and marketing
facilities are located in approximately 1,000 square feet of office
space in Hyderabad, India which we lease on a month-to-month rental
arrangement.
We productively utilize the majority of the space in these
facilities.
Item 3. Legal
Proceedings
On
August 31, 2016, the Company filed a lawsuit in Santa Clara County
Superior Court against defendants EdenIQ, Inc. (EdenIQ) and its
CEO, Brian D. Thome and Trinity Capital Investments
(Trinity). The lawsuit is based on EdenIQ’s wrongful
termination of a merger agreement that would have effectuated the
merger of the Company and EdenIQ. The lawsuit also asserts
that EdenIQ and Mr. Thome fraudulently induced the Company into
assisting EdenIQ to obtain EPA approval for a new technology, which
the Company would not have done but for the merger agreement. The
relief sought includes EdenIQ’s specific performance of the
merger agreement and monetary damages, as well as punitive damages,
attorneys’ fees, and costs. In response to the
Company’s Santa Clara County lawsuit, EdenIQ has 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 publicity of the status of the
merger. EdenIQ named Third Eye Capital Investments (TEC) as a
defendant in its cross-complaint alleging that TEC made its
financial commitment to fund the merger agreement contingent on the
EPA’s approval of EdenIQ’s technology thereby
participating in a fraudulent concealment of material information
with Aemetis to the detriment of EdenIQ. By way of its
cross-complaint, EdenIQ seeks monetary damages, punitive damages,
injunctive relief, attorneys’ fees and costs. Trinity was
later dismissed from the lawsuit due to jurisdictional issues, but
the Company is pursuing Trinity in Arizona where it is
domiciled. On February 24, 2017, the Company filed a
lawsuit in the County of Maricopa in Arizona against defendants
Trinity and Alex Erhart. The lawsuit is based on
Trinity’s intentional interference with contractual relations
and/or business expectancy arising from Trinity and Mr.
Erhart’ s interference with EdenIQ’s performance of the
merger agreement and their efforts to induce EdenIQ to terminate
the merger agreement with Aemetis. The relief sought includes
monetary damages, attorneys’ fees and costs. Because
discovery is still pending, an estimate as to any Company's chances
of prevailing cannot be made at this time.
On
August 4, 2013, GS Cleantech Corporation, a subsidiary of
Greenshift Corporation (“Greenshift”), filed a
complaint in the United States District Court for the Eastern
District of California – Fresno Division against us and our
subsidiary, AAFK. The case was transferred to the Southern
District of Indiana and joined to a pending Multidistrict
Litigation. The complaint alleges infringement of patent
rights assigned to Greenshift and pertaining to corn oil extraction
processes we employ, and seeks royalties, treble damages,
attorney’s fees, and injunctions precluding us from further
infringement. The corn oil extraction process we use is
licensed to us by Valicor Separation Technologies LLC.
Valicor has no obligations to indemnify us. On October
23, 2014, the Court ruled that all the claims of all the patents at
issue in the case are invalid and, therefore, not infringed and
adopted this finding in our case on January 16, 2015. GS
Cleantech has said it will appeal this decision when the remaining
claim in the suit has been decided. We believe the likelihood
of Greenshift succeeding on appeal of the invalidity findings is
small since the Court’s findings included several grounds for
invalidity of each allegedly infringed patent. If Greenshift
successfully appeals the findings of invalidity, damages
may be $1 million or more. The suit also alleged that GS
Cleantech obtained the patents at issue by inequitably conducting
itself before the United States Patent Office. A trial in the
District Court for the Southern District of Indiana on that issue
was concluded and the Court found the patents unenforceable because
of inequitable conduct by GS Cleantech and its counsel before the
Patent and Trademark Office. GS Cleantech has asked the Court
to reconsider its decision, citing the existence of a recently
issued patent that the patent examiner allowed despite the
Court’s findings and the allowance of which the Court did not
consider when making its decision of inequitable conduct. On
March 20, 2017, GS Cleantech and its counsel, Cantor Colburn LLP
filed a Notice of Appeal regarding the current ruling on
inequitable conduct. The Appeal has been stayed for 60 days to
allow the parties an opportunity to discuss settlement. On April 5,
2017, the parties asked the Court for an extension of the current
stay in the case which was granted. As of February 14,
2018, GS Cleantech resisted the defendants’ (including the
Companies) request to maintain the stay and asked that the Court of
Appeals for the Federal Circuit enter a briefing schedule of the
appeal. Defendants’ purpose for maintaining the stay would be
to allow time for briefing and decision at the District Court
regarding defendants’ exceptional case motion and motion for
legal fees and costs. Proceeding in this manner would allow all
issues to be ready for appeal together, avoiding piecemeal
litigation and simultaneous pendency of all issues on appeal at the
Federal Circuit. No judicial ruling on this issue has been entered
as of this date. On March 14, 2018, the Companies filed their
exceptional case motions seeking their attorneys’ fees and
bills of cost.
Item 4. Mine Safety Disclosures.
Not Applicable.
25
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is traded on the NASDAQ Stock Market under the
symbol “AMTX.” Prior to trading on NASDAQ, between
November 15, 2011 and June 5, 2014 our common stock was traded on
the OTC Bulletin Board under the symbol “AMTX.” Between
December 7, 2007 and November 15, 2011, our common stock traded on
the OTC Bulletin Board under the symbol “AEBF.” Prior
to December 7, 2007, our common stock traded on the OTC Bulletin
Board under the symbol “MWII.”
The following table sets forth the high and low sale prices of our
common stock for the quarterly reporting periods
indicated:
|
Quarter Ending
|
High
|
Low
|
|
2017
|
|
|
|
December
31,
|
$1.10
|
$0.51
|
|
September
30,
|
$1.36
|
$0.78
|
|
June
30,
|
$1.81
|
$1.10
|
|
March
31,
|
$2.50
|
$1.10
|
|
2016
|
|
|
|
December
31,
|
$1.98
|
$1.09
|
|
September
30,
|
$2.31
|
$1.01
|
|
June
30,
|
$2.94
|
$1.70
|
|
March
31,
|
$2.83
|
$1.51
|
Shareholders of Record
According to the records of our transfer agent, we had 363
stockholders of record as of March 27, 2018. This figure does not
include “street name” holders or beneficial holders of
our common stock whose shares are held of record by banks, brokers
and other financial institutions.
Dividends
We have never declared or paid any cash dividends on our common
stock. We currently expect to retain any future earnings for
use in the operation and expansion of our business and to reduce
our outstanding debt and do not anticipate paying any cash
dividends in the foreseeable future. Information with respect to
restrictions on paying dividends is set forth in
Note 4.
Debt of the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Form
10-K.
Securities Authorized for Issuance under Equity Compensation
Plans
Our shareholders approved our Second Amended and Restated 2007
Stock Plan (“2007 Stock Plan”) at our 2015 Annual
Shareholders Meeting. On July 1, 2011, we acquired
the Zymetis 2006 Stock Plan (“2006 Stock Plan”)
pursuant to the acquisition of Zymetis, Inc. and gave Zymetis
option holders the right to convert shares into our common stock at
the same terms as the 2006 Plan. During 2015, we
established an Equity Inducement Plan pursuant to which 100,000
shares were made available specifically to attract human talent.
Additional information regarding the 2007 Stock Plan, 2006 Stock
Plan and other compensatory warrants may be found under the caption
“Equity Compensation Plans,” in the Proxy Statement,
which is hereby incorporated by reference.
Sales of Unregistered Equity Securities
On December 12, 2017, we issued 165 thousand
shares of our common stock to one subordinated promissory note
holder pursuant to the note holders’ debt payoff at an
exercise price of $0.80 per share.
26
Item 6. Selected Financial Data
Not
applicable.
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is provided in
addition to the accompanying consolidated financial statements and
notes to assist readers in understanding our results of operations,
financial condition, and cash flows. MD&A is organized as
follows:
●
Overview. Discussion of our business and overall analysis of
financial and other highlights affecting us, to provide context for
the remainder of MD&A.
●
Results of Operations. An analysis of our financial results
comparing the twelve months ended December 31, 2017 and
2016.
●
Liquidity and Capital Resources. An analysis of changes in our
balance sheets and cash flows and discussion of our financial
condition.
●
Critical Accounting Estimates. Accounting estimates that we believe
are important to understanding the assumptions and judgments
incorporated in our reported financial results and
forecasts.
The following discussion should be read in conjunction with our
consolidated financial statements and accompanying notes included
elsewhere in this report. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could
cause or contribute to these differences include those discussed
below and elsewhere in this Report, particularly under “Part
I, Item 1A. Risk Factors,” and in other reports we file with
the SEC. All references to years relate to the calendar year ended
December 31 of the particular year.
Overview
Headquartered
in Cupertino, California, Aemetis is an advanced renewable fuels
and biochemicals company focused on the acquisition, development
and commercialization of innovative technologies that replace
traditional petroleum-based products through the conversion of
second-generation ethanol and biodiesel plants into advanced
biorefineries. Founded in 2006, we own and operate a 60
million gallon per year ethanol facility in the California Central
Valley near Modesto where we manufacture and produce ethanol, wet
distillers’ grains (“WDG”), condensed distillers
solubles (“CDS”), and distillers’ corn oil
(“DCO”). We also own and operate a 50 million
gallon per year renewable chemical and advanced fuel production
facility on the East Coast of India producing high quality
distilled biodiesel and refined glycerin for customers in India and
Europe. We operate a research and development laboratory and
hold a portfolio of patents and related technology licenses for the
production of renewable fuels and biochemicals. Additionally, we
have the power to direct the activities of a partially completed
plant in Goodland, Kansas (the “Goodland Plant”)
through our variable interest entity (VIE) Goodland Advanced Fuels,
Inc., (GAFI), which was formed to acquire the Goodland Plant and we
plan to apply cellulosic ethanol technology to the Goodland
Plant.
North America
Our
revenue development strategy for the second half of 2017 and 2018
in North America is based 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 margin and are 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 third quarter, we entered into an
agreement with a major industrial gas company to sell
CO2
produced at the Keyes ethanol plant, which will add incremental
income for the North America segment. In addition to these efforts,
we are developing an advanced cellulosic ethanol project in
Riverbank, CA near our plant in Keyes, CA for the deployment of the
combined LanzaTech and InEnTec technologies primarily using waste
orchard wood and shells from the Central Valley. Technology
agreements have been signed, the site location has been leased, and
an Integrated Demonstration Unit has been built, which we expect
will demonstrate the effectiveness of the technologies to produce
cellulosic ethanol at profitable yields.
27
We produce four products at the Keyes plant: denatured fuel
ethanol, WDG, DCO and CDS. In 2017, we sold 100% of the ethanol and
WDG we produced to J.D. Heiskell pursuant to a Purchase
Agreement established with J.D. Heiskell. DCO was sold to J.D. Heiskell and other local
animal feedlots (primarily poultry). Smaller amounts of CDS were
sold to various local third parties. Ethanol pricing is determined
pursuant to a marketing agreement between us and Kinergy, and is
generally based on daily and monthly pricing for ethanol delivered
to the San Francisco Bay Area, California, as published by OPIS, as
well as quarterly contracts negotiated by Kinergy with local fuel
blenders. The price for WDG is determined monthly pursuant to a
marketing agreement between A.L. Gilbert and us, and is generally
determined in reference to the local price of DDG and other feed
products. North American revenue is dependent on the price
of ethanol, WDG, and DCO. Ethanol pricing is influenced by
local and national inventory levels, local and national ethanol
production, corn prices and gasoline demand. WDG is influenced by
the price of corn, the supply and price of DDG, and demand from the
local dairy and feed markets. Our revenue is further
influenced by our decision to operate the Keyes plant at any
capacity level, maintenance requirements, and the influences of the
underlying biological processes. During 2017, the most
significant factors impacting revenue were the price received for
ethanol and the price received for WDG.
India
Our
revenue strategy in India is based on continuing to sell biodiesel
to our bulk fuel customers, beginning sales to retail customers
using recent regulatory changes in India that allow sales of
biodiesel at retail fuel stations, pursuing tender offers placed by
India government oil companies for bulk purchases of fuels, and
delivering biodiesel under our agreement with British Petroleum
Singapore for sales into the European markets. In July 2017,
India's Goods and Services Tax (GST) raised the combined tax rate
from 11% to 18% on our sales into the Indian domestic markets. In
January 2018, the GST was reduced to 12%. The increase in GST
taxation in 2017 impacted the domestic India revenue expansion and
generated lower margins; however, we believe that the January GST
taxation decrease will positively impact our ability to sell into
our local markets. We believe the deployment of these strategies
will allow for growth in revenue in 2018.
In 2016, European biofuel-related import tariffs on goods from
India were removed for approximately three years starting in
2017. This policy change is expected to have a positive
effect on exports of our high quality distilled biodiesel into the
European market at better margins starting second quarter of
2018.
North America Segment
Revenue
Substantially
all of our North America revenues during the years ended December
31, 2017 and 2016 were from sales of ethanol and WDG. During the
twelve months ended December 31, 2017 and 2016, we produced and
sold 60.8 million gallons and 55.6 million gallons of ethanol and
407 thousand tons and 372 thousand tons of WDG,
respectively.
Cost of Goods Sold
Substantially
all of our feedstock is procured by J.D. Heiskell. Our cost of
feedstock includes rail, truck, or ship transportation, local basis
costs and a handling fee paid to J.D. Heiskell. Cost of goods sold
also includes chemicals, plant overhead and out bound
transportation. Plant overhead includes direct and indirect costs
associated with the operation of the Keyes plant, including the
cost of electricity and natural gas, maintenance, insurance, direct
labor, depreciation and freight. Transportation includes the costs
of in-bound delivery of corn by rail, inbound delivery of milo by
ship, rail, and truck, and out-bound shipments of ethanol and WDG
by truck. In 2017, the transportation cost for ethanol and WDG was
approximately $0.05 per gallon and $7.50 per ton,
respectively.
Pursuant
to a Corn Procurement and Working Capital Agreement with J.D.
Heiskell, we purchase all of our corn or milo from J.D. Heiskell.
Title to the corn or milo passes to us when the corn is deposited
into our weigh bin and entered into the production process. The
credit term of the corn or milo purchased from J.D. Heiskell is
five days. J.D. Heiskell purchases our ethanol and WDG on one-day
terms. The price of corn is established by J.D Heiskell based on
Chicago Board of Trade pricing including transportation and basis,
plus a handling fee.
Sales, Marketing and General Administrative Expenses
(SG&A)
SG&A
expenses consist of employee compensation, professional services,
travel, depreciation, taxes, insurance, rent and utilities, license
and permit fees, penalties, and sales and marketing fees. Our
single largest expense is employee compensation, including related
stock compensation, followed by sales and marketing fees paid in
connection with the marketing and sale of ethanol and
WDG.
28
In
October 2010, we entered into an
exclusive marketing agreement with Kinergy to market and sell our
ethanol and an agreement with A.L. Gilbert to market and sell our
WDG. The agreements will expire on August 31, 2018 and
December 31, 2018, respectively and automatically renew for
additional one-year terms. Pursuant to these agreements, our
marketing costs for ethanol and WDG are less than 2% of
sales.
Research and Development Expenses (R&D)
In
2017, we built an Integration Demonstration Unit (IDU) to prove the
production of advanced cellulosic ethanol from deployment of the
combined LanzaTech and InEnTec technologies using primarily orchard
wood and shells from the Central Valley. All costs related to this
IDU were part of research and development activities for Cellulosic
Ethanol project.
In
2016, substantially all of our R&D expenses were related to
research and development activities in
Maryland.
India Segment
Revenue
Substantially
all of our India segment revenues during the years ended December
31, 2017 and 2016 were from sales of biodiesel and refined
glycerin. During the twelve months ended December 31, 2017, we sold
12.2 thousand metric tons of biodiesel and 3.8 thousand metric tons
of refined glycerin. During the twelve months ended December 31,
2016, we sold 16.0 thousand metric tons of biodiesel and 4.4
thousand metric tons of refined glycerin.
Cost of Goods Sold
Cost of
goods sold consists primarily of feedstock oil, chemicals, direct
costs (principally labor and labor related costs) and factory
overhead. Depending upon the costs of these inputs in comparison to
the sales price of biodiesel and glycerin, our gross margins at any
given time can vary from positive to negative. Factory overhead
includes direct and indirect costs associated with the Kakinada
plant, including the cost of repairs and maintenance, consumables,
maintenance, on-site security, insurance, depreciation and inbound
freight.
We
purchase NRPO, a non-edible feedstock, for our biodiesel unit from
neighboring natural oil processing plants at a discount to refined
palm oil. In addition, we purchase waste fats and oils from other
processing plants in India. Raw material is received by truck and
title passes when the goods are loaded at our vendors’
facilities. Credit terms vary by vendor; however, we generally
receive 15 days of credit on the purchases. We purchase crude
glycerin in the international market on letters of credit or
advance payment terms.
Sales, Marketing and General Administrative Expenses
(SG&A)
SG&A
expenses consist of employee compensation, professional services,
travel, depreciation, taxes, insurance, rent and utilities,
licenses and permits, penalties, and sales and marketing fees.
Pursuant to an operating agreement with Gemini, we receive
operational support and working capital. We compensate Gemini with
a percentage of the profits generated from operations. Payments of
interest are identified as interest expense while payments of
profits are identified as compensation for the operational support
component of this agreement. We therefore include the portion of
profits paid to Gemini as a component of SG&A and our SG&A
component will vary based on the profits earned by operations. In
addition, we market our biodiesel and glycerin through our internal
sales staff, commissioned agents and brokers. Commissions paid to
agents are included as a component of SG&A.
Research and Development Expenses (R&D)
Our India segment has no research and development
activities.
Results of Operations
Year Ended December 31, 2017 Compared to Year Ended December 31,
2016
Revenues
Our
revenues are derived primarily from sales of ethanol and WDG in
North America and biodiesel and refined glycerin in
India.
29
Fiscal Year Ended December 31 (in thousands)
|
|
2017
|
2016
|
Inc/(dec)
|
%
change
|
|
North
America
|
$136,739
|
$128,706
|
$8,033
|
6%
|
|
India
|
13,418
|
14,452
|
(1,034)
|
-7%
|
|
Total
|
$150,157
|
$143,158
|
$6,999
|
5%
|
North America. The increase in revenues by 6% was due to
increases in the production of ethanol and WDG and resulting sales
volume by 9% each to 60.8 million gallons, and 407 thousand tons
respectively during the year ended December 31, 2017 compared to
55.6 million gallons and 372 thousand tons during the year ended
December 31, 2016. The average price of ethanol decreased by 1.7%
to $1.75 for the year ended December 31, 2017 compared to $1.78 per
gallon in the year ended December 31, 2016. In addition, the
average price of WDG decreased by 8% to $64.93 per ton in the year
ended December 31, 2017 compared to $70.61 per ton in the year
ended December 31, 2016. For the year ended December 31, 2017, we
generated approximately 78% of revenues from sales of ethanol, and
19% of revenues from sales of WDG and 3% of revenues from DCO and
CDS sales compared to 77% of revenues from sales of ethanol, and
20% of revenues from sales of WDG and 3% of revenues from DCO and
CDS sales for the year ended December 31, 2016. For the year ended
December 31, 2017 and 2016, the Keyes plant operations averaged
110% and 101% of 55 million gallon per year nameplate
capacity.
India. The decrease in revenues in the India segment for the
year ended December 31, 2017 reflects a decrease in sales volume of
biodiesel and refined glycerin, primarily as a result of GST tax
increasing from 11% to 18% in July 2017. Biodiesel sales volume
decreased by 24% to 12.2 thousand tons while the average price
increased by 15% to $851 per metric ton. Refined glycerin sales
volumes decreased by 14% to 3.8 thousand tons while the average
price per metric ton increased by 39% to $810 per metric ton. For
the year ended December 31, 2017, we generated approximately 77% of
revenue from sales of biodiesel, and 23% of revenue from sales of
glycerin, compared to 82% of revenue from sales of biodiesel, and
18% of revenue from sales of glycerin for the year ended December
31, 2016.
Cost of Goods Sold
Fiscal Year Ended December 31 (in thousands)
|
|
2017
|
2016
|
Inc/(dec)
|
%
change
|
|
North
America
|
$133,606
|
$117,040
|
$16,566
|
14%
|
|
India
|
13,176
|
14,519
|
(1,343)
|
-9%
|
|
Total
|
$146,782
|
$131,559
|
$15,223
|
12%
|
North America. We ground 21.5 million bushels of corn at an
average price of $4.73 per bushel during the year ended December
31, 2017 compared to 19.5 million bushels of corn at an average
price of $4.58 per bushel during the year ended December 31, 2016,
an increase in volume of 10% and an increase in average cost of
feedstock on a per bushel basis of 3% for the year ended
December 31, 2017 as compared to 2016.
India. The decrease in cost of goods sold reflects the 7%
decrease in sales of biodiesel and refined glycerin in 2017. The
cost of feedstock for biodiesel increased an average of 68% to $892
per metric ton while the volume decreased by 40% to 8.3 thousand
metric tons of refined palm stearin compared to the year ended
December 31, 2016. The average price of crude glycerin increased by
41% to $588 per metric ton while the volume decreased by 19% to 3.4
thousand metric tons compared to the year ended December 31, 2016.
GST tax increased from 11% to 18% in July 2017, a portion of which
was borne by the Company which drove cost of goods sold
up.
Gross Profit
Fiscal Year Ended December 31 (in thousands)
|
|
2017
|
2016
|
Inc/(dec)
|
%
change
|
|
North
America
|
$3,133
|
$11,666
|
$(8,533)
|
-73%
|
|
India
|
242
|
(67)
|
309
|
461%
|
|
Total
|
$3,375
|
$11,599
|
$(8,224)
|
-71%
|
30
North America. Gross profit decreased by 73% in the year
ended December 31, 2017 primarily due to increases in feedstock
costs by 3%, coupled with a decrease in WDG prices by 8%, primarily
due to sluggish international demand for dry distiller’s
grain, which placed pricing pressure on locally sold WDG. In
addition, Brazilian imports of ethanol to California placed pricing
pressure on West Coast ethanol, causing ethanol pricing to not rise
as fast as corn prices.
India. The increase in gross profit was attributable mainly
to an increase in average sales prices of biodiesel by 15% to $851
per metric ton and refined glycerin by 39% to $810 per metric ton
in the year ended December 31, 2017 compared to the year ended
December 31, 2016.
Operating Expenses
R&D
Fiscal Year Ended December 31
(in thousands)
|
|
2017
|
2016
|
Inc/(dec)
|
%
change
|
|
North
America
|
$2,367
|
$369
|
$1,998
|
541%
|
|
India
|
-
|
-
|
-
|
-
|
|
Total
|
$2,367
|
$369
|
$1,998
|
541%
|
R&D
expenses increased by 541% during the year ended December 31, 2017
due to $1.6 million associated with the building and testing of our
renewable cellulosic ethanol IDU in 2017 to produce cellulosic
ethanol by integrating two different technologies and different
feedstock, and professional fees and travel of $0.5 million. The
increase was partially offset by decreases in salaries, supplies
and rent of $0.1 million driven by the relocation of our research
and development facility from Maryland to Minnesota.
Selling, General & Administrative (SG&A)
Fiscal Year Ended December 31
(in thousands)
|
|
2017
|
2016
|
Inc/(dec)
|
%
change
|
|
North
America
|
$12,134
|
$10,912
|
$1,222
|
11%
|
|
India
|
1,057
|
1,099
|
(42)
|
-4%
|
|
Total
|
$13,191
|
$12,011
|
$1,180
|
10%
|
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 year ended December 31, 2017 increased to 9% as compared to
8% in the year ended December 31, 2016. The increase in overall
SG&A expenses in the year ended December 31, 2017 was
primarily attributable to: (i) an increase in salaries and stock
compensation expense of $0.8 million, (ii) an increase in
professional fees of $0.3 million, and (iii) an increase in
marketing, supplies, and depreciation of $0.3 million, offset by a
$0.2 million decrease in taxes, rent and utilities during year
ended December 31, 2017.
India. SG&A expenses as a percentage of revenue in the
year ended December 31, 2017 stayed constant at 8% for the years
ended December 31, 2017 and 2016. Overall SG&A expense slightly
decreased by 4% in the year ended December 31, 2017 compared to the
year ended December 31, 2016. The decrease was due to a decrease in
marketing, operating support charges, salaries, and other expenses
totaling $183 thousand offset by an increase in taxes, utilities,
travel, and professional fees totaling $141 thousand.
31
Other Income/Expense
Fiscal Year Ended December 31
(in thousands)
|
Other
(income)/expense
|
|
|
|
|
|
|
2017
|
2016
|
Inc/(dec)
|
%
change
|
|
North
America
|
|
|
|
|
|
Interest rate
expense
|
$13,593
|
$11,234
|
$2,359
|
21%
|
|
Amortization
expense
|
5,398
|
5,723
|
(325)
|
-6%
|
|
Other (income)
expense
|
328
|
(254)
|
582
|
-229%
|
|
|
|
|
|
|
|
India
|
|
|
|
|
|
Interest rate
expense
|
313
|
259
|
54
|
21%
|
|
Gain on debt
extinguishment
|
-
|
(2,033)
|
2,033
|
-100%
|
|
Other
(income)
|
(51)
|
(80)
|
29
|
36%
|
|
Total
|
$19,581
|
$14,849
|
$4,732
|
32%
|
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, and
interest accrued on the judgment obtained by Cordillera Fund and
The Industrial Company (TIC). 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 was higher in the year ended
December 31, 2017 due to higher debt balances in 2017 as we added
5% debt extension, waiver fees to our senior debt and refinancing
fees to our subordinated debt. In addition, GAFI’s interest
expense of $1.2 million was included in the North America segment.
The decrease in amortization expense was due to the amortization of
several amendment fees under the Third Eye Capital Notes and
Subordinated Note refinancing fees added in 2016. In addition, GAFI
related debt issuance costs of $1.0 million were paid and $250
thousand amortization was recognized in the year ended December 31,
2017. The decrease in other income in the year ended December 31,
2017 was due to recognition of additional amortization of
intangibles during the year ended December 31, 2017 compared to
receipt of $0.5 million from a mandated gas credit from PG&E in
the year ended December 31, 2016.
India. Interest expense increased because of utilization of
capital from two working capital partners and one raw material
supplier during the year ended December 31, 2017. The gain on debt
extinguishment in the year ended December 31, 2016 was caused by
the relief of $2.0 million of accrued interest on State Bank of
India loan by paying the final stipulated amount under the One Time
Settlement sanction letter on October 20, 2016. The slight decrease
in other income was caused by other miscellaneous income offset by
the fluctuations in foreign exchange gains and losses during the
year ended December 31, 2017.
Liquidity and Capital Resources
Cash and Cash Equivalents
Cash
and cash equivalents were $0.4 million at December 31, 2017, of
which $0.3 million was held in our North American entities,
including $0.2 million held by GAFI, and $0.1 million was held in
our Indian subsidiary. Our current ratio was 0.32 and 0.26,
respectively, at December 31, 2017 and 2016. We expect that our
future available capital resources will consist primarily of cash
generated from operations, remaining cash balances, EB-5 program
borrowings, amounts available for borrowing, if any, under our
senior debt facilities and our subordinated debt facilities, and
any additional funds raised through sales of equity.
32
Liquidity
Cash
and cash equivalents, current assets, current liabilities and debt
at the end of each period were as follows (in
thousands):
|
|
December
31,
2017
|
December
31,
2016
|
|
Cash and cash
equivalents
|
$428
|
$1,486
|
|
Current assets
(including cash, cash equivalents, and deposits)
|
11,462
|
7,045
|
|
Current and long
term liabilities (excluding all debt)
|
20,406
|
15,909
|
|
Current & long
term debt
|
153,786
|
111,714
|
Our
principal sources of liquidity have been cash provided by
operations and borrowings under various debt arrangements. As of
December 31, 2017, the EB-5 escrow account is holding funds from
two investors pending approval by the USCIS. These funds represent
$1.0 million of funding that is expected to be released from the
escrow account during the first half of 2018. On October 16, 2016,
we launched a new EB-5 Phase II funding, under which we expect to
issue $50.0 million in additional EB-5 Notes on substantially
similar terms and conditions as those issued under our EB-5 Phase I
funding. Our principal uses of cash have been to refinance
indebtedness, fund operations, and 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,
distillers’ corn oil, CDS, biodiesel, waste fats and oils,
non-refined palm oil and natural gas. To the extent that we
experience periods in which the spread between ethanol prices and
corn and energy costs narrow or the spread between biodiesel prices
and waste fats and oils or palm oil and energy costs narrow, we may
require additional working capital to fund
operations.
Management
believes that through the following actions, the company will have
the ability to generate capital liquidity to carry out the business
plan for 2018:
Operate
the Keyes plant and continue to improve operational performance,
including the adoption of new technologies or process changes that
allow for energy efficiency, cost reduction or revenue enhancements
to the current operations.
Expand
the ethanol sold at the Keyes plant to include the cellulosic
ethanol to be generated at Riverbank, California, and to utilize
lower -cost, non--food advanced feedstocks to significantly
increase margins.
Monetize the CO2
produced at the Keyes plant by executing on the agreement with
Linde for the delivery of gas to their neighboring facility to be
built during 2018.
Rely on
the approval of a $125M USDA loan guarantee to raise the funds
necessary to construct and operate a cellulosic ethanol plant in
Riverbank, California using the licensed technology from LanzaTech
and InEnTec to generate federal and state carbon credits available
for ultra--low carbon fuels.
Secure
higher volumes of shipments of fuels at the India plant by
developing the sales channels, including, expanding the existing
domestic markets, extending international sales by supplying large
oil companies (primarily the BP Singapore Agreement during 2017),
and exporting fuel into the European Union and United States
biodiesel markets to capture valuable low carbon fuel
credits.
Continue to locate
funding for existing and new business opportunities through a
combination of working with our senior lender, restructuring
existing loan agreements, selling the current offering for $50
million from the Phase II EB-5 program, or by vendor financing
arrangements.
Management
believes that a combination of the above--mentioned actions will
provide the funding necessary for the operation of existing
operations, the expansion of markets for additional revenue
streams, and the entry into new businesses that allow for
diversification within biorefinery markets. There can be no
assurance that the existing credit facilities and cash from
operations will be sufficient nor that the Company will be
successful at maintaining adequate relationships with senior
lenders or significant shareholders. Should the Company require
additional financing, there can be no assurances that the
additional financing will be available on terms satisfactory to the
Company.
At
December 31, 2017, the outstanding balance of principal, interest
and fees, net of discounts, on all Third Eye Capital Notes equaled
$74.0 million not including the GAFI debt. The current maturity
date for all of the Third Eye Capital financing arrangements is
April 1, 2020; provided, however, that pursuant to Amendment No.
14, dated March 27, 2018, we have the right to extend the maturity
date of the Third Eye Capital Notes to April 1, 2021 upon
notice and payment of a 5% extension fee. We intend to repay the
Third Eye Capital Notes through operational cash flow, proceeds
from the issuance of the EB-5 Notes, a senior debt refinancing
and/or equity financing.
33
At
December 31, 2017, GAFI’s outstanding balance of principal,
interest and fees, net of discounts, on all Third Eye Capital Notes
equaled $24.4 million. The current maturity date for all of the
Third Eye Capital financing arrangements is July 10, 2019. GAFI
intends to repay the Third Eye Capital Notes through proceeds from
the issuance of a GAFI EB-5 offering.
Our
senior lender has provided a series of accommodating amendments to
the existing and previous loan facilities in the past as described
in further detail in Note
4.Debt of the Notes to Consolidated Financial Statements in
Part IV of this Form 10-K. However, there can be no assurance
that our senior lender will continue to provide further amendments
or accommodations or will fund additional amounts in the
future.
We also
rely on our working capital lines with J.D. Heiskell in California,
and Gemini and SOL in India to fund our commercial arrangements for
the acquisitions of feedstock. J.D. Heiskell currently provides us
with working capital for the Keyes plant, Gemini currently provides
us with working capital for the Kakinada plant and SOL provides us
inter-corporate deposit for British Petroleum business operations
(“BP Operations”). The ability of J.D. Heiskell,
Gemini, and SOL to continue to provide us with working capital
depends in part on both of their respective financial strength and
banking relationships.
Change in Working Capital and Cash Flows
The
below table (in thousands) describes the changes in current and
long-term debt during the year ended December 31,
2017:
|
Change
in total debt
|
42,072
|
|
|
Increases to
debt:
|
|
|
|
Accrued
interest
|
13,470
|
|
|
Covenant Waiver
fee
|
750
|
|
|
TEC debt Extension
fee
|
3,100
|
|
|
January 2017
Promissory note including $0.6 million withheld as fees by
TEC
|
2,100
|
|
|
April 2017
Promissory note including $1.0 million withheld as fees by
TEC
|
1,500
|
|
|
GAFI Term loan and
Revolving loan
|
25,000
|
|
|
Sub debt extension
fees
|
680
|
|
|
Secunderabad Oils
and Gemini working capital draws and changes due to foreign
currency
|
12,457
|
|
|
EB-5 debt escrow
funds received
|
500
|
|
|
Total
increases to debt
|
59,557
|
|
|
|
|
|
|
|
|
|
|
Decreases to
debt:
|
|
|
|
principal and
Interest payments to senior lender
|
(5,467)
|
|
|
Interest payments
to EB-5 investors
|
(459)
|
|
|
Principal, fees,
and interest payments to Secunderabad Oils
|
(2,386)
|
|
|
Principal, fees,
and interest payments to Gemini
|
(5,822)
|
|
|
Principal and
interest payments to raw material vendor in India
|
(1,549)
|
|
|
Increase in debt
issuance costs, net of amortization
|
(518)
|
|
|
Payment of Cagan
subordinated debt by issuing shares
|
(132)
|
|
|
GAFI interest
payments
|
(1,152)
|
|
|
Total
decreases to debt
|
(17,485)
|
|
34
Working
capital changes resulted in (i) a $2.2 million increase in
inventories due to waste fats and oils purchased for processing by
India operations and (ii) a $2.3 million increase in prepaid
expenses and other assets mainly due to fees of $1.6 million
prepaid interest on GAFI Term Loan and insurance and $0.3 million
other prepaid in Aemetis, Inc. and $0.4 million advance paid to
vendors by India operations, $0.4 million and $0.3 million increase
in accounts receivable of Aemetis, Inc. and India operations
respectively, and offset by $1.1 million decrease in
cash.
Net
cash used by operating activities during the year ended December
31, 2017 was $8.7 million consisting of non-cash charges of $11.6
million, net changes in operating assets and liabilities of $11.5
million, and net loss of $31.8 million. The non-cash charges
consisted of: (i) $5.8 million in amortization of debt issuance
costs and other amortization, (ii) $4.6 million in depreciation
expenses, and (iii) a $1.2 million in stock-based compensation
expense. Net changes in operating assets and liabilities consisted
primarily of an increase in (i) inventories of $2.4 million, (ii)
accounts receivable of $1.0 million, and (iii) other assets of $0.4
million, offset by (iv) an increase in accounts payable of $2.6
million and (v) an increase in other liabilities of $1.5 million,
(vi) decrease in prepaid expense of $0.4 million, and (vii) an
increase in accrued interest of $10.8 million.
Cash
used by investing activities during the year ended December 31,
2017 was $1.1 million, consisting of capital expenditures of $0.3
million from India operations and $0.8 million from US
operations.
Cash
provided by financing activities during the year ended December 31,
2017 was $8.4 million, consisting primarily of debt proceeds
consisting of $0.5 million received from the EB-5 program, $2.0
million received from TEC promissory notes, and $12.3 million from
working capital partners in India for UBPL operations, and from
proceeds from borrowings of $3.6 million from GAFI operations,
partially offset by payments of $9.5 million in principal and
interest to working capital partners in India for UBPL operations
and $0.5 million to TEC.
Off-Balance Sheet Arrangements
We had no outstanding off-balance sheet arrangements as of
December 31, 2017.
Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the U.S. The preparation of these financial
statements requires us to make estimates and judgments that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses for
each period. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are
the most important to the portrayal of our financial condition and
results of operations and that require management’s most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effects of matters that are
inherently uncertain.
Revenue Recognition
We recognize revenue when it is realized or realizable and earned.
We consider revenue realized or realizable and earned when there is
persuasive evidence of an arrangement, delivery has occurred, the
sales price is fixed or determinable, and collection is reasonably
assured. We derive revenue primarily from sales of ethanol and
related co-products, biodiesel, refined glycerin, and refined palm
oil. We recognize revenue when title transfers to our customers,
which is generally upon the delivery of these products to a
customer’s designated location. These deliveries are made in
accordance with sales commitments and related sales orders entered
into with customers and our working capital partner J.D. Heiskell
for the Keyes plant and Gemini for the Kakinada plant. Commitments
can be offered either verbally or in written form. The sales
commitments and related sales orders provide quantities, pricing
and conditions of sales. In this regard, sales consist of inventory
produced at the Keyes or Kakinada plant.
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. Revenues are recorded at the gross invoiced
amount. Additionally, our working capital partner leases our
finished goods tank and requires us to transfer legal title to the
product upon transfer of our finished ethanol to this location. We
consider the purchase of corn as a cost of goods sold and the sale
of ethanol upon transfer to the finished goods tank as revenue on
the basis that (i) we bear the risk of gain or loss on the
processing of corn into ethanol and (ii) we have legal title to the
goods during the processing time. Revenue from nonmonetary
transactions, principally in-kind by-products received in exchange
for material processing where the by-product is contemplated by
contract to provide value, is recognized at the quoted market price
of those goods received or by-products.
35
Recoverability of Our Long-Lived Assets
Property and Equipment
Property,
plant and equipment are carried at cost less accumulated
depreciation after assets are placed in service and are comprised
primarily of buildings, furniture, machinery, equipment, land, and
plants in North America and India. When property, plant and
equipment are acquired as part of an acquisition, the items are
recorded at fair value on the purchase date. It is our policy to
depreciate capital assets over their estimated useful lives using
the straight-line method.
Impairment of Long-Lived Assets
Our
long-lived assets consist of property, plant and equipment.
We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. We measure
recoverability of assets to be held and used by comparing the
carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, we record an impairment charge in the amount by which the
carrying amount of the asset exceeds the fair value of the
asset.
The
impairment test for long-lived assets requires us to make estimates
regarding amount and timing of projected cash flows to be generated
by an asset or asset group over an extended period of time.
Management judgment regarding the existence of circumstances that
indicate impairment is based on numerous potential factors
including, but not limited to, a decline in our future projected
cash flows, a decision to suspend operations at a plant for an
extended period of time, adoption of our product by the market, a
sustained decline in our market capitalization, a sustained decline
in market prices for similar assets or businesses, or a significant
adverse change in legal or regulatory factors or the business
climate. Significant management judgment is required in
determining the fair value of our long-lived assets to measure
impairment, including projections of future cash flows. Fair
value is determined through various valuation techniques including
discounted cash flow models, market values and third-party
independent appraisals, as considered necessary. Changes in
estimates of fair value could result in a write-down of the asset
in a future period.
Our
subsidiaries, Aemetis Advanced Fuels Keyes, which operates our
Keyes plant, and UBPL, which operates our Kakinada plant, represent
our significant long-lived assets. Both plants were tested for
impairment and the undiscounted future cash flows of each plant
exceeded the carrying value on our books, so no impairment was
recorded for our Company’s long-lived assets. In addition, a
qualified third-party independent appraiser validated the fair
value of assets exceeded the carrying amount of the Keyes plant and
Kakinada plant confirming the results of the internal impairment
evaluation that no impairment was warranted on the plant
assets.
Testing for Modification or Extinguishment Accounting
During 2017 and 2016, we evaluated amendments to our debt under the
ASC 470-50 guidance for modification and extinguishment accounting.
This evaluation included comparing the net present value of cash
flows of the new debt to the old debt to determine if changes
greater than 10 percent occurred. In instances where our future
cash flows changed more than 10 percent, we recorded our debt at
fair value based on factors available to us for similar borrowings
and used the extinguishment accounting method to account for the
debt extinguishment.
Recently Issued Accounting Pronouncements
In May
2014, the FASB issued new guidance on the recognition of revenue.
The guidance stated that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The
standard is effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting
period. The Company’s adoption of this accounting standard
begins with the first quarter of fiscal year 2018. In March and
April 2016, the FASB issued further revenue recognition guidance
amending principal vs. agent considerations regarding whether an
entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods and services. The Company adopted this
guidance on January 1, 2018 using the modified retrospective
approach. The cumulative impact to retained earnings was not
material. We assessed all of our revenue streams to identify any
differences in the timing, measurement or presentation of revenue
recognition. We do not anticipate a material impact to revenue
recognition except for revenue disclosures within the consolidated
financial statements. The adoption of the
new guidance will result in additional disclosures for the period
ended in 2018.
We
derive revenue primarily from sales of ethanol and related
co-products in North America, biodiesel and refined glycerin in
India based on the agreements and PO contracts. We assessed the
following criteria under the guidance. 1) Identify the contracts
with customer, 2) identify the performance obligation in the
contract, 3) determine the transaction price, 4) allocate the
transaction price to the performance obligations in the contract,
5) recognize revenue when the entity satisfies performance
obligation. We have contract with J.D. Heiskell and most of our
biodiesel and refined glycerin sales are based on raising the
purchase order by customer in addition to tender contracts with
government and international customers. The performance obligation
is to produce ethanol and sell all ethanol to J.D. Heiskell. For
biodiesel and refined glycerin, we produce and sell based on
purchase order requirements and in case of tender contracts, we
need to produce biodiesel with certain identified specifications.
Sometimes, commitments can be offered either verbally or in written
form in India. The transaction price is determined based on
reference market prices for ethanol every day by Kinergy Marketing
and for WDG monthly by A.L. Gilbert. The transaction price is
determined based on reference market prices for biodiesel and
refined glycerin every day. We did not find any other performance
obligations other than produce and delivery of ethanol, WDG,
biodiesel, and refined glycerin based on the contract or purchase
order requirements. Hence there is no transaction price allocation
needed. Once delivery of the products happened to the satisfaction
of purchase order and contract requirements, we recognize the
revenue.
We
also assessed principal versus agent criteria as we buy our
feedstock from our customers and sell our ethanol to J.D. Heiskell
and biodiesel to our customers in some contractual
agreements.
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. Revenues are recorded at the gross invoiced amount.
Additionally, our working capital partnerleases our finished goods
tank and requires us to transfer legal title to the product upon
transfer of our finished ethanol to this location. We consider the
purchase of corn as a cost of goods sold and the sale of ethanol
upon transfer to the finished goods tank as revenue on the basis
that (i) we bear the risk of gain or loss on the processing of corn
into ethanol and (ii) we have legal title to the goods during the
processing time. For biodiesel, we hold the legal title to
feedstock came from our customers once it is in our premises. We
control the process of it to produce biodiesel based on contract
terms and specifications. The pricing for both feedstock and
biodiesel set independently. We hold the title and risk to
biodiesel as long as it resides on premises. Hence, we are the
principal in both scenarios.
36
In
February 2016, the FASB issued guidance that amends the existing
accounting standards for leases. Consistent with existing guidance,
the recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee primarily will depend on its
classification. Under the new guidance, a lessee will be required
to recognize right-of-use assets and lease liabilities on the
balance sheet. The new guidance is effective for us beginning
January 1, 2019, and for interim periods within that year.
Early adoption is permitted, and we will be required to adopt using
a modified retrospective approach. We are evaluating the timing of
adoption and the impact of this guidance on our consolidated
financial statements and disclosures.
In
August 2016, the FASB issued amendments to address eight specific
cash flow issues with the objective of reducing the existing
diversity in practice. The amendments are effective for us
beginning January 1, 2018, and for interim periods within that
year. Early adoption is permitted. If we decide to early adopt the
amendments, we will be required to adopt all of the amendments in
the same period. We evaluated the amendments and noted that these
amendments will not have a significant impact on the
Company’s consolidated financial statements.
In
November 2016, the FASB issued amendments to require amounts
generally described as restricted cash and restricted cash
equivalents be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The amendments are effective
for us beginning January 1, 2018, and for interim periods within
that year. Early adoption is permitted. We evaluated the amendments
and noted that these amendments will not have a significant impact
on the Company’s consolidated financial
statements.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Not
applicable.
Item 8. Financial Statements and Supplementary Data
Financial Statements are listed in the Index to Consolidated
Financial Statements on page 44 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A. Controls and Procedures
The
information contained in this section covers management’s
evaluation of our disclosure controls and procedures and our
assessment of our internal control over financial reporting for the
year ended December 31, 2017.
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 chief
financial officer concluded that, as of the end of the period
covered in this report, our disclosure controls and procedures
along with the related internal controls over financial reporting
were 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.
37
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our
disclosure controls or our internal control over financial
reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s
objectives will be met. Our controls and procedures are designed to
provide reasonable assurance that our control system’s
objective will be met and our CEO and CFO have concluded that our
disclosure controls and procedures are effective at the reasonable
assurance level. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the company
have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls
can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on
certain assumptions about the likelihood of future events and there
can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Projections of
any evaluation of the effectiveness of controls in future periods
are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of
compliance with policies or procedures.
Management’s Annual Report on Internal Control over Financial
Reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our
internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of our financial statements for
external purposes in accordance with U.S. generally accepted
accounting principles (GAAP). Our internal control over financial
reporting includes those policies and procedures that: (i) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
our assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with U.S. generally accepted accounting principles,
and that receipts and expenditures by us are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of our
assets that could have a material effect on the consolidated
financial statements.
Under
the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as
of the period covered by this report based on the criteria for
effective internal control described in Internal Control –
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) -
2013. Based on the results of management’s assessment and
evaluation, our CEO and CFO concluded that our internal control
over financial reporting was effective as described
below.
An
attestation report from our accounting firm on internal control
over financial reporting is not included in this annual report
because an attestation report is only required under the
regulations of the Securities and Exchange Commission for
accelerated filers and large accelerated filers.
Changes in Internal Control over Financial Reporting
Our efforts to improve our internal controls are ongoing and
focused on expanding our organizational capabilities to improve our
control environment and on implementing process changes to
strengthen our internal control and monitoring
activities.
Item 9B. Other Information
Third Eye Capital Amendment
On
March 27, 2018, we and Third Eye Capital agreed to Limited Waiver
and Amendment No. 14 to the Note Purchase Agreement, or Amendment
14, to: (i) extend the maturity date of the Third Eye Capital Notes
two years to April 1, 2020 in exchange for an amendment fee
consisting of 6% (3% per year) of the outstanding note balance as
an increase in the fee payable in the event of a redemption of the
Notes (as defined in the Note Purchase Agreement); (ii) provide
that the maturity date may be further extended at our election to
April 1, 2021 in exchange for an extension fee of 5%; (iii) provide
for an optional waiver of the ratio of note indebtedness covenant
until January 1, 2019 with the payment of a waiver fee of $0.25
million; and (iv) and remove the redemption fee described in (i)
above from the calculation of the ratio of note indebtedness
covenant. As consideration for such amendment and waiver, the
borrowers agreed to pay Third Eye Capital an amendment and waiver
fee of $0.5 million to be added to the outstanding principal
balance of the Revolving Credit Facility.
The
foregoing description of Amendment 14 is a summary and does not
purport to be complete and is qualified in its entirety by
reference to the full text of Amendment 14, Exhibit 10.71 hereto,
which is incorporated herein by reference.
Reserve Liquidity Facility
On
March 27, 2018, 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 six million dollars. The
Company does not currently expect to draw upon the note, however it
determined that it was prudent to maintain a liquidity reserve in
case of unforeseen needs. Borrowings under the facility are
available from March 27, 2018 until maturity on April 1, 2019.
Interest on borrowed amounts accrues at a rate of 30% per annum,
paid monthly in arrears, or 40% if an event of default has occurred
and continues. The outstanding principal balance of the
indebtedness evidenced by the promissory note, plus any accrued but
unpaid interest and any other sums due thereunder, shall be due and
payable in full at the earlier to occur of (a) the closing of any
new debt or equity financing, refinancing or other similar
transaction between Third Eye Capital or any fund or entity
arranged by them and the Company or its affiliates, (b) receipt by
the Company or its affiliates of proceeds from any sale, merger,
equity or debt financing, refinancing or other similar transaction
from any third party and (c) April 1, 2019. The promissory note is
secured by liens and security interests upon the property and
assets of the Company as described in that certain Amended and
Restated Note Purchase Agreement, dated as of July 6, 2012. If any
amounts are drawn under the facility, the Company will pay a
non-refundable fee in the amount of $0.2 million, payable from the
proceeds of the first drawing under the facility.
The
foregoing descriptions of the promissory note do not purport to be
complete and are qualified in their entirety by reference to the
full text of the promissory note, which is filed as Exhibit 10.72
hereto and incorporated by reference herein.
38
PART III
Item 10. Directors, Executive Officers and Governance
The information required by this Item 10 is included in our Proxy
Statement for our 2018 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item 11 is included in our Proxy
Statement for our 2018 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The information required by this Item 12 is included in our Proxy
Statement for our 2018 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
The information required by this Item 13 is included in our Proxy
Statement for our 2018 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 is included in our Proxy
Statement for our 2018 Annual Meeting of Stockholders and is
incorporated herein by reference.
39
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this Form
10-K:
1.
Financial Statements:
The following financial statements of Aemetis, Inc. are filed as a
part of this Annual Report:
●
Report
of Independent Registered Public Accounting Firm
●
Consolidated
Balance Sheets
●
Consolidated
Statements of Operations and Comprehensive Loss
●
Consolidated
Statements of Cash Flows
●
Consolidated
Statements of Stockholders’ Deficit
●
Notes
to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules have been omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements and notes thereto under Item 8 in Part II of
this Form 10-K.
3. Exhibits:
|
INDEX TO EXHIBITS
|
|
|
|
Incorporated by Reference
|
Filed
Herewith
|
|||
|
Exhibit No.
|
Description
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
|
|
At Market Issuance Sales Agreement dated March 23, 2016 with FBR
Capital Markets & Co. and MLV & Co. LLC and Aemetis
Inc.
|
10-K
|
000-51354
|
1.1
|
Mar 28, 2016
|
|
|
|
Articles of Incorporation
|
10-Q
|
000-51354
|
3.1
|
Nov. 14, 2008
|
|
|
|
Certificate of Amendment to Articles of Incorporation
|
10-Q
|
000-51354
|
3.1.1
|
Nov. 14, 2008
|
|
|
|
Certificate of Designation of Series B Preferred Stock
|
8-K
|
000-51354
|
3.2
|
Dec. 13, 2007
|
|
|
|
Certificate of Amendment to Articles of Incorporation
|
8-K
|
000-51354
|
3.3
|
Dec. 13, 2007
|
|
|
|
Certificate of Amendment to Articles of Incorporation
|
Pre14C
|
111136140
|
|
Oct. 11, 2011
|
|
|
|
Certificate of
Change in Articles of Incorporation are a result of 1 for 10
reverse split to Authorized Shares and Common Shares Outstanding on
May 5, 2014
|
10-Q
|
000-51354
|
3.1
|
May
15, 2014
|
|
|
|
Amended and
Restated Articles of Incorporation
|
10-K
|
000-51354
|
3.1.7
|
March 16,
2017
|
X
|
|
|
Bylaws
|
8-K
|
000-51354
|
3.4
|
Dec. 13, 2007
|
|
|
|
Specimen Common Stock Certificate
|
8-K
|
000-51354
|
4.1
|
Dec. 13, 2007
|
|
|
|
Specimen Series B Preferred Stock Certificate
|
8-K
|
000-51354
|
4.2
|
Dec. 13, 2007
|
|
|
|
Form of Common Stock Warrant
|
8-K
|
000-51354
|
4.3
|
Dec. 13, 2007
|
|
|
|
Form of Series B Preferred Stock Warrant
|
8-K
|
000-51354
|
4.4
|
Dec. 13, 2007
|
|
|
|
Amended and Restated 2007 Stock Plan
|
14A
|
000-51354
|
|
Apr. 3, 2015
|
|
|
|
Amended and Restated 2007 Stock Plan form of Stock Option Award
Agreement
|
14A
|
000-51354
|
|
Apr. 15, 2008
|
|
|
|
Eric McAfee Executive Employment Agreement dated September 1,
2011
|
8-K
|
000-51354
|
10.2
|
Sep. 8, 2011
|
|
|
|
Andrew Foster Executive Employment Agreement, dated May 22,
2007
|
8-K
|
000-51354
|
10.7
|
Dec. 13, 2007
|
|
|
40
|
Todd Waltz Executive Employment Agreement, dated March 12,
2010
|
8-K
|
000-51354
|
|
March 12, 2010
|
|
|
|
Sanjeev Gupta Executive Employment Agreement, dated September 1,
2007
|
10-K/A
|
000-51354
|
10.11
|
May 20, 2009
|
|
|
|
Agreement of Loan for Overall Limit dated June 26, 2008 between
Universal Biofuels Private Limited and State Bank of
India
|
10-Q
|
000-51354
|
10.12
|
Aug. 14, 2008
|
|
|
|
Ethanol Marketing Agreement, dated October 29, 2010 between AE
Advanced Fuels Keyes, Inc. and Kinergy Marketing, LLC
|
10-Q
|
000-51354
|
10.6
|
Dec. 1, 2010
|
|
|
|
Zymetis, Inc. 2006 Stock Incentive Plan
|
10-K
|
000-51354
|
10.31
|
Oct. 31, 2012
|
|
|
|
Zymetis Inc. Incentive Stock Option Agreement
|
10-K
|
000-51354
|
10.32
|
Oct. 31, 2012
|
|
|
|
Zymetis Inc. Non-Incentive Stock Option Agreement
|
10-K
|
000-51354
|
10.33
|
Oct. 31, 2012
|
|
|
|
First Amendment to Ethanol Marketing Agreement dated September 6,
2011, between AE Advanced Fuels Keyes, Inc. and Kinergy Energy
Marketing
|
8-K
|
000-51354
|
10.1
|
Sept. 8, 2011
|
|
|
|
Form of Note and Warrant Purchase Agreement
|
8-K
|
000-51354
|
10.1
|
Jan. 12, 2012
|
|
|
|
Form of 5% Subordinated Note
|
8-K
|
000-51354
|
10.2
|
Jan. 12, 2012
|
|
|
|
Form of Common Stock Warrant
|
8-K
|
000-51354
|
10.3
|
Jan. 12, 2012
|
|
|
|
Amendment No. 6 to Note Purchase Agreement dated April 13, 2012
among Aemetis Advanced Fuels Keyes, Inc., Third Eye Capital
Corporation, as agent, and the Purchasers
|
8-K
|
000-51354
|
10.1
|
Apr. 19, 2012
|
|
|
|
Limited Waiver to Note Purchase Agreement dated March 31, 2012
among Aemetis Advanced Fuels Keyes, Inc., and Third Eye Capital
Corporation, an Ontario corporation, as agent
|
8-K
|
000-51354
|
10.2
|
Apr. 19, 2012
|
|
|
|
Limited Waiver to Note and Warrant Purchase Agreement dated March
31, 2012 among Aemetis, Inc., Third Eye Capital Corporation, an
Ontario corporation, as agent, and the Purchasers
|
8-K
|
000-51354
|
10.3
|
Apr. 19, 2012
|
|
|
|
Amendment No. 7 to Note Purchase Agreement dated May 15, 2012 among
Aemetis Advanced Fuels Keyes, Inc., Third Eye Capital Corporation,
as agent, and the Purchasers
|
8-K
|
000-51354
|
10.1
|
May 22, 2012
|
|
|
|
Form of Note and Warrant Purchase Agreement
|
8-K
|
000-51354
|
10.1
|
Jan. 12, 2012
|
|
|
|
Form of 5% Subordinated Note
|
8-K
|
000-51354
|
10.2
|
Jun. 6, 2012
|
|
|
|
Form of Common Stock Warrant
|
8-K
|
000-51354
|
10.3
|
Jan. 12, 2012
|
|
|
|
Note and Warrant Purchase Agreement dated June 21, 2012 among Third
Eye Capital Corporation, Aemetis Advanced Fuels Keyes, Inc., and
Aemetis, Inc.
|
8-K
|
000-51354
|
10.1
|
Jun. 28, 2012
|
|
|
|
15% Subordinated Promissory Note dated June 21, 2012 among Third
Eye Capital Corporation, Aemetis Advanced Fuels Keyes, Inc., and
Aemetis, Inc.
|
8-K
|
000-51354
|
10.2
|
Jun. 28, 2012
|
|
|
|
Form of Warrant to Purchase Common Stock
|
8-K
|
000-51354
|
10.3
|
Jan. 12, 2012
|
|
|
|
Note Purchase Agreement dated June 27, 2012 among Third Eye Capital
Corporation, Aemetis Advanced Fuels Keyes, Inc., and Aemetis,
Inc.
|
8-K
|
000-51354
|
10.1
|
July 3, 2012
|
|
|
|
15% Subordinated Promissory Note dated June 27, 2012 among Third
Eye Capital Corporation, Aemetis Advanced Fuels Keyes, Inc., and
Aemetis, Inc.
|
8-K
|
000-51354
|
10.2
|
July 3, 2012
|
|
|
|
Agreement and Plan of Merger, dated July 6, 2012, among Aemetis,
Inc., AE Advanced Fuels, Inc., Keyes Facility Acquisition Corp.,
and Cilion, Inc.
|
8-K
|
000-51354
|
2.1
|
July 10, 2012
|
|
|
|
Stockholders’ Agreement dated July 6, 2012, among Aemetis,
Inc., and Western Milling Investors, LLC, as Security
holders’ Representative.
|
8-K
|
000-51354
|
10.1
|
July 10, 2012
|
|
41
|
Amended and Restated Note Purchase Agreement, dated July 6, 2012
among Aemetis Advanced Fuels Keyes, Inc., Keyes Facility
Acquisition Corp., Aemetis, Inc., Third Eye Capital Corporation, as
Administrative Agent, and the Note holders
|
8-K
|
000-51354
|
10.2
|
July 10, 2012
|
|
|
|
Amended and Restated Guaranty, dated July 6, 2012 among Aemetis,
Inc., certain subsidiaries of Aemetis and Third Eye Capital
Corporation, as Agent.
|
8-K
|
000-51354
|
10.3
|
July 10, 2012
|
|
|
|
Amended and Restated Security Agreement, dated July 6, 2012 among
Aemetis, Inc., certain subsidiaries of Aemetis and Third Eye
Capital Corporation, as Agent.
|
8-K
|
000-51354
|
10.4
|
July 10, 2012
|
|
|
|
Investors’ Rights Agreement dated July 6, 2012, by and among
Aemetis, Inc., and the investors listed on Schedule A
thereto.
|
8-K
|
000-51354
|
10.5
|
July 10, 2012
|
|
|
|
Technology License Agreement dated August 9, 2012 between Chevron
Lummus Global LLC and Aemetis Advanced Fuels, Inc.
|
8-K
|
000-51354
|
10.1
|
Aug. 22, 2012
|
|
|
|
Corn Procurement and Working Capital Agreement dated March 9, 2011
between J.D. Heiskell Holdings LLC and Aemetis Advanced Fuels
Keyes, Inc.*
|
10-K
|
000-51354
|
10.64
|
Oct. 31, 2012
|
|
|
|
Purchasing Agreement dated March 9, 2011 between J.D. Heiskell
Holdings LLC and Aemetis Advanced Fuels Keyes, Inc.*
|
10-K
|
000-51354
|
10.65
|
Oct. 31, 2012
|
|
|
|
WDG Purchase and Sale Agreement dated March 23, 2011 between A.L.
Gilbert Company and Aemetis Advanced Fuels Keyes, Inc.
|
10-K
|
000-51354
|
10.66
|
Oct. 31, 2012
|
|
|
|
Keyes Corn Handling Agreement dated March 23, 2011 among A. L.
Gilbert Company, AE Advanced Fuels Keyes, Inc., and J.D. Heiskell
Holdings, LLC
|
10-K
|
000-51354
|
10.67
|
Oct. 31, 2012
|
|
|
|
Limited Waiver and Amendment No. 1 to Amended and Restated Note
Purchase Agreement dated as of October 18, 2012 by and among
Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation, Aemetis
Facility Keyes, Inc., a Delaware corporation, Third Eye Capital
Corporation, an Ontario corporation as agent, Third Eye Capital
Credit Opportunities Fund – Insight Fund, and Sprott PC
Trust.
|
8-K
|
000-51354
|
10.1
|
Oct. 23, 2012
|
|
|
|
Amendment No. 1 to Revolving Line of Credit Agreement dated October
16, 2012 by and among Aemetis International, Inc., a Nevada
corporation, and Laird Q. Cagan
|
8-K
|
000-51354
|
10.2
|
Oct. 23, 2012
|
|
|
|
Note Purchase Agreement effective as of March 4, 2011, amended
January 19, 2012 and July 24, 2012 by and among AE Advanced Fuels,
Inc., a Delaware corporation, and Advanced BioEnergy, LP a
California limited partnership and Advanced BioEnergy GP, LLC, a
California limited liability company.
|
8-K
|
000-51354
|
10.3
|
Oct. 23, 2012
|
|
|
|
Form of Convertible Subordinated Promissory Note by and among AE
Advanced Fuels, Inc., a Delaware corporation and Advanced
BioEnergy, LP, a California limited partnership.
|
8-K
|
000-51354
|
10.4
|
Oct. 23, 2012
|
|
|
|
Amendment to the Purchasing Agreement dated March 9, 2011 between
J.D. Heiskell Holdings LLC and Aemetis Advanced Fuels Keyes, Inc.
dated September 29, 2012
|
10-K
|
000-51354
|
10.72
|
Apr. 16, 2013
|
|
42
|
Agreement for Repayment of Note by Share Issuance dated as of
December 31, 2012 by and among Aemetis, Inc., Aemetis
International, Inc., (formerly known as “International
Biodiesel, Inc.”), a Nevada corporation and wholly-owned
subsidiary of the Company, and Laird Q. Cagan for himself and on
behalf of all other holders of interests in the Revolving Line of
Credit (as defined in the Agreement).
|
8-K
|
000-51354
|
10.1
|
Jan. 7, 2013
|
|
|
|
Agreement for Repayment of Note by Share Issuance dated as of
December 31, 2012 by and among Aemetis, Inc., Aemetis
International, Inc., (formerly known as “International
Biodiesel, Inc.”), a Nevada corporation and wholly-owned
subsidiary of the Company, and Laird Q. Cagan for himself and on
behalf of all other holders of interests in the Revolving Line of
Credit (as defined in the Agreement).
|
8-K/A
|
000-51354
|
10.1
|
Feb. 27, 2013
|
|
|
|
Limited Waiver and Amendment No. 2 to Amended and Restated Note
Purchase Agreement dated as of February 27, 2013 by and among
Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation, Aemetis
Facility Keyes, Inc., a Delaware corporation, Third Eye Capital
Corporation, an Ontario corporation as agent, Third Eye Capital
Credit Opportunities Fund – Insight Fund, and Sprott PC
Trust.
|
8-K
|
000-51354
|
10.1
|
Mar. 11, 2013
|
|
|
|
Amendment No. 1 to Agreement for Repayment of Note by Share
Issuance dated as of April 10, 2013 by and among Aemetis, Inc.,
Aemetis International, Inc., a Nevada corporation and wholly-owned
subsidiary of the Company, and Laird Q. Cagan for himself and on
behalf of all other holders of interests in the Revolving Line of
Credit (as defined in the Agreement).
|
10-K
|
000-51354
|
10.77
|
Apr. 16, 2013
|
|
|
|
Amendment to the Purchasing Agreement dated March 9, 2011 between
J.D. Heiskell Holdings LLC and Aemetis Advanced Fuels Keyes, Inc.
dated January 2, 2013.
|
10-K
|
000-51354
|
10.76
|
Apr. 16, 2013
|
|
|
|
Limited Waiver and Amendment No.3 to Amended and Restated Note
Purchase Agreement dated as of April 15, 2013 by and among Aemetis
Advanced Fuels Keyes, Inc., a Delaware corporation, Aemetis
Facility Keyes, Inc., a Delaware corporation, Third Eye Capital
Corporation, an Ontario corporation as agent, Third Eye Capital
Credit Opportunities Fund – Insight Fund, and Sprott PC
Trust.
|
8-K
|
000-51354
|
10.1
|
Apr. 16, 2013
|
|
|
|
Amendment No. 4 to Amended and Restated Note Purchase Agreement
dated as of April 19, 2013 by and among Aemetis Advanced Fuels
Keyes, Inc., a Delaware corporation, Aemetis Facility Keyes, Inc.,
a Delaware corporation, Aemetis, Inc., a Nevada corporation, and
Third Eye Capital Corporation, an Ontario corporation, as agent for
Third Eye Capital Insight Fund
|
8-K/A
|
000-51354
|
10.2
|
May 14, 2013
|
|
|
|
Special Bridge Advance dated as of March 29, 2013 by and among
Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation,
Aemetis, Inc., a Nevada corporation, Third Eye Capital Corporation,
an Ontario corporation, as agent for Third Eye Capital Insight
Fund
|
8-K
|
000-51354
|
10.2
|
Apr. 16, 2013
|
|
|
|
Agreement For Satisfaction of Note by Share and Note Issuance dated
as of April 18, 2013 between Aemetis, Inc., Aemetis International,
Inc. and Laird Q. Cagan for himself and on behalf of all other
holders of interests in the Revolving Line of Credit dated August
17, 2009 as amended.
|
8-K
|
000-51354
|
10.1
|
Apr. 24, 2013
|
|
43
|
Amended and Restated Heiskell Purchasing Agreement dated May 16,
2013, by and between Aemetis Advanced Fuels Keyes, Inc., a Delaware
corporation and a wholly-owned subsidiary of Aemetis, Inc. and J.D.
Heiskell Holdings, LLC, a California limited liability company
doing business as J.D. Heiskell & Co.*
|
8-K
|
000-51354
|
10.1
|
May 23, 2013
|
|
|
|
Amended and Restated Aemetis Keyes Corn Procurement and Working
Capital Agreement, dated May 2, 2013, by and between Aemetis
Advanced Fuels Keyes, Inc., and J.D. Heiskell Holdings,
LLC
|
8-K
|
000-51354
|
10.2
|
May 23, 2013
|
|
|
|
Limited Waiver and Amendment No.5 to Amended and Restated Note
Purchase Agreement, dated as of July 26, 2013 by and among Aemetis,
Inc., Aemetis Advanced Fuels Keyes, Inc. Aemetis Facility Keyes,
Inc., Third Eye Capital Corporation, an Ontario corporation, as
agent, Third Eye Capital Credit Opportunities Fund - Insight Fund,
and Sprott PC Trust
|
8-K
|
000-51354
|
10.1
|
July 31, 2013
|
|
|
|
Limited Waiver and Amendment No.6 to Amended and Restated Note
Purchase Agreement, dated as of October 28, 2013 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
8-K
|
000-51354
|
10.1
|
Nov. 1, 2013
|
|
|
|
Limited Waiver and Amendment No.7 to Amended and Restated Note
Purchase Agreement, dated as of May 14, 2014 by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc.; Third Eye Capital Corporation, an Ontario corporation, as
agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-Q
|
000-51354
|
10.1
|
May 15, 2014
|
|
|
|
Limited Waiver and Amendment No. 8 to Amended and Restated Note
Purchase Agreement, dated as of November 7, 2014 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-Q/A
|
000-51354
|
10.1
|
Nov. 13, 2014
|
|
|
|
Limited Waiver and Amendment No. 9 to Amended and Restated Note
Purchase Agreement, dated as of March 12, 2015 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10K
|
000-51354
|
10.1
|
Mar. 12, 2015
|
10.65
|
|
|
Limited Waiver and Amendment No. 10 to Amended and Restated Note
Purchase Agreement, dated as of April 30, 2015 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital
Corporation, an Ontario corporation, as agent for Third Eye Capital
Credit Opportunities Fund - Insight Fund, and Sprott PC
Trust.
|
10-Q
|
000-51354
|
10.1
|
May 7, 2015
|
|
|
|
Limited Waiver and Amendment No. 11 to Amended and Restated Note
Purchase Agreement, dated as of August 6, 2015 by and among
Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc.; Third Eye Capital Corporation, an Ontario corporation, as
agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust (incorporated by reference to Exhibit
10.2 of the Quarterly Report on Form 10-Q filed on August 7,
2015).
|
10-Q
|
000-51354
|
10.1
|
Nov. 5, 2015
|
|
44
|
Limited Waiver and Amendment No. 12 to Amended and Restated Note
Purchase Agreement, dated as of March 21, 2016 by and among
Aemetis, Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility
Keyes, Inc.; Third Eye Capital Corporation, an Ontario corporation,
as agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-K
|
000-51354
|
10.68
|
Mar. 28, 2016
|
|
|
|
Binding letter
of intent for the purchase of certain property, plant and equipment
in Goodland, Kansas by Aemetis Advanced Fuels Goodland, Inc., or
such other subsidiary of Aemetis Inc., dated March 22, 2016 from
Third Eye Capital Corporation, in its capacity as attorney-in-fact
for New Goodland Energy Center, LLC.
|
10-K
|
000-51354
|
10.69
|
Mar. 28, 2016
|
|
|
|
Limited Waiver and Amendment No. 13 to Amended and Restated Note
Purchase Agreement, dated as of March 1, 2017 by and among Aemetis,
Inc.; Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes,
Inc.; Third Eye Capital Corporation, an Ontario corporation, as
agent for Third Eye Capital Credit Opportunities Fund - Insight
Fund, and Sprott PC Trust.
|
10-K
|
000-51354
|
10.70
|
Mar. 16, 2017
|
|
|
|
Limited
Waiver and Amendment No. 14 to Amended and Restated Note Purchase
Agreement, dated as of March 27, 2018 by and among Aemetis, Inc.;
Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes, Inc.;
Third Eye Capital Corporation, an Ontario corporation, as agent for
Third Eye Capital Credit Opportunities Fund – Insight Fund,
and Sprott PC Trust.
|
10-K
|
000-51354
|
10.71
|
Mar. 27, 2018
|
X
|
|
|
10.72
|
Promissory
Note, dated as of March 27, 2018 by and among Aemetis, Inc.;
Aemetis Advanced Fuels Keyes, Inc.; Aemetis Facility Keyes, Inc.,
Aemetis, Inc.; and Third Eye Capital Corporation, an Ontario
corporation,
|
10-K
|
000-51354
|
10.72
|
Mar. 27, 2018
|
|
|
Code of Ethics
|
10-K/A
|
000-51354
|
14
|
May 20, 2009
|
|
|
|
Subsidiaries of the Registrant
|
|
|
|
|
X
|
|
|
Consent of Independent Registered Public Accounting
Firm
|
|
|
|
|
X
|
|
|
Power of Attorney (see signature page)
|
|
|
|
|
X
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
*Confidential
treatment has been requested for portions of this exhibit. Omitted
portions have been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
45
AEMETIS, INC.
Consolidated Financial Statements
Index To Financial Statements
|
|
|
Page
Number
|
|
Report of Independent Registered Public Accounting
Firm
|
|
47
|
|
Consolidated Financial Statements
|
|
|
|
Consolidated
Balance Sheets
|
|
48
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
|
49
|
|
Consolidated
Statements of Cash Flows
|
|
50
|
|
Consolidated
Statements of Stockholders' Deficit
|
|
51
|
|
Notes to
Consolidated Financial Statements
|
|
52 -80
|
46
Report of Independent Registered Public Accounting
Firm
To the Stockholders and the Board of Directors of Aemetis,
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Aemetis, Inc. and subsidiaries (the Company) as of December 31,
2017 and 2016, the related consolidated statements of operations
and comprehensive loss, stockholders' deficit and cash flows for
the years then ended, and the related notes to the consolidated
financial statements (collectively, the financial statements). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and
its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2012.
Des Moines, Iowa
March 29, 2018
47
AEMETIS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016
(In
thousands except for par value)
|
|
December
31,
2017
|
December
31,
2016
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$428
|
$1,486
|
|
Accounts
receivable
|
2,219
|
1,557
|
|
Inventories
|
5,737
|
3,241
|
|
Prepaid
expenses
|
2,435
|
555
|
|
Other current
assets
|
643
|
206
|
|
Total current
assets
|
11,462
|
7,045
|
|
|
|
|
|
Property, plant and
equipment, net
|
78,837
|
66,370
|
|
Other
assets
|
4,032
|
4,395
|
|
Total
assets
|
$94,331
|
$77,810
|
|
|
|
|
|
Liabilities
and stockholders' deficit
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$10,457
|
$7,842
|
|
Current portion of
long term debt
|
2,039
|
2,027
|
|
Short term
borrowings
|
13,586
|
9,382
|
|
Mandatorily
redeemable Series B convertible preferred stock
|
2,946
|
2,844
|
|
Accrued property
taxes
|
3,677
|
2,648
|
|
Other current
liabilities
|
3,311
|
2,473
|
|
Total current
liabilities
|
36,016
|
27,216
|
|
Long term
liabilities:
|
|
|
|
Senior secured
notes
|
73,986
|
61,631
|
|
EB-5
notes
|
34,000
|
33,000
|
|
GAFI secured and
revolving notes
|
24,351
|
-
|
|
Long term
subordinated debt
|
5,824
|
5,674
|
|
Other long term
liabilities
|
15
|
102
|
|
Total long term
liabilities
|
138,176
|
100,407
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
Series B
convertible preferred stock, $0.001 par value; 7,235 authorized;
1,323 and 1,328 shares issued and outstanding each period,
respectively (aggregate liquidation preference of $3,969 and $3,984
respectively)
|
1
|
1
|
|
Common stock,
$0.001 par value; 40,000 authorized; 20,088 and 19,858 shares
issued and outstanding, respectively
|
20
|
20
|
|
Additional paid-in
capital
|
84,679
|
83,441
|
|
Accumulated
deficit
|
(160,188)
|
(129,887)
|
|
Accumulated other
comprehensive loss
|
(2,904)
|
(3,388)
|
|
Total stockholders'
deficit attributable to Aemetis, Inc.
|
(78,392)
|
(49,813)
|
|
Non-controlling
interest - GAFI
|
(1,469)
|
-
|
|
Total stockholders'
deficit
|
(79,861)
|
(49,813)
|
|
Total liabilities
and stockholders' deficit
|
$94,331
|
$77,810
|
The accompanying notes are an integral part of the financial
statements
48
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In
thousands, except for earnings per share)
|
|
For the year
ended December 31,
|
|
|
|
2017
|
2016
|
|
Revenues
|
$150,157
|
$143,158
|
|
|
|
|
|
Cost of goods
sold
|
146,782
|
131,559
|
|
|
|
|
|
Gross
profit
|
3,375
|
11,599
|
|
|
|
|
|
Research and
development expenses
|
2,367
|
369
|
|
Selling, general
and administrative expenses
|
13,191
|
12,011
|
|
|
|
|
|
Operating
loss
|
(12,183)
|
(781)
|
|
|
|
|
|
Other (income)
expense:
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
Interest rate
expense
|
13,906
|
11,493
|
|
Amortization
expense
|
5,398
|
5,723
|
|
Gain on debt
extinguishment
|
-
|
(2,033)
|
|
Other (income)
expense
|
277
|
(334)
|
|
|
|
|
|
Loss before income
taxes
|
(31,764)
|
(15,630)
|
|
|
|
|
|
Income tax
expense
|
6
|
6
|
|
|
|
|
|
Net
loss
|
$(31,770)
|
$(15,636)
|
|
|
|
|
|
Less: Net loss
attributable to non-controlling interest
|
(1,469)
|
-
|
|
|
|
|
|
Net loss
attributable to Aemetis, Inc.
|
$(30,301)
|
$(15,636)
|
|
|
|
|
|
Other comprehensive
income (loss)
|
|
|
|
Foreign currency
translation gain (loss)
|
484
|
(209)
|
|
Comprehensive
loss
|
$(31,286)
|
$(15,845)
|
|
Net loss per common
share attributable to Aemetis, Inc.
|
|
|
|
Basic
|
$(1.53)
|
$(0.79)
|
|
Diluted
|
$(1.53)
|
$(0.79)
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
|
Basic
|
19,833
|
19,771
|
|
Diluted
|
19,833
|
19,771
|
The accompanying notes are an integral part of the financial
statement
49
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands)
|
|
For the years
ended
December
31,
|
|
|
|
2017
|
2016
|
|
Operating
activities:
|
|
|
|
Net
loss
|
$(31,770)
|
$(15,636)
|
|
Adjustments to
reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
Share-based
compensation
|
1,101
|
747
|
|
Stock issued for
services
|
118
|
-
|
|
Depreciation
|
4,622
|
4,670
|
|
Debt related
amortization expense
|
5,399
|
5,723
|
|
Intangibles and
other amortization expense
|
392
|
126
|
|
Change in fair
value of warrant liability
|
-
|
(25)
|
|
Gain on
extinguishment of debt
|
-
|
(2,033)
|
|
Loss on
sale/disposal of assets
|
-
|
11
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(1,015)
|
(403)
|
|
Inventories
|
(2,370)
|
1,504
|
|
Prepaid
expenses
|
371
|
(28)
|
|
Other current and
long-term assets
|
(425)
|
890
|
|
Accounts
payable
|
2,580
|
(2,097)
|
|
Accrued interest
expense and fees, net of payments
|
10,812
|
6,448
|
|
Other
liabilities
|
1,497
|
474
|
|
Net cash provided
by (used in) operating activities
|
(8,688)
|
371
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Capital
expenditures
|
(1,116)
|
(629)
|
|
|
|
|
|
Net cash used in
investing activities
|
(1,116)
|
(629)
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Proceeds from
borrowings
|
14,798
|
20,583
|
|
Repayments of
borrowings
|
(10,037)
|
(18,956)
|
|
GAFI proceeds from
borrowings
|
3,614
|
-
|
|
Net cash provided
by financing activities
|
8,375
|
1,627
|
|
|
|
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
371
|
(166)
|
|
Net cash and cash
equivalents increase (decrease) for period
|
(1,058)
|
1,203
|
|
Cash and cash
equivalents at beginning of period
|
1,486
|
283
|
|
Cash and cash
equivalents at end of period
|
$428
|
$1,486
|
|
|
|
|
|
Supplemental
disclosures of cash flow information, cash paid:
|
|
|
|
Interest
paid
|
$3,092
|
$4,894
|
|
Income taxes
paid
|
6
|
6
|
|
Supplemental
disclosures of cash flow information, non-cash
transactions:
|
|
|
|
Subordinated debt
extension fees added to debt
|
680
|
680
|
|
Fair value of
warrants issued to subordinated debt holders
|
321
|
579
|
|
Repurchase of
common stock added to TEC promissory note
|
451
|
-
|
|
Senior debt
extension and waiver fees added to debt
|
4,446
|
4,940
|
|
TEC promissory note
fees and fees for Goodland transaction
|
1,169
|
-
|
|
Settlement of
accounts payable through transfer of equipment
|
-
|
66
|
|
Settlement of
subordinated debt through issuing stock
|
132
|
-
|
|
GAFI plant,
property & equipment acquired with debt
|
15,431
|
-
|
|
Payment of TEC
bridge loan added to GAFI Revolving loan
|
3,669
|
-
|
|
Debt exchanged for
prepaid interest on GAFI Term loan
|
2,250
|
-
|
The accompanying notes are an integral part of the financial
statement
50
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands)
|
|
|
|
|
|
Additional
|
|
Accumulated
Other
|
|
|
|
|
Series B Preferred Stock
|
Common Stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
Noncontrolling
|
|
||
|
|
Shares
|
Dollars
|
Shares
|
Dollars
|
Capital
|
Deficit
|
Loss
|
Interset
|
Total
|
|
Balance at
December 31, 2015
|
1,398
|
$1
|
19,619
|
$20
|
$82,115
|
$(114,251)
|
$(3,179)
|
$-
|
$(35,294)
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred
to common stock
|
(70)
|
-
|
7
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
747
|
-
|
-
|
-
|
747
|
|
Issuance and exercise of
warrants
|
-
|
-
|
232
|
-
|
579
|
-
|
-
|
-
|
579
|
|
Other comprehensive
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(209)
|
-
|
(209)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(15,636)
|
-
|
-
|
(15,636)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2016
|
1,328
|
1
|
19,858
|
20
|
83,441
|
(129,887)
|
(3,388)
|
$-
|
(49,813)
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred
to common stock
|
(5)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
1,101
|
-
|
-
|
-
|
1,101
|
|
Shares issued to consultants and
other services
|
-
|
-
|
100
|
-
|
118
|
-
|
-
|
-
|
118
|
|
Issuance and exercise of
warrants
|
-
|
-
|
240
|
-
|
338
|
-
|
-
|
-
|
338
|
|
Repurchase of common
stock
|
-
|
-
|
(275)
|
-
|
(451)
|
-
|
-
|
-
|
(451)
|
|
Issuance of shares for interest
and note extinguishment
|
-
|
-
|
165
|
-
|
132
|
-
|
-
|
-
|
132
|
|
Other comprehensive
income
|
-
|
-
|
-
|
-
|
-
|
-
|
484
|
-
|
484
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(30,301)
|
-
|
(1,469)
|
(31,770)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
1,323
|
$1
|
20,088
|
$20
|
$84,679
|
$(160,188)
|
$(2,904)
|
$(1,469)
|
$(79,861)
|
The accompanying notes are an integral part of the financial
statements.
51
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
1. Nature of Activities and Summary of Significant Accounting
Policies
Nature of Activities. These consolidated financial
statements include the accounts of Aemetis, Inc. (formerly AE
Biofuels, Inc.), a Nevada corporation, and its wholly owned
subsidiaries (collectively, “Aemetis” or the
“Company”):
●
Aemetis Americas,
Inc., a Nevada corporation, and its subsidiary AE Biofuels, Inc., a
Delaware corporation;
●
Biofuels Marketing,
Inc., a Delaware corporation;
●
Aemetis
International, Inc., a Nevada corporation, and its subsidiary
International Biofuels, Ltd., a Mauritius corporation, and its
subsidiary Universal Biofuels Private, Ltd., an India
company;
●
Aemetis
Technologies, Inc., a Delaware corporation;
●
Aemetis
Biochemicals, Inc., a Nevada corporation;
●
Aemetis Biofuels,
Inc., a Delaware corporation, and its subsidiary Energy Enzymes,
Inc., a Delaware corporation;
●
AE Advanced Fuels,
Inc., a Delaware corporation, and its subsidiaries Aemetis Advanced
Fuels Keyes, Inc., a Delaware corporation, and Aemetis Facility
Keyes, Inc., a Delaware corporation;
●
Aemetis Advanced
Fuels, Inc., a Nevada corporation;
●
Aemetis Advanced
Products Keyes, Inc., a Delaware corporation;
●
Aemetis Property
Keyes, Inc., a Delaware corporation; and,
●
Aemetis Advanced
Biorefinery Keyes, Inc., a Delaware corporation.
Headquartered
in Cupertino, California, Aemetis is an advanced renewable fuels
and biochemicals company focused on the acquisition, development
and commercialization of innovative technologies that replace
traditional petroleum-based products through the conversion of
second-generation ethanol and biodiesel plants into advanced
biorefineries. Founded in 2006, we own and operate a 60
million gallon per year ethanol plant in the California Central
Valley near Modesto where we manufacture and produce ethanol, wet
distillers’ grains (“WDG”), condensed distillers
solubles (“CDS”), and distillers’ corn oil
(“DCO”). We also own and operate a 50 million
gallon per year renewable chemical and advanced fuel production
facility on the East Coast of India producing high quality
distilled biodiesel and refined glycerin for customers in India and
Europe. We operate a research and development laboratory and
hold a portfolio of patents and related technology licenses for the
production of renewable fuels and biochemicals.
Basis of Presentation and Consolidation. These consolidated
financial statements include the accounts of Aemetis, Inc., a
Nevada corporation, and its wholly owned subsidiaries
(collectively, “Aemetis” or the “Company”).
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, there are situations in which an enterprise is
required to consolidate a variable interest entity (VIE), even
though the enterprise does not own a majority of the voting
interests. An enterprise must consolidate a VIE if the enterprise
is the primary beneficiary of the VIE. 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.
In July
2017, we closed on a transaction with Goodland Advanced Fuels, Inc.
(GAFI). GAFI was formed to acquire the partially completed Goodland
plant in Goodland, Kansas. GAFI has a sole shareholder with only
1,000 shares. GAFI is a VIE since it does not have enough equity to
support its own activities. GAFI entered into a Note Purchase
Agreement with Third Eye Capital Corporation. GAFI, the Company and
its subsidiary AAPK also entered into separate Intercompany
Revolving Notes, pursuant to which GAFI may lend a portion of the
proceeds of the Revolving Loan incurred under the Note Purchase
Agreement. Aemetis, Inc. and AAPK (Guarantors) also agreed to
provide certain Limited Guaranty on the Note Purchase Agreement
terms and also entered into an Option Agreement with GAFI
shareholder to purchase all shares of GAFI at $0.01 per share
($10.00). Given acceptance of more risk and direct and indirect
benefits received through the Note Purchase Agreement and providing
guarantees on repayment of debt of GAFI, Aemetis has the power to
direct the activities of GAFI and intends to apply cellulosic
ethanol technology to the Goodland Facility in the future. Upon
application of consolidation guidance in ASC 810 Consolidation, we
determined that GAFI is a variable interest entity and Aemetis,
Inc. is the primary beneficiary. Accordingly, the consolidated
financial statements include the accounts of GAFI (see Note
6).
All
intercompany balances and transactions have been eliminated in
consolidation including any transactions between GAFI and Aemetis,
Inc.
52
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Use of Estimates. The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and revenues and expenses
during the reporting period. To the extent there are material
differences between these estimates and actual results, the
Company’s consolidated financial statements will be
affected.
Revenue Recognition. The Company recognizes revenue when
there is persuasive evidence of an arrangement, delivery has
occurred, the price is fixed or determinable and collection is
reasonably assured. The Company records revenues based upon the
gross amounts billed to its customers.
Cost of Goods Sold. Cost of goods sold includes those costs
directly associated with the production of revenues, such as raw
material consumed, factory overhead and other direct production
costs. During periods of idle plant capacity, costs otherwise
charged to cost of goods sold are reclassified to selling, general
and administrative expense.
Shipping and Handling Costs.
Shipping and handling costs are classified as a component of cost
of goods sold in the accompanying consolidated statements of
operations.
Research and Development. Research and development costs are
expensed as incurred, unless they have alternative future uses to
the Company.
Cash and Cash Equivalents. The
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The
Company maintains cash balances at various financial institutions
domestically and abroad. The Federal Deposit Insurance Corporation
(FDIC) insures domestic cash accounts. The Company’s accounts
at these institutions may at times exceed federally insured limits.
The Company has not experienced any losses in such
accounts.
Accounts Receivable. The
Company sells ethanol, wet distillers grains, condensed distillers
solubles and distillers corn oil through third-party marketing
arrangements generally without requiring collateral. The Company
sells biodiesel, glycerin, and processed natural oils to a variety
of customers and may require advanced payment based on the size and
creditworthiness of the customer. Accounts receivable 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 including
attempted contacts with the customer at specified intervals. If,
after a specified number of days, the Company has been unsuccessful
in its collection efforts, a bad debt allowance is recorded for the
balance in question. Delinquent accounts receivable are charged
against the allowance for doubtful accounts once un-collectability
has been determined. The factors considered in reaching this
determination are the apparent financial condition of the customer
and the Company’s success in contacting and negotiating with
the customer. If the financial condition of the Company’s
customers were to deteriorate, additional allowances may be
required. We did not reserve any balance for allowance for doubtful
accounts in the years ended December 31, 2017 and
2016.
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 net realizable value. In the
valuation of inventories, NRV is determined as estimated selling
price in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and
transportation.
Property, Plant and Equipment. Property, plant and equipment are carried
at cost less accumulated depreciation after assets are placed in
service and are comprised primarily of buildings, furniture,
machinery, equipment, land, and the plant in Keyes, California,
Goodland, Kansas and Kakinada, India. The plant in Kansas is
partially completed and is not ready for operation; hence, we are
not depreciating these assets yet. Otherwise, it is the
Company’s policy to depreciate capital assets over their
estimated useful lives using the straight-line method.
53
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
The Company evaluates the recoverability of long-lived assets with
finite lives in accordance with ASC Subtopic 360-10-35
Property Plant and
Equipment –Subsequent
Measurements, which requires
recognition of impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. When events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable, based on estimated undiscounted cash flows, the
impairment loss would be measured as the difference between the
carrying amount of the assets and its estimated fair value. In
addition, in coming up with forecasts, the Company used significant
assumptions with regard to the cost of inputs mainly palm stearin,
and outputs mainly biodiesel. These assumptions were commodity
market driven but we also considered the Government regulations,
import and export tariffs, availability of alternate low-cost
inputs, and potential customer agreements. In addition, a
qualified third-party independent appraiser validated the fair
value of assets exceeded the carrying amount of the Keyes plant and
Kakinada plant confirming the results of the internal impairment
evaluation that no impairment was warranted on the plant
assets.
Income Taxes. The Company
recognizes income taxes in accordance with ASC 740 Income Taxes using an asset and
liability approach. This approach requires the recognition of taxes
payable or refundable for the current year and deferred tax assets
and liabilities for the expected future tax consequences of events
that have been recognized in the Company’s consolidated
financial statements or tax returns. The measurement of current and
deferred taxes is based on provisions of enacted tax
law.
ASC 740
provides for recognition of deferred tax assets if the realization
of such assets is more likely than not to occur. Otherwise, a
valuation allowance is established for the deferred tax assets,
which may not be realized. As of December 31, 2017 and 2016, the
Company recorded a full valuation allowance against its net
deferred tax assets due to operating losses incurred since
inception. Realization of deferred tax assets is dependent upon
future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets were fully
offset by a valuation allowance.
The
Company is subject to income tax audits by the respective tax
authorities in all of the jurisdictions in which it operates. The
determination of tax liabilities in each of these jurisdictions
requires the interpretation and application of complex and
sometimes uncertain tax laws and regulations. The recognition and
measurement of current taxes payable or refundable and deferred tax
assets and liabilities requires that the Company make certain
estimates and judgments. Changes to these estimates or a change in
judgment may have a material impact on the Company’s tax
provision in a future period.
2017 U.S. Tax Cuts and Jobs Act
On
December 22, 2017, the United States enacted tax reform legislation
through the Tax Cuts and Jobs Act (the “Tax Act”),
which significantly changes the existing U.S. tax laws, including,
but not limited to, (1) a reduction in the corporate federal tax
rate from 35% to 21%, (2) requiring companies to pay a one-time
transition tax on certain un-repatriated earnings of foreign
subsidiaries, (3) a move from a worldwide tax system to a
territorial system, (4) eliminating the corporate alternative
minimum tax (AMT) and changing how existing AMT credits can be
realized, (5) bonus depreciation that will allow for full expensing
of qualified property, (6) creating a new limitation on deductible
interest expense and (7) changing rules related to uses and
limitations of net operating loss carryforwards created in tax
years beginning after December 31, 2017.
The SEC
staff issued Staff Accounting Bulletin (“SAB 118”),
which provides guidance on accounting for the tax effects of the
Tax Act. SAB 118 provides a measurement period that should
not extend beyond one year from the Tax Act enactment date for
companies to complete the accounting under ASC 740. In
accordance with SAB 118, a company must reflect the income tax
effects of those aspects of the Tax Act for which the accounting
under ASC 740 is complete. To the extent that a
company’s accounting for certain income tax effects of the
Tax Act is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial
statements. If a company cannot determine a provisional
estimate to be included in the financial statements, it should
continue to apply ASC 740 on the basis of the provisions of the tax
law that were in effect immediately before the enactment of the Tax
Act.
In
connection with our initial provisional analysis of the impact of
the Tax Act, the Company revalued its tax-effected deferred tax
assets, resulting in a $19.6 million reduction in the
Company’s tax-effected deferred tax assets, with a
corresponding reduction in the Company’s valuation
allowance.
54
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
The
Company continues to evaluate the impact that the Tax Act will have
on these consolidated financial statements, including the tax
provisions that apply beginning in 2018, including, but not limited
to, (a) the potential impact of the new global intangible low-taxed
income and (b) the deduction for foreign derived intangible income.
The new rules on interest expense limitation may result
in the Company having a new category of loss carryover based upon
the Company’s current level of debt and the new limits on
deductibility of interest expense. In addition, the new
limits on net operating losses generated after 2017 are only
allowed up to 80% of taxable income, but are allowed an indefinite
carryover.
Basic and Diluted Net Income (Loss) per Share. Basic net
income (loss) per share is computed by dividing net income or loss
attributable to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted net income
(loss) per share reflects the dilution of common stock equivalents
such as options, convertible preferred stock, debt and warrants to
the extent the impact is dilutive. As the Company incurred a net
loss for the years ended December 31, 2017 and 2016, 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
December 31, 2017 and 2016:
|
|
As
of
|
|
|
|
December
31,
2017
|
December
31,
2016
|
|
Series
B preferred (post split basis)
|
132
|
133
|
|
Common stock
options and warrants
|
2,519
|
1,975
|
|
Debt
with conversion feature at $30 per share of common
stock
|
1,201
|
1,168
|
|
Total number of
potentially dilutive shares excluded from the diluted net loss per
share calculation
|
3,852
|
3,276
|
Comprehensive Loss. ASC 220 Comprehensive Income requires that an
enterprise report, by major components and as a single total, the
change in its net assets from non-owner sources. The
Company’s other comprehensive loss and accumulated other
comprehensive loss consists solely of cumulative currency
translation adjustments resulting from the translation of the
financial statements of its foreign subsidiary. The investment in
this subsidiary is considered indefinitely invested overseas, and
as a result, deferred income taxes are not recorded related to the
currency translation adjustments.
Foreign Currency Translation/Transactions. Assets and liabilities of the Company’s
non-U.S. subsidiary that operates in a local currency environment,
where that local currency is the functional currency, are
translated into U.S. dollars at exchange rates in effect at the
balance sheet date; the resulting translation adjustments directly
recorded to a separate component of accumulated other comprehensive
loss. Income and expense accounts are translated at average
exchange rates during the year. Transactional gains and losses from
foreign currency transactions are recorded in other (income) loss,
net.
Operating Segments. Operating segments are defined as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how
to allocate resources and in assessing performance. Aemetis
recognized two reportable geographic segments: “North
America” and “India.”
The
“North America” operating segment includes the
Company’s 60 million gallons per year capacity Keyes plant in
Keyes, California, GAFI plant, Kansas and the research and
development facility.
The
“India” operating segment encompasses the
Company’s 50 million gallon per year capacity Kakinada plant
in Kakinada, India, the administrative offices in Hyderabad, India,
and the holding companies in Nevada and Mauritius.
Fair Value of Financial Instruments. Financial instruments include
accounts receivable, accounts payable, accrued liabilities, current
and non-current portion of subordinated debt, notes payable, and
long-term debt. Due to the unique terms of our notes payable
and long-term debt and the financial condition of the Company, the
fair value of the debt is not readily determinable. The fair
value, determined using level 3 inputs, of all other current
financial instruments is estimated to approximate carrying value
due to the short-term nature of these instruments.
55
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Share-Based Compensation. The Company recognizes share based
compensation expense in accordance with ASC 718 Stock Compensation requiring the
Company to recognize expense related to the estimated fair value of
the Company’s share-based compensation awards at the time the
awards are granted, adjusted to reflect only those shares that are
expected to vest.
Commitments and Contingencies. The Company records and/or
discloses commitments and contingencies in accordance with ASC 450
Contingencies. ASC 450
applies to an existing condition, situation, or set of
circumstances involving uncertainty as to possible loss that will
ultimately be resolved when one or more future events occur or fail
to occur.
Convertible Instruments. The Company evaluates the impacts
of convertible instruments based on the underlying conversion
features. Convertible Instruments are evaluated for treatment as
derivatives that could be bifurcated and recorded separately. Any
beneficial conversion feature is recorded based on the intrinsic
value difference at the commitment date.
Debt Modification Accounting. The Company evaluates amendments to its debt in accordance
with ASC 540-50 Debt – Modification and
Extinguishments for
modification and extinguishment accounting. This evaluation
includes comparing the net present value of cash flows of the new
debt to the old debt to determine if changes greater than 10
percent occurred. In instances where the net present value of
future cash flows changed more than 10 percent, the Company applies
extinguishment accounting and determines the fair value of its debt
based on factors available to the Company.
Recently Issued Accounting Pronouncements.
In May
2014, the FASB issued new guidance on the recognition of revenue.
The guidance stated that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The
standard is effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting
period. The Company’s adoption of this accounting standard
begins with the first quarter of fiscal year 2018. In March and
April 2016, the FASB issued further revenue recognition guidance
amending principal vs. agent considerations regarding whether an
entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods and services. The Company adopted this
guidance on January 1, 2018 using the modified retrospective
approach. The cumulative impact to retained earnings was not
material. We assessed all of our revenue streams to identify any
differences in the timing, measurement or presentation of revenue
recognition. The adoption of the
new guidance will result in additional disclosures for the period
ended in 2018.
We derive revenue primarily from sales of ethanol and related
co-products in North America, biodiesel and refined glycerin in
India based on the agreements and PO contracts. We assessed the
following criteria under the guidance. 1) Identify the contracts
with customer, 2) identify the performance obligation in the
contract, 3) determine the transaction price, 4) allocate the
transaction price to the performance obligations in the contract,
5) recognize revenue when the entity satisfies performance
obligation. We have contract with J.D. Heiskell and most of our
biodiesel and refined glycerin sales are based on raising the
purchase order by customer in addition to tender contracts with
government and international customers. The performance obligation
is to produce ethanol and sell all ethanol to J.D. Heiskell. For
biodiesel and refined glycerin, we produce and sell based on
purchase order requirements and in case of tender contracts, we
need to produce biodiesel with certain identified specifications.
Sometimes, commitments can be offered either verbally or in written
form in India. The transaction price is determined based on
reference market prices for ethanol every day by Kinergy Marketing
and for WDG monthly by A.L. Gilbert. The transaction price is
determined based on reference market prices for biodiesel and
refined glycerin every day. We did not find any other performance
obligations other than produce and delivery of ethanol, WDG,
biodiesel, and refined glycerin based on the contract or purchase
order requirements. Hence there is no transaction price allocation
needed. Once delivery of the products happened to the satisfaction
of purchase order and contract requirements, we recognize the
revenue.
We also assessed principal versus agent criteria as we buy our
feedstock from our customers and sell our ethanol to J.D. Heiskell
and biodiesel to our customers in some contractual
agreements.
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. Revenues are recorded at the gross invoiced
amount. Additionally, our working capital partnerleases our
finished goods tank and requires us to transfer legal title to the
product upon transfer of our finished ethanol to this location. We
consider the purchase of corn as a cost of goods sold and the sale
of ethanol upon transfer to the finished goods tank as revenue on
the basis that (i) we bear the risk of gain or loss on the
processing of corn into ethanol and (ii) we have legal title to the
goods during the processing time. For biodiesel, we hold the legal
title to feedstock came from our customers once it is in our
premises. We control the process of it to produce biodiesel based
on contract terms and specifications. The pricing for both
feedstock and biodiesel set independently. We hold the title and
risk to biodiesel as long as it resides on premises. Hence, we are
the principal in both scenarios.
In
February 2016, the FASB issued guidance that amends the existing
accounting standards for leases. Consistent with existing guidance,
the recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee primarily will depend on its
classification. Under the new guidance, a lessee will be required
to recognize right-of-use assets and lease liabilities on the
balance sheet. The new guidance is effective for us beginning
January 1, 2019, and for interim periods within that year.
Early adoption is permitted and we will be required to adopt using
a modified retrospective approach. We are evaluating the timing of
adoption and the impact of this guidance on our consolidated
financial statements and disclosures.
In
August 2016, the FASB issued amendments to address eight specific
cash flow issues with the objective of reducing the existing
diversity in practice. The amendments are effective for us
beginning January 1, 2018, and for interim periods within that
year. Early adoption is permitted. We evaluated the amendments and
noted that these amendments will not have a significant impact on
the Company’s consolidated financial statements.
In
November 2016, the FASB issued amendments to require amounts
generally described as restricted cash and restricted cash
equivalents be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The amendments are effective
for us beginning January 1, 2018, and for interim periods within
that year. Early adoption is permitted. We evaluated the amendments
and noted that these amendments will not have a significant impact
on the Company’s consolidated financial
statements.
56
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
2. Inventories
Inventories consist of the following:
|
|
December 31,
2017
|
December 31,
2016
|
|
Raw
materials
|
$2,829
|
$1,044
|
|
Work-in-progress
|
1,605
|
1,360
|
|
Finished
goods
|
1,303
|
837
|
|
Total
inventories
|
$5,737
|
$3,241
|
3. Property, Plant and Equipment
Property, plant and equipment consist of the
following:
|
|
December 31,
2017
|
December 31,
2016
|
|
Land
|
$2,747
|
$2,713
|
|
Plant
and buildings
|
82,652
|
81,755
|
|
Furniture
and fixtures
|
1,003
|
572
|
|
Machinery
and equipment
|
3,972
|
4,308
|
|
Construction
in progress
|
941
|
88
|
|
GAFI
property, plant & equipment
|
15,408
|
-
|
|
Total
gross property, plant & equipment
|
106,723
|
89,436
|
|
Less
accumulated depreciation
|
(27,886)
|
(23,066)
|
|
Total
net property, plant & equipment
|
$78,837
|
$66,370
|
Depreciation
on the components of the property, plant and equipment is
calculated using the straight-line method to allocate their
depreciable amounts over their estimated useful lives as
follows:
|
|
Years
|
|
Plant
and buildings
|
20 - 30
|
|
Machinery
and equipment
|
5 - 7
|
|
Furniture
and fixtures
|
3 - 5
|
The
Company recorded depreciation expense
of approximately $4.6 million and $4.7 million for the years ended
December 31, 2017 and 2016.
57
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
The Company evaluates the recoverability of long-lived assets with
finite lives in accordance with ASC Subtopic 360-10-35
Property Plant and
Equipment –Subsequent
Measurements, which requires
recognition of impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. When events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable, based on estimated undiscounted cash flows, the
impairment loss would be measured as the difference between the
carrying amount of the assets and its estimated fair value. We used
estimates in coming up with forecasts, we used significant
assumptions with regard to the cost of inputs mainly palm stearin,
and outputs mainly biodiesel. In addition, a qualified
third-party independent appraiser validated the fair value of
assets exceeded the carrying amount of the Keyes plant and Kakinada
plant confirming the results of the internal impairment evaluation
that no impairment was warranted on the plant assets. The
third-party independent appraiser used the plant condition and
operational ability of the plants as significant assumptions while
considering other commodity and market driven conditions.
These assumptions were commodity
market driven but we also considered the Government regulations,
import and export tariffs, availability of alternate low-cost
inputs, and potential customer agreements. All assumptions were
evaluated based on conditions which the Company believes will
become available to increase production at profitable margins in
the future. However, the changes in conditions such as government
regulations and market conditions affect the operations of the
plants and could trigger an impairment in the future. For
Keyes plant, the fair value of asset group exceeded the carrying
value by 110 percent. For Kakinada plant, the fair value of asset
group exceeded the carrying value by 134 percent.
4. Debt
Debt
consists of the notes from the Company’s senior lender, Third
Eye Capital, acting as Agent for the Purchasers (Third Eye
Capital), other working capital lenders and subordinated lenders as
follows:
|
|
December
31,
2017
|
December
31,
2016
|
|
Third Eye Capital
term notes
|
$6,931
|
$6,577
|
|
Third Eye Capital
revolving credit facility
|
35,371
|
24,927
|
|
Third Eye Capital
revenue participation term notes
|
11,636
|
11,042
|
|
Third Eye Capital
acquisition term notes
|
20,048
|
19,085
|
|
Cilion shareholder
seller notes payable
|
5,824
|
5,674
|
|
Subordinated
notes
|
8,725
|
7,565
|
|
EB-5 long term
promissory notes
|
36,039
|
35,027
|
|
Unsecured working
capital loans
|
4,861
|
1,817
|
|
GAFI Term and
Revolving loans
|
24,351
|
-
|
|
Total
debt
|
153,786
|
111,714
|
|
Less current
portion of debt
|
15,625
|
11,409
|
|
Total
long term debt
|
$138,161
|
$100,305
|
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 (“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 (“Revenue Participation
Term Notes”); and (iv) senior secured term loans in an
aggregate principal amount of $15.0 million (“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).
58
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
On
January 31, 2017, a Promissory Note (the “January 2017
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) May 30, 2017. In addition, as part of the
January 2017 Note agreement, Aemetis used $0.5 million of the total
proceeds to buy back 275 thousand common shares that were held by
Third Eye Capital. In consideration of the January 2017 Note, $133
thousand of the total proceeds were paid to Third Eye Capital as
financing charges. On July 10, 2017, the January 2017 Note was paid
in full.
On
March 1, 2017, Third Eye Capital agreed to Amendment No. 13 to the
Note Purchase Agreement to: (i) extend the maturity date of the
Third Eye Capital Notes to April 1, 2018 in exchange for a 5%
extension fee consisting of adding $3.1 million to the outstanding
principal balance of the Note Purchase Agreement and allowing for
the further extension of the maturity date of the Third Eye Capital
Notes to April 1, 2019, at the Company’s election, for an
additional extension fee of 5% of the then outstanding Third Eye
Capital Notes outstanding balance, (ii) waive the free cash flow
financial covenant under the Note Purchase Agreement for the three
months ended December 31, 2016, (iii) provide that such covenant
will be deleted prospectively from the Note Purchase Agreement,
(iv) waive the default under the Note Purchase Agreement relating
to indebtedness outstanding to Laird Cagan and (v) waive the
covenant under the Note Purchase Agreement to permit the Company to
pay off the defaulted Laird Cagan subordinated note by issuing
stock. The borrowers agreed to use their best efforts to close the
transaction to purchase assets in Goodland, Kansas from Third Eye
Capital as described in a non-binding offer to purchase letter
between an affiliate of the Company and Third Eye Capital, which
closed on July 10, 2017. As consideration for such amendment and
waiver, the borrowers agreed to pay Third Eye Capital an amendment
and waiver fee of $750 thousand to be added to the outstanding
principal balance of the Revolving Credit Facility. The Third
Eye Capital Notes are classified as non-current debt. The Company
evaluated the Amendment of the Notes and applied modification
accounting treatment in accordance with ASC 470-50 Debt – Modification and
Extinguishment.
On
April 28, 2017, a Promissory Note (the “April 2017
Note”, and together with the Original Third Eye Capital
Notes, the “Third Eye Capital Notes”) for $1.5 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
earliest of (a) closing of any Financing, (b) receipt of proceeds
from any financing, refinancing or other similar transaction, (c)
extension of credit by the Lender, or Agent on behalf of certain
lenders or the Noteholders, to the Debtors or their affiliates, and
(d) June 15, 2017. In addition, $1.0 million of this note
represents fees payable by Goodland Advanced Fuels, Inc. upon the
closing of the Goodland transaction. On July 10, 2017, the April
2017 Note was paid in full and the fees payable by Goodland
Advanced Fuels, Inc., were paid.
On
March 27, 2018, Third Eye Capital agreed to Limited Waiver and
Amendment No. 14 to the Note Purchase Agreement, to: (i) extend the
maturity date of the Third Eye Capital Notes two years to April 1,
2020 in exchange for an amendment fee consisting of 6% (3% per
year) of the outstanding note balance as an increase in the fee
payable in the event of a redemption of the Notes (as defined in
the Note Purchase Agreement); (ii) provide that the maturity date
may be further extended at our election to April 1, 2021 in
exchange for an extension fee of 5%; (iii) provide for an optional
waiver of the ratio of note indebtedness covenant until January 1,
2019 with the payment of a waiver fee of $0.25 million; and (iv)
and remove the redemption fee described in (i) above from the
calculation of the ratio of note indebtedness covenant. As
consideration for such amendment and waiver, the borrowers agreed
to pay Third Eye Capital an amendment and waiver fee of $0.5
million to be added to the outstanding principal balance of the
Revolving Credit Facility. As a result of the
extension of the maturity date in Amendment No. 14, the Third Eye
Capital Notes are classified as non-current
debt.
On
March 27, 2018, Third Eye agreed to a one-year reserve liquidity
facility governed by a promissory note, payable in the principal
amount of up to six million dollars. Borrowings under the facility
are available from March 27, 2018 until maturity on April 1, 2019.
Interest on borrowed amounts accrues at a rate of 30% per annum,
paid monthly in arrears, or 40% if an event of default has occurred
and continues. The outstanding principal balance of the
indebtedness evidenced by the promissory note, plus any accrued but
unpaid interest and any other sums due thereunder, shall be due and
payable in full at the earlier to occur of (a) the closing of any
new debt or equity financing, refinancing or other similar
transaction between Third Eye Capital or any fund or entity
arranged by them and the Company or its affiliates, (b) receipt by
the Company or its affiliates of proceeds from any sale, merger,
equity or debt financing, refinancing or other similar transaction
from any third party and (c) April 1, 2019. The promissory note is
secured by liens and security interests upon the property and
assets of the Company. If any amounts are drawn under the facility,
the Company will pay a non-refundable fee in the amount of $0.2
million, payable from the proceeds of the first drawing under the
facility.
Terms of Third Eye Capital Notes
A.
Term
Notes. As of December
31, 2017, the Company had $6.9 million in principal and interest
outstanding under the Term Notes, net of unamortized fair value
discounts of $0.1 million. The Term Notes accrue interest at 14%
per annum. The Term Notes mature on April 1, 2020.
B.
Revolving Credit
Facility. The
Revolving Credit Facility accrues interest at the prime rate plus
13.75% (18.25% as of December 31, 2017), payable monthly in
arrears. The Revolving Credit Facility matures on April 1, 2020. As
of December 31, 2017, AAFK had $35.4 million in principal and
interest outstanding, net of unamortized debt issuance costs of
$0.4 million on the Revolving Credit Facility. We have none
remaining to draw on the Revolving Credit
Facility.
C.
Revenue Participation Term
Notes. The Revenue
Participation Term Note bears interest at 5% per annum and matures
on April 1, 2020. As of December 31, 2017, AAFK had $11.6 million
in principal and interest outstanding, net of unamortized discounts
of $0.2 million, on the Revenue Participation Term
Notes.
D.
Acquisition Term
Notes. The
Acquisition Term Notes accrue interest at the prime rate plus
10.75% (15.25% per annum as of December 31, 2017) and mature on
April 1, 2020.As of December 31, 2017, Aemetis Facility Keyes, Inc.
had $20.0 million in principal and interest outstanding, net of
unamortized discounts of $0.3 million, on the Acquisition Term
Notes.
59
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
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 Note 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
Third Eye Capital Notes are secured by first priority liens on all
real and personal property of, and assignment of proceeds from all
government grants and guarantees from Aemetis, Inc. The Third Eye
Capital Notes all contain cross-collateral and cross-default
provisions. McAfee Capital, LLC (“McAfee Capital”),
owned by Eric McAfee, the Company’s Chairman and CEO,
provided a guaranty of payment and performance secured by all of
its Company shares. In addition, Eric McAfee provided a blanket
lien on substantially all of his personal assets, and McAfee
Capital provided a guarantee in the amount of $8.0
million.
Cilion shareholder seller notes payable. In connection with
the Company’s merger with Cilion, Inc., (Cilion) on July 6,
2012, the Company issued $5.0 million in notes payable to Cilion
shareholders (Cilion Notes) as merger compensation, subordinated to
the Third Eye Capital Notes. The Cilion Notes bear interest at 3%
per annum and are due and payable after the Third Eye Capital Notes
have been paid in full. As of December 31, 2017, Aemetis Facility
Keyes, Inc. had $5.8 million in principal and interest outstanding
on the Cilion Notes.
Subordinated Notes. On January 6 and January 9, 2012, AAFK
entered into Note and Warrant Purchase Agreements with two
accredited investors pursuant to which it issued $0.9 million and
$2.5 million in original notes to the investors (Subordinated
Notes). The Subordinated Notes mature every six months. Upon
maturity, the 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 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.
Interest
is accrued at 10% and 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.
The
Subordinated Notes were amended to extend the maturity date on
January 1, 2017 and again on July 1, 2017 with six months extension
for maturity until December 31, 2017. We evaluated these amendments
and the refinancing terms of the notes and applied modification
accounting treatment in accordance with ASC 470-50 Debt – Modification and
Extinguishment.
On
January 1, 2018, the Subordinated Notes were amended to extend the
maturity date until the earlier of (i) June 30, 2018; (ii)
completion of an equity financing by AAFK or Aemetis in an amount
of not less than $25.0 million; or (iii) after the occurrence of an
Event of Default, including failure to pay interest or principal
when due and breaches of note covenants. A 10% cash extension fee
was paid by adding the fee to the balance of the new note and
warrants to purchase 113 thousand shares of common stock were
granted with a term of two years and an exercise price of $0.01 per
share. We evaluated the January 1, 2018 amendment and the
refinancing terms of the notes and applied modification accounting
treatment in accordance with ASC 470-50 Debt – Modification and
Extinguishment.
On
January 14, 2013, Laird Cagan, a related party, loaned $0.1
million through a promissory note with a five percent annualized
interest rate and the right to exercise 5 thousand warrants
exercisable at $0.01 per share. On December 12, 2017, Company
issued to 165,375 common stock to extinguish this promissory
note.
At
December 31, 2017 and December 31, 2016, the Company had, in
aggregate, the amount of $8.7 million and $7.6 million in principal
and interest outstanding, respectively, under the Subordinated
Notes.
60
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
EB-5 long-term 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 3%, with each note 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 EB-5 Notes are convertible after three years at a conversion
price of $30 per share.
Advanced
BioEnergy, LP arranges investments with foreign investors, who each
make loans to the Keyes plant in increments of $0.5 million. The
Company has sold an aggregate principal amount of $36.0 million of
EB-5 Notes under the EB-5 Phase I funding since 2012 to the date of
this filing. As of December 31, 2017, $34.5 million released from
the escrow amount to the Company, with $1.0 million remaining in
escrow and $0.5 million to be funded to escrow. As of December 31,
2017, $34.5 million in principal and $1.5 million in accrued
interest was outstanding on the EB-5 Notes.
On
October 16, 2016, the Company launched its EB-5 Phase II funding,
with plans to issue $50.0 million in additional EB-5 Notes on
substantially similar terms and conditions as those issued under
the Company’s EB-5 Phase I funding to refinance indebtedness
and capital expenditures of Aemetis, Inc. and Goodland Advanced
Fuels, Inc.
Unsecured working capital loans. In November 2008, the
Company entered into an operating agreement with Secunderabad Oils
Limited (“Secunderabad Oils”). Under this agreement,
Secunderabad Oils agreed to provide the Company with working
capital, on an as needed basis, to fund the purchase of feedstock
and other raw materials for its Kakinada biodiesel facility.
Working capital advances bear interest at the actual bank-borrowing
rate of Secunderabad Oils of fifteen percent (15%). In return, the
Company agreed to pay Secunderabad Oils 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 facilities operated at a loss,
Secunderabad Oils owed the Company 30% of the losses. On January 1,
2016, Secunderabad Oils suspended the agreement to use any funds
provided under the agreement to buy feedstock until commodity
prices returned to economically viable levels. On June 1, 2016, the
agreement was reinitiated on the terms described above until the
following July amendment made. On July 15, 2017, the agreement with
Secunderabad Oils was amended to provide the working capital funds
for British Petroleum business operations (“BP
Operations”) only in the form of inter-corporate deposit for
an amount of approximately $2.3 million for a period of 95 days at
14.75% per annum interest rate. This agreement also removed the
operational support charge requirement. Secunderabad Oils has a
second priority lien on the assets of the Kakinada biodiesel
facility after this agreement and the above profit sharing terms
were removed. During the years ended December 31, 2017 and 2016,
the Company made principal and interest payments to Secunderabad
Oils of approximately $2.4 million and $4.6 million, respectively.
As of December 31, 2017 and 2016, the Company had approximately
$1.3 million and $0.3 million outstanding under this agreement,
respectively.
On
April 16, 2017, the Company entered into a similar 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 its
Kakinada biodiesel facility. Working capital advances bear interest
at the actual bank-borrowing rate of Gemini of twelve percent
(12%). In return, the Company agreed to pay Gemini an amount equal
to 30% of the plant’s monthly net operating profit and
recognized these as operational support charges in the financials.
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 biodiesel facility.
Since the inception of this agreement, the Company made principal
and interest payments to Gemini of approximately $5.8 million. As
of December 31, 2017, the Company had $3.5 million outstanding on
this agreement.
In
October 2016, the Company made an agreement with one of the raw
material vendors to pay 12% interest on unpaid balance of $1.9
million for supplying the palm stearin. The Company paid $0.4
million during the three months ended December 31, 2016. As of
December 31, 2017 and 2016, the Company had nil and $1.5 million
outstanding on this raw material purchase agreement,
respectively.
61
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Variable Interest Entity (GAFI) Term loan and Revolving
loan
On July
10, 2017, GAFI entered into a Note Purchase Agreement (“Note
Purchase Agreement”) with Third Eye Capital Corporation
(Noteholders). See further discussion regarding GAFI in Note 6.
Pursuant to the Note Purchase Agreement, the Noteholders agreed,
subject to the terms and conditions of the Note Purchase Agreement
and relying on each of the representations and warranties set forth
therein, to make (i) a single term loan to GAFI in an aggregate
amount of fifteen million dollars (“Term Loan”) and
(ii) revolving advances not to exceed ten million dollars in the
aggregate (“Revolving Loan”). The interest rate per
annum applicable to the Term Loan is equal to ten percent (10%).
The interest rate per annum applicable to the Revolving Loans is
the greater of Prime Rate plus seven and three quarters percent
(7.75%) and twelve percent (12%). The maturity date of the Loans
(“Maturity Date”) is July 10, 2019, provided that the
Maturity Date may be extended at the option of GAFI for up to two
additional one-year periods upon prior written notice and upon
satisfaction of certain conditions and the payment of a renewal fee
for such extension. An initial advance under the Revolving Loan was
made for $2.2 million as a prepayment of interest on the Term Loan
for the first eighteen months of interest payments. In addition, a
fee of $1.0 million was paid in consideration to
Noteholders.
GAFI,
the Company and its subsidiary Aemetis Advanced Products Keyes,
Inc. (“AAPK”) also entered into separate Intercompany
Revolving Promissory Notes, dated July 10, 2017
(“Intercompany Revolving Notes”), pursuant to which
GAFI may, from time to time, lend a portion of the proceeds of the
Revolving Loan borrowed under the Note Purchase
Agreement.
In
consideration, for the direct and indirect benefits from the
transactions contemplated by the Note Purchase Agreement and the
Intercompany Revolving Notes, Aemetis, Inc. and AAPK (Guarantors)
agreed to enter into a Limited Guaranty. Pursuant to the Limited
Guaranty, the Guarantors guarantee the prompt payment and
performance of all unpaid principal and interest on the Loans and
all other obligations and liabilities of GAFI to any Noteholders in
connection with the Note Purchase Agreement. The obligations of the
Guarantors pursuant to the Limited Guaranty are secured by a first
priority lien over all assets of the Guarantors subject to lien
existing in connection with the Existing Note Purchase Agreement of
Guarantors. Each Guarantor agreed to make the following regulatory
and financial covenants: i) maintenance of existence and
compliance, ii) payment of obligations; iii) reporting requirements
on financials of Guarantors annually, quarterly; iv) delivery of
cellulosic ethanol project progress reports within 15 days of the
month end, v) the ratio of: (a) the sum of (i) the most recent
Mortgaged Property Market Value, and (ii) the most recent
AAPK’s cellulosic ethanol project value to (b) the Note
Indebtedness, to be less than 2.00:1.00, tested as of the last day
of each fiscal quarter, and (iv) permit the amount of trade
payables due to exceed the sum of the amount of the GAFI’s
Cash Equivalents plus the revolving advances available to be
advanced under the Revolving Loan, tested as of the
last day of each month. As of December 31, 2017, GAFI had $15.0
million outstanding on the Term Loan and $10.1 million on the
Revolving Loan respectively.
Scheduled
debt repayments for loan obligations adjusted for the subsequent
events in Note 15 are as follows:
|
Twelve
months ended December 31,
|
Debt
Repayments
|
|
2018
|
$15,625
|
|
2019
|
48,101
|
|
2020
|
87,360
|
|
2021
|
3,500
|
|
2022
|
824
|
|
Total
debt
|
155,410
|
|
Discounts
|
(1,624)
|
|
Total
debt, net of discounts
|
$153,786
|
62
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
5. Commitments and Contingencies
Operating Leases
As of December 31, 2017, the Company, through its subsidiaries, has
non-cancelable future minimum operating lease payments for various
office space locations. Future minimum operating lease payments are
as follows:
|
Twelve months
ended December 31,
|
Future Rent
Payments
|
|
2018
|
$673
|
|
2019
|
697
|
|
2020
|
419
|
|
2021
|
218
|
|
Total
|
$2,007
|
The Company recognized rent expense of $0.6 million and $0.5
million for the years ended December 31, 2017 and
2016,
respectively.
Property
taxes on the Keyes plant have accrued since 2012 and are nearing
the five-year term for this process. The company has an option to
enter into a payment plan with Stanislaus County to make regular
payments over a period of up to five years. During the second
quarter of 2018, the company intends to negotiate and enter into
such a plan.
Legal Proceedings
On
August 31, 2016, the Company filed a lawsuit in Santa Clara County
Superior Court against defendants EdenIQ, Inc. (EdenIQ) and its
CEO, Brian D. Thome and Trinity Capital Investments (Trinity). The
lawsuit is based on EdenIQ’s wrongful termination of a merger
agreement that would have effectuated the merger of the Company and
EdenIQ. The lawsuit also asserts that EdenIQ and Mr. Thome
fraudulently induced the Company into assisting EdenIQ to obtain
EPA approval for a new technology, which the Company would not have
done but for the merger agreement. The relief sought includes
EdenIQ’s specific performance of the merger agreement and
monetary damages, as well as punitive damages, attorneys’
fees, and costs. Trinity was later dismissed from the lawsuit due
to jurisdictional issues, but the Company is pursuing Trinity in
Arizona where it is domiciled. In response to the
Company’s Santa Clara County lawsuit, EdenIQ has 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 publicity of the status of the
merger. EdenIQ seeks monetary damages, punitive damages,
injunctive relief, attorneys’ fees and costs. Due to
the early stage of the litigation, an estimate as to any Company
losses cannot be made at this time.
On
August 4, 2013, GS Cleantech Corporation, a subsidiary of
Greenshift Corporation (“Greenshift”), filed a
complaint in the United States District Court for the Eastern
District of California – Fresno Division against us and our
subsidiary, AAFK. The case was transferred to the Southern
District of Indiana and joined to a pending Multidistrict
Litigation. The complaint alleges infringement of patent
rights assigned to Greenshift and pertaining to corn oil extraction
processes we employ, and seeks royalties, treble damages,
attorney’s fees, and injunctions precluding us from further
infringement. The corn oil extraction process we use is
licensed to us by Valicor Separation Technologies LLC.
Valicor has no obligations to indemnify us. On October
23, 2014, the Court ruled that all the claims of all the patents at
issue in the case are invalid and, therefore, not infringed and
adopted this finding in our case on January 16, 2015. GS
Cleantech has said it will appeal this decision when the remaining
claim in the suit has been decided. We believe the likelihood
of Greenshift succeeding on appeal of the invalidity findings is
small since the Court’s findings included several grounds for
invalidity of each allegedly infringed patent. If Greenshift
successfully appeals the findings of invalidity, damages
may be $1 million or more. The suit also alleged that GS
Cleantech obtained the patents at issue by inequitably conducting
itself before the United States Patent Office. A trial in the
District Court for the Southern District of Indiana on that issue
was concluded and the Court found the patents unenforceable because
of inequitable conduct by GS Cleantech and its counsel before the
Patent and Trademark Office. GS Cleantech has asked the Court
to reconsider its decision, citing the existence of a recently
issued patent that the patent examiner allowed despite the
Court’s findings and the allowance of which the Court did not
consider when making its decision of inequitable conduct. On
March 20, 2017, GS Cleantech and its counsel, Cantor Colburn LLP
filed a Notice of Appeal regarding the current ruling on
inequitable conduct. The Appeal has been stayed for 60 days to
allow the parties an opportunity to discuss settlement. On April 5,
2017, the parties asked the Court for an extension of the current
stay in the case which was granted. As of February 14,
2018, GS Cleantech resisted the defendants’ (including the
Companies) request to maintain the stay and asked that the Court of
Appeals for the Federal Circuit enter a briefing schedule of the
appeal. Defendants’ purpose for maintaining the stay would be
to allow time for briefing and decision at the District Court
regarding defendants’ exceptional case motion and motion for
legal fees and costs. Proceeding in this manner would allow all
issues to be ready for appeal together, avoiding piecemeal
litigation and simultaneous pendency of all issues on appeal at the
Federal Circuit. No judicial ruling on this issue has been entered
as of this date. On March 14, 2018, the Companies filed their
exceptional case motions seeking their attorneys’ fees and
bills of cost.
63
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
6.
Variable
Interest Entity
Goodland
Advanced Fuels, Inc., (GAFI) was formed to acquire the partially
completed Goodland ethanol plant in Goodland, Kansas. GAFI entered
into a Note Purchase Agreement with Third Eye Capital Corporation
to acquire the plant. GAFI, the Company and its subsidiary AAPK
also entered into separate Intercompany Revolving Notes, pursuant
to which GAFI may, from time to time, lend a portion of the
proceeds of the Revolving Loan incurred under the Note Purchase
Agreement. Aemetis, Inc. and AAPK (Guarantors) also agreed to enter
into certain Limited Guaranty. Pursuant to the Limited Guaranty,
the Guarantors guarantee the prompt payment and performance of all
unpaid principal and interest on the Loans and all other
obligations and liabilities of GAFI to Noteholders in connection
with the Note Purchase Agreement. The obligations of the Guarantors
pursuant to the Limited Guaranty are secured by a first priority
lien over all assets of the Guarantors pursuant to separate general
security agreements entered into by each Guarantor. The aggregate
obligations and liabilities of each Guarantor is limited to the sum
of (i) the aggregate amount advanced by GAFI to such Guarantor
under and in accordance with the Intercompany Revolving Notes and
(ii) the obligation of the Guarantor pursuant to its indemnity and
expense obligations under the Limited Guaranty prior to the date on
which the Option is exercised. Additionally, on July 10, 2017, the
Company entered into an Option Agreement by and between GAFI and
the sole shareholder of GAFI, pursuant to which Aemetis was granted
an irrevocable option to purchase all, but not less than all, of
the capital stock of GAFI for an aggregate purchase price equal to
$0.01 per share (total purchase price of $10.00). This Option
provides for automatic triggering in the event of certain default
circumstances. After the automatic exercise upon default, the
Limited Guaranty no longer applies and the Guarantors are
responsible for the outstanding balances of the GAFI term and
revolving loan. Additionally, Third Eye Capital was granted a
warrant for the purchase of 250 shares, representing 20% of the
outstanding shares of GAFI, for a period of 10 years at an exercise
price of $0.01 per share. In consideration for signing the Option,
the sole shareholder of GAFI subscribed to the 100,000 common stock
of the Aemetis, Inc. On July 10, 2017, the Company issued the
100,000 shares and recognized $0.1 million related stock
compensation during the year ended December 31, 2017.
After
consideration of the above agreements, we concluded that GAFI did
not have enough equity to finance its activities without additional
subordinated financial support. Additionally, GAFI’s
shareholder did not have a controlling financial interest in the
entity. Hence, we concluded that GAFI is a VIE. The primary
beneficiary of a VIE is the party that has both the power to direct
the activities that most significantly affect the economic
performance of the VIE and the obligation to absorb losses or
receive benefits that could potentially be significant to the VIE.
In determining whether Aemetis is the primary beneficiary, a number
of factors are considered, including the structure of the entity,
contractual provisions that grant any additional rights to
influence or control the economic performance of the VIE, and
obligation to absorb significant losses. Through providing Limited
Guaranty and signing the Option Agreement, the Company took the
risks related to operations, financing the Goodland plant, and
agreed to meet the financial covenants for GAFI to be in existence.
Based upon this assessment, Aemetis has the power to direct the
activities of GAFI and has been determined to be the primary
beneficiary of GAFI and accordingly, the assets, liabilities, and
operations of GAFI are consolidated into those of the Company. The
assets and liabilities were initially recognized at fair
value.
64
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
The
following are the Balance Sheet and Statement of Operations of
GAFI:
|
|
As
of
|
|
|
December
31,
2017
|
|
Assets
|
|
|
Current
assets:
|
|
|
Cash and cash
equivalents
|
$184
|
|
Prepaid
expenses
|
1,581
|
|
Total current
assets
|
1,765
|
|
|
|
|
Property, plant and
equipment
|
15,408
|
|
Promissory note
receivable from Aemetis
|
5,709
|
|
Total
assets
|
$22,882
|
|
|
|
|
Liabilities
and stockholders' deficit
|
|
|
|
|
|
Secured and
Revolving notes
|
$24,351
|
|
|
|
|
Total
liabilities
|
$24,351
|
|
Accumulated
deficit
|
(1,469)
|
|
Total liabilities
and stockholders' deficit
|
$22,882
|
|
|
For
the
period from
July 10, 2017 to
|
|
|
December
31,
2017
|
|
|
|
|
Selling, general
and administrative expenses
|
$260
|
|
Operating
loss
|
$(260)
|
|
|
|
|
Interest
expense
|
|
|
Interest rate
expense
|
$1,249
|
|
Amortization
expense
|
250
|
|
Other (income)
expense
|
(290)
|
|
Net
loss
|
$(1,469)
|
As of
December 31, 2017, the Company borrowed $5.7 million under the
Intercompany Revolving Notes to pay off agent advances and pay
costs associated with the testing of cellulosic ethanol production.
Aemetis paid GAFI fees of $1.0 million associated with entry into
the Note purchase agreement with TEC, and accordingly holds an
account receivable from GAFI. In the consolidation process, these
intercompany borrowings were eliminated.
7. Stockholders’ Equity
The Company is authorized to issue up to 40 million shares of
common stock, $0.001 par value and 65 million shares of preferred
stock, $0.001 par value.
65
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Convertible Preferred Stock
The following is a summary of the authorized, issued and
outstanding convertible preferred stock:
|
|
Authorized
|
Shares Issued and
|
|
|
|
Shares
|
Outstanding December 31,
|
|
|
|
|
2017
|
2016
|
|
Series
B preferred stock
|
7,235
|
1,323
|
1,328
|
|
Undesignated
|
57,765
|
—
|
—
|
|
|
65,000
|
1,323
|
1,328
|
Our Articles of Incorporation authorize the Company’s
board to issue up to 65 million shares
of preferred stock, $0.001 par value, in one or more classes or
series within a class upon authority of the board without further
stockholder approval.
Significant terms of the designated preferred stock are as
follows:
Voting. Holders of the
Company’s Series B preferred
stock are entitled to the number of votes equal to the number of
shares of Common Stock into which the shares of Series B preferred
stock held by such holder could be converted as of the record date.
Cumulative voting with respect to the election of directors is not
allowed. Currently each share of Series B preferred stock is
entitled to a 0.1 vote per share of Series B preferred stock. In
addition, without obtaining the approval of the holders of a
majority of the outstanding preferred stock, the Company
cannot:
●
Increase
or decrease (other than by redemption or conversion) the total
number of authorized shares of Series B preferred
stock;
●
Effect
an exchange, reclassification, or cancellation of all or a part of
the Series B preferred stock, including a reverse stock split, but
excluding a stock split;
●
Effect
an exchange, or create a right of exchange, of all or part of the
shares of another class of shares into shares of Series B preferred
stock; or
●
Alter
or change the rights, preferences or privileges of the shares of
Series B preferred stock so as to affect adversely the shares of
such series.
Dividends. Holders of all
of the Company’s shares
of Series B preferred stock are entitled to receive non-cumulative
dividends payable in preference and before any declaration or
payment of any dividend on common stock as may from time to time be
declared by the board of directors out of funds legally available
for that purpose at the rate of 5% of the original purchase price
of such shares of preferred stock. No dividends may be made with
respect to the Company’s common stock until all declared dividends on the
preferred stock have been paid or set aside for payment to the
preferred stockholders. To date, no dividends have been
declared.
Liquidation Preference. In the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series B preferred
stock are entitled to receive, prior and in preference to any
payment to the holders of the common stock, $3.00 per share plus
all declared but unpaid dividends (if any) on the Series B
preferred stock. If the Company’s assets legally available
for distribution to the holders of the Series B preferred stock are
insufficient to permit the payment to such holders of their full
liquidation preference, then the Company’s entire assets
legally available for distribution are to be distributed to the
holders of the Series B preferred stock in proportion to their
liquidation preferences. After the payment to the holders of the
Series B preferred stock of their liquidation preference, the
Company’s remaining assets legally available for distribution
are distributed to the holders of the common stock in proportion to
the number of shares of common stock held by them. A liquidation,
dissolution or winding up includes (a) the acquisition of the
Company by another entity by means of any transaction or series of
related transactions to which the Company is party (including,
without limitation, any stock acquisition, reorganization, merger
or consolidation but excluding any sale of stock for capital
raising purposes) that results in the voting securities of the
Company outstanding immediately prior thereto failing to represent
immediately after such transaction or series of transactions
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or the entity that controls such
surviving entity) a majority of the total voting power represented
by the outstanding voting securities of the Company, such surviving
entity or the entity that controls such surviving entity, or (b) a
sale, lease or other conveyance of all or substantially all of the
assets of the Company.
66
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Conversion. Holders of Series B
preferred stock have the right, at their option at any time, to
convert any shares into common stock. Every 10 shares of preferred
stock will convert into one share of common stock, at the current
conversion rate. The conversion ratio is subject to adjustment from
time to time in the event of certain dilutive issuances and events,
such as stock splits, stock dividends, stock combinations,
reclassifications, exchanges and the like. In addition, at such
time as the Registration Statement covering the resale of the
shares of common stock is declared effective, then all outstanding
Series B preferred stock shall be automatically converted into
common stock at the then effective conversion
rate.
Mandatorily Redeemable Series B preferred stock.
In connection with the election of
dissenters’ rights by the Cordillera Fund, L.P., at December
31, 2008 the Company reclassified 583 thousand shares with an
original purchase price of $1.8 million out of shareholders’
equity to a liability called “mandatorily redeemable Series B
preferred stock” and accordingly reduced stockholders’
equity by the same amount to reflect the Company’s
obligations with respect to this matter. The obligation accrues
interest at the rate of 5.25% per year. At December 31, 2017 and
2016, the Company had accrued an outstanding obligation of $2.9
million and $2.8 million, respectively. Full cash payment to the
Cordillera Fund is past due. The Company expects to pay this
obligation upon availability of funds after paying senior secured
obligations.
8. Outstanding Warrants
During the years ended December 31, 2017 and 2016, the Company
granted 227 thousand common
stock warrants, for the extension of certain Notes for each
period, respectively. The accredited investors received 2-year
warrants exercisable at $0.01 per share as part of note
agreements.
The weighted average fair value calculations for warrants granted
are based on the following weighted average
assumptions:
|
Description
|
For the year ended December 31
|
|
|
|
2017
|
2016
|
|
Dividend-yield
|
0%
|
0%
|
|
Risk-free
interest rate
|
1.32%
|
0.81%
|
|
Expected
volatility
|
68.5%
|
71.8%
|
|
Expected
life (years)
|
2
|
2
|
|
Market
value per share on grant date
|
$1.43
|
$2.56
|
|
Exercise
price per share
|
$0.01
|
$0.01
|
|
Fair
value per share on grant date
|
$1.42
|
$2.55
|
For the years ended December 31, 2017 and 2016, Note investors
exercised 241 thousand and 233
thousand warrant shares at exercise prices of $0.01 per share,
respectively.
67
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
A summary of historical warrant activity for the years ended
December 31, 2017 and 2016 follows:
|
|
Warrants Outstanding & Exercisable
|
Weighted - Average Exercise Price
|
Average Remaining Term in Years
|
|
Outstanding
December 31, 2015
|
368
|
$3.36
|
4.61
|
|
Granted
|
227
|
0.01
|
|
|
Exercised
|
(233)
|
0.01
|
|
|
Expired
|
(18)
|
0.01
|
|
|
Outstanding
December 31, 2016
|
344
|
$3.33
|
3.88
|
|
Granted
|
227
|
0.01
|
|
|
Exercised
|
(241)
|
0.01
|
|
|
Expired
|
-
|
0.01
|
|
|
Outstanding
December 31, 2017
|
330
|
$3.47
|
3.02
|
25 thousand of the above outstanding warrants are not vested and
exercisable as of December 31, 2017. As of December 31, 2017, the
Company had $37 thousand of total unrecognized compensation expense
related to warrants which the Company will amortize over the 0.94
years of weighted remaining term.
9. Stock-Based Compensation
Plan Stock Options
Aemetis
authorized the issuance of 2.6 million shares of common stock under
its Zymetis 2006 Stock Plan and Amended and Restated 2007 Stock
Plan (together, the “Company Stock Plans”), which
include both incentive and non-statutory stock options. These
options generally expire five to ten years from the date of grant
with a general vesting term of 1/12th every three months
and are exercisable at any time after vesting subject to
continuation of employment.
637
thousand stock option grants were issued on January 19, 2017 for
employees and Directors under the Company Stock Plans. 262 thousand
stock options were issued on November 16, 2017 under the Company
Stock Plans. As of December 31, 2017, 2.2 million options are
outstanding under the Company Stock Plans.
Inducement Equity Plan Options
In
March 2015, the Directors of the Company approved an Inducement
Equity Plan authorizing the issuance of 100,000 non-statutory
options to purchase common stock. As of December 31, 2017, 37
thousand options were outstanding.
Common Stock Reserved for Issuance
The following is a summary of awards granted under the above
Plans:
|
|
Shares
Available for Grant
|
Number of
Shares Outstanding
|
Weighted-Average
Exercise Price
|
|
Balance as of
December 31, 2016
|
98
|
1,632
|
$4.37
|
|
Authorized
|
655
|
-
|
-
|
|
Granted
|
(899)
|
899
|
1.41
|
|
Forfeited/expired
|
342
|
(342)
|
-
|
|
Balance as of
December 31, 2017
|
196
|
2,189
|
$2.70
|
68
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Vested and unvested awards outstanding as of December 31, 2017 and
2016 follow:
|
|
Number of Shares
|
Weighted Average Exercise Price
|
Remaining Contractual Term (In Years)
|
Average Intrinsic Value1
|
|
2017
|
|
|
|
|
|
Vested
and Exercisable
|
1,515
|
$2.94
|
5.83
|
$-
|
|
Unvested
|
674
|
2.16
|
8.62
|
-
|
|
Total
|
2,189
|
$2.70
|
6.68
|
$-
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
Vested
and Exercisable
|
977
|
$5.45
|
3.28
|
$-
|
|
Unvested
|
655
|
2.76
|
8.66
|
-
|
|
Total
|
1,632
|
$4.37
|
5.44
|
$-
|
———————
(1) Intrinsic value based on the
$0.55 and $1.39 closing price of Aemetis stock on December 31, 2017
and 2016 respectively, as reported on the NASDAQ
Exchange.
Stock-based compensation for employees
Stock-based compensation is accounted for in accordance with the
provisions of ASC 718, Compensation-Stock Compensation, which
requires the measurement and recognition of compensation expense
for all stock-based awards made to employees and directors based on
estimated fair values on the grant date. We estimate the fair value
of stock-based awards on the date of grant using the Black-Scholes
option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the
requisite service periods using the straight-line
method.
For the
years ended December 31, 2017 and 2016 the Company recorded option
expense in the amount of $1.1 million and $0.7 million,
respectively.
Valuation and Expense Information
All issuances of stock options or other issuances of equity
instruments to employees as the consideration for services received
by us are accounted for based on the fair value of the equity
instrument issued. The fair value of options granted to employees
is estimated on the grant date using the Black-Scholes option
valuation model. This valuation model for stock based compensation
expense requires us to make assumptions and judgments about the
variables used in the calculation, including the fair value of our
common stock, the expected term (the period of time that the
options granted are expected to be outstanding), the volatility of
our common stock, a risk-free interest rate, and expected
dividends. Under ASU 2016-09, 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.
69
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
The weighted average fair value calculations for options granted
during years ended December 31, 2017 and 2016 are based on the
following assumptions:
|
|
For
the years ended December 31,
|
|
|
Description
|
2017
|
2016
|
|
Dividend-yield
|
0%
|
0%
|
|
Risk-free
interest rate
|
2.22%
|
1.66%
|
|
Expected
volatility
|
76.96%
|
77.69%
|
|
Expected
life (years)
|
6.42
|
6.99
|
|
Market
value per share on grant date
|
$1.41
|
$2.52
|
|
Fair
value per share on grant date
|
$0.99
|
$1.79
|
As of December 31, 2017, the Company had $0.9 million of total
unrecognized compensation expense for employees which the Company
will amortize over the weighted remaining term of 1.6
years.
In addition, the Company issued 100 thousand shares in the
Company’s restricted common stock on July 10, 2017 to the
GAFI sole shareholder in consideration for Option agreement at the
subscription grant price of $1.18. In addition, Company issued 165
thousand shares in the Company’s restricted common stock to
promissory note holder on December 12, 2017 at the subscription
grant price of $0.80 per share to pay off a promissory note.
Stock-based compensation awards issued to non-employees are
recorded in expense and additional paid-in capital in
stockholders’ deficit over the applicable service periods
based on the fair value of the awards or consideration received at
the vesting date.
10. Agreements
Working Capital Arrangement. Pursuant to a Corn Procurement
and Working Capital Agreement with J.D. Heiskell & Co. (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 Agreement expires on
December 31, 2018 and the term can be automatically renewed for
additional one-year terms. J.D. Heiskell further agrees to sell all
ethanol the Company produces to Kinergy Marketing or other
marketing purchasers designated by the Company and all WDG the
Company produces to A.L. Gilbert. The Company markets and sells DCO
to A.L. Gilbert and other third parties. The Company’s
relationships with J.D. Heiskell, Kinergy Marketing, and A.L.
Gilbert are well established and the Company believes that the
relationships are beneficial to all parties involved in utilizing
the distribution logistics, reaching out to widespread customer
base, managing inventory, and building working capital
relationships. Revenue is recognized upon delivery of ethanol to J.
D. Heiskell as revenue recognition criteria have been met and any
performance required of the Company subsequent to the sale to J.D.
Heiskell is inconsequential. These agreements are ordinary purchase
and sale agency agreements for the Keyes plant.
The
J.D. Heiskell sales activity associated with the Purchasing
Agreement, Corn Procurement and Working Capital Agreements during
the years ended December 31, 2017 and 2016 were as
follows:
|
|
As of and for
the years ended
December 31,
|
|
|
|
2017
|
2016
|
|
Ethanol
sales $
|
$100,672
|
95,556
|
|
Wet
distiller's grains sales
|
21,742
|
22,016
|
|
Corn
oil sales
|
3,707
|
2,995
|
|
Corn/milo
purchases
|
101,768
|
91,234
|
|
Accounts
receivable
|
1,171
|
743
|
|
Accounts
payable
|
2,449
|
1,821
|
70
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Ethanol and Wet Distillers Grains Marketing Arrangement. The
Company entered into an Ethanol Marketing Agreement with Kinergy
Marketing and a Wet Distillers Grains Marketing Agreement with A.
L. Gilbert. Under the terms of the agreements, subject to certain
conditions, the agreements with Kinergy Marketing matures on August
31, 2018 and with A.L Gilbert on December 31, 2018 with automatic
one-year renewals thereafter. For the years ended December 31, 2017
and 2016, the Company expensed marketing costs of $2.5 million and
$2.3 million, respectively, under the terms of both ethanol and wet
distillers’ grains agreements.
11. Segment Information
Aemetis
recognizes two reportable geographic segments: “North
America” and “India.” The “North
America” operating segment includes the Company’s owned
ethanol plant in Keyes, California, Goodland plant in Kansas and
its technology research and development lab. As the Company’s
technology gains market acceptance, this business segment will
initially include its domestic commercial application of cellulosic
ethanol technology, its plant construction projects and any
acquisitions of ethanol or ethanol related technology facilities in
North America.
The
“India” operating segment includes the Company’s
50 million gallon per year nameplate capacity biodiesel
manufacturing plant in Kakinada, 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
years ended December 31, 2017 and 2016 follow:
|
|
2017
|
||
|
|
North
America
|
India
|
Total
Consolidated
|
|
Revenues
|
$136,739
|
$13,418
|
$150,157
|
|
Cost of goods
sold
|
133,606
|
13,176
|
146,782
|
|
Gross
profit
|
3,133
|
242
|
3,375
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development expenses
|
2,367
|
-
|
2,367
|
|
Selling, general
and administrative expenses
|
12,134
|
1,057
|
13,191
|
|
Interest
expense
|
18,991
|
313
|
19,304
|
|
Other (income)
expense
|
328
|
(51)
|
277
|
|
Loss before income
taxes
|
$(30,687)
|
$(1,077)
|
$(31,764)
|
|
|
|
|
|
|
Capital
Expenditures
|
$802
|
$314
|
$1,116
|
|
Depreciation
|
4,001
|
621
|
4,622
|
|
Total
Assets
|
80,479
|
13,852
|
94,331
|
71
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
|
|
2016
|
||
|
|
North
America
|
India
|
Total
Consolidated
|
|
Revenues
|
$128,706
|
$14,452
|
$143,158
|
|
Cost of goods
sold
|
117,040
|
$14,519
|
131,559
|
|
Gross profit
(loss)
|
11,666
|
(67)
|
11,599
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development expenses
|
369
|
-
|
369
|
|
Selling, general
and administrative expenses
|
10,912
|
1,099
|
12,011
|
|
Interest
expense
|
16,957
|
259
|
17,216
|
|
Gain on debt
extinguishment
|
-
|
(2,033)
|
(2,033)
|
|
Other (income)
expense
|
(254)
|
(80)
|
(334)
|
|
Income (Loss)
before income taxes
|
$(16,318)
|
$688
|
$(15,630)
|
|
|
|
|
|
|
Capital
Expenditures
|
$198
|
$431
|
$629
|
|
Depreciation
|
4,067
|
603
|
4,670
|
|
Total
Assets
|
67,279
|
10,531
|
77,810
|
North America: In 2017 and
2016, the majority of the Company’s revenues from sales of ethanol, WDG and corn oil
were sold to J.D. Heiskell pursuant to the Corn Procurement and
Working Capital Agreement. Sales to J.D. Heiskell accounted for 92%
and 94% of the Company’s North America segment
consolidated revenues in 2017 and 2016
respectively.
India: During the
2017, two customers accounted for 47% and 13%, of the consolidated
India segment revenues compared to two customers accounted for 51%
and 12% of the consolidated India segment revenues in
2016.
12. Related Party Transactions
The
Company owes Eric McAfee, the Company’s Chairman and CEO, and
McAfee Capital, owned by Eric McAfee, $0.4 million in connection
with employment agreements and expense reimbursements previously
accrued as salaries expense and accrued liabilities. The balance
accrued related to these employment agreements was $0.4 million as
of December 31, 2017 and December 31, 2016. For the years ended
December 31, 2017 and 2016, the Company expensed $0.1 million each
respectively, to reimburse actual expenses incurred by McAfee
Capital and related entities. The Company previously prepaid $0.2
million to Redwood Capital, a company controlled by Eric McAfee,
for the Company’s use of flight time on a corporate jet. As
of December 31, 2017, $0.1 million remained as a prepaid expense
related to Redwood Capital. As consideration for the reaffirmation
of guaranties required by Amendment No. 13 to the Note Purchase
Agreement, which the Company entered into with Third Eye Capital on
March 1, 2017, the Company also agreed to pay $0.2 million in
consideration to McAfee Capital in exchange for their willingness
to provide the guarantees. The balance of $342 thousand and $156
thousand for guarantee fee remained as accrued liability as of
December 31, 2017 and December 31, 2016 respectively.
The
Company owes various former and current Board Members amounts
totaling $1.7 million and $1.5 million at both December 31, 2017
and 2016, respectively, in connection with board compensation fees,
which are included in accounts payable on the balance sheet. For
each of the years ended December 31, 2017 and 2016, the Company
expensed $0.4 million each year, in connection with board
compensation fees.
72
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
13. Income Tax
The Company files a consolidated federal income tax return
including all its domestic subsidiaries. State tax returns are
filed on a consolidated, combined or separate basis depending on
the applicable laws relating to the Company and its
subsidiaries.
Income tax expense for each of the years ended December 31, 2017
and 2016 consisted of $6 thousand of state and local
taxes.
During
the years ended December 31, 2017 and 2016, there is minimal tax
expense recognized. The deferred tax liability existing at December
31, 2017 and 2016 is reducing the valuation allowance needed, as
the Company believes the reversal of the deferred tax liability
will occur prior to the expiration of the NOL carryforward.
U.S. loss and foreign loss before
income taxes are as follows:
|
|
Year
Ended
December
31,
|
|
|
|
2017
|
2016
|
|
United
States
|
(30,687)
|
(16,318)
|
|
Foreign
|
(1,077)
|
688
|
|
Pretax
Income
|
(31,764)
|
(15,630)
|
Income tax benefit differs from the amounts computed by applying
the statutory U.S. federal income tax rate (34%) to loss before
income taxes as a result of the following:
|
|
Year
Ended
December
31,
|
|
|
|
2017
|
2016
|
|
Income tax expense
(benefit) at the federal statutory rate
|
(10,799)
|
(5,314)
|
|
Tax Rate
Re-measurement - 2017 Tax Cut
|
19,600
|
-
|
|
State tax expense
(benefit)
|
(1,689)
|
(775)
|
|
Foreign tax
differential
|
1,154
|
(401)
|
|
Stock-based
compensation
|
299
|
152
|
|
Interest
expense
|
33
|
26
|
|
Other
|
(24)
|
127
|
|
Credits
|
(24)
|
(24)
|
|
Valuation
allowance
|
(8,544)
|
6,215
|
|
Income Tax
Expense
|
6
|
6
|
|
|
|
|
|
Effective Tax
Rate
|
-0.02%
|
-0.04%
|
73
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
The components of the net deferred tax asset or (liability) are as
follows:
|
|
Year
Ended
December
31,
|
|
|
|
2017
|
2016
|
|
Org, Start-up and
Intangible Assets
|
5,045
|
7,435
|
|
Stock Based
Comp
|
223
|
185
|
|
Prop., Plant, and
Equip.
|
(14,551)
|
(21,639)
|
|
NOLs and R&D
Credits
|
53,874
|
66,698
|
|
Convertible
Debt
|
-
|
(5)
|
|
Ethanol
Credits
|
1,500
|
1,500
|
|
Debt
Extinguishment
|
91
|
612
|
|
Other,
net
|
545
|
620
|
|
Subtotal
|
46,727
|
55,406
|
|
Valuation
Allowance
|
(46,727)
|
(55,406)
|
|
Deferred tax assets
(liabilities)
|
-
|
-
|
Based on the Company’s evaluation of current and anticipated future
taxable income, the Company believes it is more likely than not
that insufficient taxable income will be generated to realize the
net deferred tax assets, and accordingly, a valuation allowance has
been set against these net deferred tax assets.
The Company does not provide for U.S. income taxes for any
undistributed earnings of the Company’s foreign subsidiaries, as the Company considers
these permanently reinvested in the operations of such subsidiaries
and have a cumulative foreign loss. At December 31, 2017 and
2016, these undistributed losses totaled $12.0 million, and $10.9
million, respectively. If any earnings were distributed, some
countries may impose withholding taxes. Following the passage
of the 2017 U.S. Tax Cuts and Jobs Act, the U.S. imposed a
transition tax on the accumulated earnings of the Company’s
foreign subsidiaries through December 31, 2017. Since the
foreign subsidiaries have a cumulative loss, there was no U.S.
federal tax impact related to the transition tax. All future
earnings of the foreign subsidiaries will not be subject to U.S.
income taxes as the U.S. has moved to a modified territorial system
for tax years beginning after December 31, 2017. Finally, due
to the Company’s overall deficit in foreign cumulative
earnings and its U.S. loss position, the Company does not believe a
material net unrecognized U.S. state deferred tax liability
exists.
ASC 740 Income Taxes
provides that the tax effects from an
uncertain tax position can be recognized in the
Company’s financial statements
only if the position is more-likely-than-not of being sustained on
audit, based on the technical merits of the position. Tax positions
that meet the recognition threshold are reported at the largest
amount that is more-likely-than-not to be realized. This
determination requires a high degree of judgment and estimation.
The Company periodically analyzes and adjusts amounts recorded
for the Company’s uncertain tax positions as events occur to warrant
adjustment when the statutory period for assessing tax on a given
tax return, period expire or if tax authorities provide
administrative guidance or a decision is rendered in the courts.
The Company does not reasonably expect the total amount of
uncertain tax positions to significantly increase or decrease
within the next 12 months. As of December 31, 2017, the
Company’s uncertain tax
positions were not significant for income tax
purposes.
We conduct business globally and, as a result, one or more
of the Company’s subsidiaries file income tax returns in the U.S.
federal jurisdiction and various state and foreign jurisdictions.
In the normal course of business, the Company is subject to
examination by taxing authorities throughout the world, including
such major jurisdictions as India, Mauritius, and the United
States. The Company files a U.S. federal income tax return and tax
returns in three U.S. states, as well as in two foreign
jurisdictions. Penalties and interest are classified as general and
administrative expenses.
The following describes the open tax years, by major tax
jurisdiction, as of December 31, 2017:
|
United States — Federal
|
|
2007 – present
|
|
|
United States — State
|
|
2008– present
|
|
|
India
|
|
2010 – present
|
|
|
Mauritius
|
|
2010 – present
|
|
74
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
As of December 31, 2017, the Company had federal net operating loss
carryforwards of approximately $188.0 million and state net
operating loss carryforwards of approximately $178.0 million. The
Company also has approximately $1.5 million of alcohol and
cellulosic biofuel credit carryforwards. The federal net operating
loss and other tax credit carryforwards expire on various dates
between 2027 and 2037. The state net operating loss carryforwards
expire on various dates between 2027 through 2037. Under the
current tax law, net operating loss and credit carryforwards
available to offset future income in any given year may be limited
by U.S. or India statute regarding net operating loss carryforwards
and timing of expirations or upon the occurrence of certain events,
including significant changes in ownership interests. The
Company’s India subsidiary also will have net operating loss
carryforwards as of March 31, 2018, its tax fiscal year end, of
approximately $9.0 million in U.S. dollars, which expire from March
30, 2018 to March 30, 2025.
14. Parent Company Financial Statements (Unaudited)
The following is a summary of the Parent Company financial
statements for the years ended December 31, 2017 and
2016:
75
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Aemetis, Inc. (Parent Company)
Balance Sheets
As of December 31, 2017 and 2016
|
Assets
|
2017
|
2016
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$29
|
$-
|
|
Receivables due
from subsidiaries
|
6,946
|
12,244
|
|
Prepaid
expenses
|
251
|
270
|
|
Total current
assets
|
7,226
|
12,514
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
15
|
27
|
|
Other
assets
|
54
|
54
|
|
Total
Assets
|
$7,295
|
$12,595
|
|
|
|
|
|
Liabilities
& stockholders' deficit
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$3,568
|
$3,039
|
|
Mandatorily
redeemable Series B convertible preferred
|
2,946
|
2,844
|
|
GAFI-
payables
|
3,357
|
-
|
|
Other current
liabilities
|
1,679
|
1,419
|
|
Total current
liabilities
|
11,550
|
7,302
|
|
|
|
|
|
|
|
|
|
Subsidiary
obligation in excess of investment
|
|
|
|
Investment in AE
Advanced Fuels, Inc.
|
69,273
|
49,694
|
|
Investment in
Aemetis Americas, Inc
|
205
|
205
|
|
Investment in
Aemetis Biofuels, Inc.
|
2,738
|
2,738
|
|
Investment in
Aemetis Technologies, Inc.
|
2,947
|
2,405
|
|
Investment in AE
Advanced Fuels Goodland , Inc.
|
100
|
51
|
|
Investment in AE
Advanced Products Keyes , Inc.
|
(1,617)
|
113
|
|
Investment in
Biofuels Marketing, Inc.
|
349
|
349
|
|
Investment in
Aemetis International, Inc.
|
142
|
(449)
|
|
Total subsidiary
obligation in excess of investment
|
74,137
|
55,106
|
|
Total long term
liabilities
|
74,137
|
55,106
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
|
Series B Preferred
convertible stock
|
1
|
1
|
|
Common
stock
|
20
|
20
|
|
Additional paid-in
capital
|
84,679
|
83,441
|
|
Accumulated
deficit
|
(160,188)
|
(129,887)
|
|
Accumulated other
comprehensive loss
|
(2,904)
|
(3,388)
|
|
Total stockholders'
deficit
|
(78,392)
|
(49,813)
|
|
Total
liabilities & stockholders' deficit
|
$7,295
|
$12,595
|
76
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Aemetis, Inc. (Parent Company)
Statements of Operations and Comprehensive Loss
For the
Years Ended December 31, 2017 and 2016
|
|
2017
|
2016
|
|
Equity in
subsidiary losses
|
$(22,341)
|
$(10,272)
|
|
Selling, general
and administrative expenses
|
7,317
|
4,818
|
|
Operating
loss
|
(29,658)
|
(15,090)
|
|
Other
expense
|
|
|
|
Interest
expense
|
503
|
278
|
|
Other
expense
|
134
|
262
|
|
Loss before
income taxes
|
(30,295)
|
(15,630)
|
|
Income tax
expense
|
6
|
6
|
|
Net
loss
|
(30,301)
|
(15,636)
|
|
Other comprehensive
loss
|
|
|
|
Foreign currency
translation adjustment
|
484
|
(209)
|
|
Comprehensive
loss
|
$(29,817)
|
$(15,845)
|
77
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Aemetis, Inc. (Parent Company)
Statements of Cash Flows
For the
years ended December 31, 2017 and 2016
|
|
2017
|
2016
|
|
Operating
activities:
|
|
|
|
Net
loss
|
(30,301)
|
(15,636)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Stock-based
compensation
|
1,101
|
747
|
|
Stock issued for
services
|
118
|
-
|
|
Depreciation
|
6
|
(25)
|
|
Subsidiary portion
of net losses
|
22,341
|
10,272
|
|
Changes in assets
and liabilities:
|
|
|
|
Prepaid
expenses
|
19
|
45
|
|
Accounts
payable
|
529
|
293
|
|
Accrued interest
expense
|
503
|
284
|
|
Other
liabilities
|
64
|
104
|
|
Net cash used in
operating activities
|
(5,620)
|
(3,916)
|
|
Investing
activities:
|
|
|
|
Subsidiary
advances, net
|
5,149
|
3,916
|
|
Net cash provided
by investing activities
|
5,149
|
3,916
|
|
Financing
activities:
|
|
|
|
Proceeds from
borrowings under secured debt facilities
|
500
|
-
|
|
Net cash provided
by financing activities
|
500
|
-
|
|
Net increase in
cash and cash equivalents
|
29
|
-
|
|
Cash and cash
equivalents at beginning of period
|
-
|
-
|
|
Cash and cash
equivalents at end of period
|
$29
|
$-
|
|
Supplemental
disclosures of cash flow information, cash paid:
|
|
|
|
Interest
payments
|
-
|
-
|
|
Income tax
expense
|
6
|
6
|
|
Supplemental
disclosures of cash flow information, non-cash
transactions:
|
|
|
|
Fair value of
warrants issued to subordinated debt holders
|
321
|
579
|
|
Repurchase of
common stock added to TEC promissory note
|
451
|
-
|
|
Settlement of
accounts payable through transfer of equipment
|
-
|
66
|
|
Settlement of
subordinated debt through issuing stock
|
132
|
-
|
|
Payment
of TEC bridge loan added to GAFI Revolving loan
|
3,669
|
-
|
78
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
15. Subsequent Events
Subordinated
Notes
On January 1, 2018, the two accredited investors Subordinated
Notes’ maturity was extended until the earlier of (i) June
30, 2018; (ii) completion of an equity financing by AAFK or Aemetis
in an amount of not less than $25 million; (iii) the completion of
an Initial Public Offering by AAFK or Aemetis; or (iv) after the
occurrence of an Event of Default, including failure to pay
interest or principal when due and breaches of note covenants. A 10
percent cash extension fee was paid by adding the fee to the
balance of the new Note and 113 thousand in common stock warrants
were granted with a term of two years and an exercise price of
$0.01 per share.
Third Eye Capital Advance
On
February 27, 2018, a Promissory Note (the “Feb 2018
Note”, and together with the Original Third Eye Capital
Notes, the “Third Eye Capital Notes”) for $2.1 million
was advanced by Third Eye Capital to Aemetis, Inc., as a short-term
credit facility for working capital and other general corporate
purposes with an interest rate of 14% per annum maturing on the
earliest of (a) closing of any new debt or equity financing,
refinancing, or other similar transaction, (b) receipt of proceeds
from any sale, merger, equity, or debt financing, refinancing, or
other similar transaction from any third party, and (c) April 30,
2018.
Third Eye Amendment
On
March 27, 2018, Third Eye Capital agreed to Limited Waiver and
Amendment No. 14 to the Note Purchase Agreement, to: (i) extend the
maturity date of the Third Eye Capital Notes two years to April 1,
2020 in exchange for an amendment fee consisting of 6% (3% per
year) of the outstanding note balance as an increase in the fee
payable in the event of a redemption of the Notes (as defined in
the Note Purchase Agreement); (ii) provide that the maturity date
may be further extended at our election to April 1, 2021 in
exchange for an extension fee of 5%; (iii) provide for an optional
waiver of the ratio of note indebtedness covenant until January 1,
2019 with the payment of a waiver fee of $0.25 million; and (iv)
and remove the redemption fee described in (i) above from the
calculation of the ratio of note indebtedness covenant. As
consideration for such amendment and waiver, the borrowers agreed
to pay Third Eye Capital an amendment and waiver fee of $0.5
million to be added to the outstanding principal balance of the
Revolving Credit Facility.
Third Eye Reserve Liquidity Facility
On
March 27, 2018, Third Eye agreed to a one-year reserve liquidity
facility governed by a promissory note, payable in the principal
amount of up to six million dollars. Borrowings under
the facility are available from March 27, 2018 until maturity on
April 1, 2019. Interest on borrowed amounts accrues at a rate of
30% per annum, paid monthly in arrears, or 40% if an event of
default has occurred and continues. The outstanding principal
balance of the indebtedness evidenced by the promissory note, plus
any accrued but unpaid interest and any other sums due thereunder,
shall be due and payable in full at the earlier to occur of (a) the
closing of any new debt or equity financing, refinancing or other
similar transaction between Third Eye Capital or any fund or entity
arranged by them and the Company or its affiliates, (b) receipt by
the Company or its affiliates of proceeds from any sale, merger,
equity or debt financing, refinancing or other similar transaction
from any third party and (c) April 1, 2019. The promissory note is
secured by liens and security interests upon the property and
assets of the Company. If any amounts are drawn under the facility,
the Company will pay a non-refundable fee in the amount of $0.2
million, payable from the proceeds of the first drawing under the
facility.
16.
Management’s Plan
The
accompanying financial statements have been prepared contemplating
the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has been reliant on their
senior secured lender to provide additional funding and has been
required to remit substantially all excess cash from operations to
the senior secured lender. As of December 31, 2017, the Company did
not have any additional borrowings to fund future cash flow
requirements.
Management
believes that through the following actions, the company will have
the ability to generate capital liquidity to carry out the business
plan for 2018:
Operate
the Keyes plant and continue to improve operational performance,
including the adoption of new technologies or process changes that
allow for energy efficiency, cost reduction or revenue enhancements
to the current operations.
Expand
the ethanol sold at the Keyes plant to include the cellulosic
ethanol to be generated at Riverbank, California, and to utilize
lower -cost, non--food advanced feedstocks to significantly
increase margins.
Monetize the CO2
produced at the Keyes plant by executing on the agreement with
Linde for the delivery of gas to their neighboring facility to be
built during 2018.
Rely on
the approval of a $125M USDA loan guarantee to raise the funds
necessary to construct and operate a cellulosic ethanol plant in
Riverbank, California using the licensed technology from LanzaTech
and InEnTec to generate federal and state carbon credits available
for ultra--low carbon fuels.
79
AEMETIS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular data in thousands, except par value and per share
data)
Secure
higher volumes of shipments of fuels at the India plant by
developing the sales channels, including, expanding the existing
domestic markets, extending international sales by supplying large
oil companies (primarily the BP Singapore Agreement during 2017),
and exporting fuel into the European Union and United States
biodiesel markets to capture valuable low carbon fuel
credits.
Continue to locate
funding for existing and new business opportunities through a
combination of working with our senior lender, restructuring
existing loan agreements, selling the current offering for $50
million from the Phase II EB-5 program, or by vendor financing
arrangements.
Management
believes that a combination of the above-mentioned actions as well
as the subsequent debt financing described in Note 15, will provide
the funding necessary to alleviate substantial doubt about the
company's ability to continue as a going
concern.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 29, 2018
|
|
Aemetis, Inc.
|
|
|
|
|
|
/s/ ERIC A. MCAFEE
|
|
|
Eric A. McAfee
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Eric A. McAfee and
Todd A. Waltz, and each of them, his true and lawful
attorneys-in-fact, each with full power of substitution, for him in
any and all capacities, to sign any amendments to this report on
Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on
the dates
indicated:
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Eric
A. McAfee
|
|
Chairman/Chief Executive Officer
|
|
March 29, 2018
|
|
Eric A. McAfee
|
|
(Principal Executive Officer and Director)
|
|
|
|
|
|
|
|
|
|
/s/Todd
Waltz
|
|
Chief Financial Officer
|
|
March 29, 2018
|
|
Todd Waltz
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Francis
Barton
|
|
Director
|
|
March 29, 2018
|
|
Fran Barton
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Lydia I.
Beebe
|
|
Director
|
|
March 29, 2018
|
|
Lydia I. Beebe
|
|
|
|
|
|
|
|
|
|
|
|
/s/ John R.
Block
|
|
Director
|
|
March 29, 2018
|
|
John R. Block
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Dr. Steven
Hutcheson
|
|
Director
|
|
March 29, 2018
|
|
Dr. Steven Hutcheson
|
|
|
|
|
81