NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per
share data)
1. Nature of Activities
and Summary of Significant Accounting Policies
Nature
of Activities. Headquartered in Cupertino, California, Aemetis,
Inc. (collectively with its subsidiaries on a consolidated basis,
“Aemetis,” the “Company,” “we,”
“our” or “us”) is an advanced renewable
fuels and biochemicals company focused on the acquisition,
development and commercialization of innovative technologies that
replace traditional petroleum-based products through the conversion
of second-generation ethanol and biodiesel plants into advanced
biorefineries. Founded in 2006, we own and operate a 65 million
gallon per year renewable ethanol facility (“Keyes
Plant”) in California’s Central Valley, near Modesto,
where we manufacture and produce ethanol, high-grade alcohol, wet
distillers’ grains (“WDG”), condensed distillers
solubles (“CDS”), and distillers’ corn oil
(“DCO”). We also own and operate a 50 million gallon
per year renewable chemical and advanced fuel production facility
(“Kakinada Plant”) on the East Coast of India that
produces high quality distilled biodiesel and refined glycerin for
customers in India and Europe. We operate a research and
development laboratory to develop efficient conversion technologies
using waste feedstocks to produce biofuels and biochemicals.
Additionally, we own a partially completed plant in Goodland,
Kansas (the “Goodland Plant”) through our subsidiary
Goodland Advanced Fuels, Inc., (“GAFI”), which was
formed to acquire the Goodland Plant. On December 31, 2019 we
exercised an option to acquire all capital stock of GAFI for $10
and consolidated assets, liabilities, and equity of GAFI as a
wholly-owned subsidiary from December 31, 2019. Prior to December
31, 2019, GAFI activity is shown as non-controlling interest in the
consolidated statements of operations.
We
also lease a site in Riverbank, California, near the Keyes Plant,
where we plan to utilize biomass-to-fuel technology that we have
licensed from LanzaTech Technology (“LanzaTech”) and
InEnTec Technology (“InEnTec”) to build a cellulosic
ethanol production facility (the “Riverbank Cellulosic
Ethanol Facility”) capable of converting local California
surplus biomass – principally agricultural orchard waste
– into ultra-low carbon renewable cellulosic ethanol (the
“Riverbank Project”). By producing ultra-low carbon
renewable cellulosic ethanol, we expect to capture higher value D3
cellulosic renewable identification numbers (“RINs”)
and California Low Carbon Fuel Standard (“LCFS”)
credits.
In
December 2018, we acquired a 5.2-acre parcel of land for the
construction of a gas-to-liquid CO2 production facility by Messer.
Aemetis sells carbon dioxide (“CO2”) produced at the
Keyes Plant (the “CO2 Project”) to Messer for
conversion and sale into the food processing, beverage, and
technology sectors. The Aemetis portion of the CO2 Project
construction was completed in January 2020, and Messer completed
construction on their portion in April 2020. We commenced
operations in late April 2020, and started recognizing revenue from
this project in the second quarter of 2020.
In
2018, we formed Aemetis Biogas, LLC (“ABGL”) to
construct a cluster of anaerobic biogas digesters at local dairies
near the Keyes Plant (the “Biogas Project”) to produce
ultra-low carbon renewable natural gas (“RNG”) for use
as transportation fuel. Construction of the first two dairy
digesters and pipeline in the cluster were completed and
commissioned during the third quarter of 2020. ABGL has signed
participation agreements or fully executed leases with 17 local
dairies near the Keyes Plant to build anerobic digesters to capture
methane gas from manure lagoons at such dairies, which would
otherwise be released into the atmosphere. We plan to capture
methane-rich biogas from multiple dairies and convey the gas via a
private underground pipeline to a centralized location at our Keyes
Plant, where we will remove impurities in the gas and convert it
into RNG for any number of applications including injecting into
the local utility pipeline operated by PG&E, operating a
renewable compressed natural gas (“RCNG”) truck loading
station that will service local trucking fleets to displace diesel
fuel, or converting to clean electricity. The biogas can also be
used as energy in our Keyes Plant to displace petroleum-based
natural gas. We believe the environmental and economic benefits of
the Biogas Project are potentially significant due to dairy biogas
having a negative carbon intensity (“CI”) under the
California LCFS. The biogas produced by ABGL is expected to also
receive D3 RINs under the federal Renewable Fuel Standard
(“RFS”).
On
March 18, 2020, in order to address a supply shortage of hand
sanitizer during the worldwide COVID-19 pandemic, the US Treasury
Tobacco and Alcohol Tax and Trade Bureau (“TTB”)
provided emergency waivers allowing fuel ethanol plants to produce
high-grade alcohol for use in the production of hand sanitizer.
Concurrently, during the first week of April 2020, Aemetis applied
for and was approved by the TTB as a Distilled Spirits Producer
(“DSP”), which would allow the Company to produce, in
addition to fuel ethanol, high-grade alcohol for sanitizer and
other health care and sanitary products, as well as industrial
alcohol and potable alcohol for beverage spirits once the temporary
waiver period expires.
Accordingly,
Aemetis began supplying high-grade alcohol for the production of
hand sanitizer. Aemetis has also implemented a series of capital
projects at the Keyes facility that will ultimately enable the
production of US Pharmacopeia (“USP”) grade alcohol for
sale into these key consumer and industrial markets. During June
2020, Aemetis renamed Biofuels Marketing, Inc. as Aemetis Health
Products, Inc., and began a sales and marketing strategy of
blending, bottling and selling hand sanitizer into bulk, retail
branded, and white label markets. Additionally, Aemetis Health
Products, Inc. is developing sales and marketing channels for other
personal protective equipment, where and when those opportunites
arise.
Basis
of Presentation and Consolidation. These consolidated financial
statements include the accounts of Aemetis. Additionally, we
consolidate all entities in which we have a controlling financial
interest either directly or by option to acquire the interest. A
controlling financial interest is usually obtained through
ownership of a majority of the voting interests. However, an
enterprise must consolidate a variable interest entity
(“VIE”) if the enterprise is the primary beneficiary of
the VIE, even if the enterprise does not own a majority of the
voting interests. The primary beneficiary is the party that has
both the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance, and the
obligation to absorb losses or the right to receive benefits from
the VIE that could potentially be significant to the VIE. Prior to
December 31, 2019, GAFI was consolidated into the financial
statements as a VIE. On December 31, 2019, we exercised an option
to acquire all capital stock of GAFI for $10 and consolidated
assets, liabilities, and equity of GAFI into the accounts of
Aemetis from December 31, 2019 forward.
The
accompanying consolidated condensed balance sheet as of September
30, 2020, the consolidated condensed statements of operations and
comprehensive loss for the three and nine months ended September
30, 2020 and 2019, the consolidated condensed statements of cash
flows for the nine months ended September 30, 2020 and 2019, and
the consolidated condensed statements of stockholders’
deficit for the three and nine months ended September 30, 2020 and
2019 are unaudited. The consolidated condensed balance sheet as of
December 31, 2019 was derived from the 2019 audited consolidated
financial statements and notes thereto. The consolidated condensed
financial statements in this report should be read in conjunction
with the 2019 audited consolidated financial statements and notes
thereto included in the Company’s annual report on Form 10-K
for the year ended December 31, 2019. The accompanying consolidated
condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
(“U.S. GAAP”) and pursuant to the rules and regulations
of the SEC. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S.
GAAP have been condensed or omitted pursuant to such rules and
regulations.
In
the opinion of Company’s management, the unaudited interim
consolidated condensed financial statements for the three and nine
months ended September 30, 2020 and 2019 have been prepared on the
same basis as the audited consolidated statements as of December
31, 2019 and reflect all adjustments, consisting primarily of
normal recurring adjustments, necessary for the fair presentation
of its statement of financial position, results of operations and
cash flows. The results of operations for the three and nine months
ended September 30, 2020 are not necessarily indicative of the
operating results for any subsequent quarter, for the full fiscal
year or any future periods.
Use
of Estimates. The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, revenues, and expenses during
the reporting period. To the extent there are material differences
between these estimates and actual results, the Company’s
consolidated financial statements will be affected.
Revenue
Recognition. We derive revenue primarily from sales of ethanol,
high-grade alcohol and related co-products in North America, and
biodiesel and refined glycerin in India pursuant to supply
agreements and purchase order contracts. We assessed the following
criteria under the ASC 606 guidance: (i) identify the contracts
with customer, (ii) identify the performance obligations in the
contract, (iii) determine the transaction price, (iv) allocate the
transaction price to the performance obligations, and (v) recognize
revenue when the entity satisfies the performance
obligations.
North
America: In North America,
until May 13, 2020, we sold all our ethanol to J.D. Heiskell &
Co. (“J.D. Heiskell”) under the Working Capital and
Purchasing Agreement (the “J.D. Heiskell Purchasing
Agreement”). On May 13, 2020, we entered into an amendment to
the Corn Procurement and Working Capital Agreement with J.D.
Heiskell (the “Corn Procurement and Working Capital”),
under the terms of which we will buy all corn from J.D.Heiskell and
sell all WDG and corn oil we produce to J.D.Heiskell. Following May
13, 2020, we sold the majority of our fuel ethanol production to
one customer, Kinergy Marketing, LLC (“Kinergy”), under
a supply contract, with individual sales transactions occurring
under such contract. Given the similarity of these transactions, we
have assessed them as a portfolio of similar contracts. The
performance obligation is satisfied by delivery of the physical
product to one of Kinergy’s contracted trucking companies.
Upon delivery, the customer has the ability to direct the use of
the product and receive substantially all of its benefits. The
transaction price is determined based on daily market prices
negotiated by Kinergy for ethanol and by our marketing partner A.L.
Gilbert Company (“A.L. Gilbert”) for WDG. There is no
transaction price allocation needed.
During
the first quarter of 2020, Aemetis began selling high-grade alcohol
for consumer applications directly to customers on the West Coast
and Midwest using a variety of payment terms. These agreements and
terms were evaluated according to ASC 606 guidance and such revenue
is recognized upon satisfaction of the performance obligation by
delivery of the product based on the terms of the agreement. Sales
of high-grade alcohol represented 2% and 18% of revenue for three
and nine months ended September 30, 2020,
respectively.
The
below table shows our sales in North America by product
category:
North America (in thousands)
|
|
|
|
|
For the three months ended
September 30,
|
For the nine months ended
September 30,
|
|
|
|
|
|
Ethanol
and high-grade alcohol sales
|
$24,825
|
$27,456
|
$86,387
|
$84,453
|
Wet
distiller's grains sales
|
7,143
|
8,783
|
22,983
|
26,119
|
Other
sales
|
1,163
|
1,581
|
4,856
|
3,370
|
|
$33,131
|
$37,820
|
$114,226
|
$113,942
|
We
have elected to adopt the practical expedient that allows for
ignoring the significant financing component of a contract when
estimating the transaction price when the transfer of promised
goods to the customer and customer payment for such goods are
expected to be within one year of contract inception. Further, we
have elected to adopt the practical expedient in which incremental
costs of obtaining a contract are expensed when the amortization
period would otherwise be less than one year.
We
also assessed principal versus agent criteria as we buy our
feedstock from our customers and process and sell finished goods to
those customers in certain contractual agreements.
In
North America, we assessed principal versus agent criteria as we
buy corn as feedstock in producing ethanol from our working capital
partner J.D. Heiskell and sell all WDG and corn oil produced in
this process to J.D. Heiskell through A.L. Gilbert. We sold all
ethanol we produced to J.D.Heiskell until May 13, 2020. We consider
the purchase of corn as a cost of goods sold and the sale of
ethanol upon transfer to the common carrier as revenue on the basis
that (i) we control and bear the risk of gain or loss on the
processing of corn which is purchased at market prices into ethanol
and (ii) we have legal title to the goods during the processing
time. The pricing for both corn and ethanol is set independently.
Revenues from sales of ethanol and its co-products are billed net
of the related transportation and marketing charges. Transportation
charges are accounted for in cost of goods sold and marketing
charges are accounted for in sales, general and administrative
expense. Transportation and marketing charges are known within days
of the transaction and are recorded at the actual amounts. The
Company has elected to adopt an accounting policy under which these
charges have been treated as fulfillment activities provided after
control has transferred. As a result, these charges are recognized
in cost of goods sold and selling, general and administrative
expenses, respectively, when revenue is recognized. Revenues are
recorded at the gross invoiced amount. Hence, we are the principal
in North America sales scenarios where our customer and vendor may
be the same.
India:
In India, we sell products pursuant to
purchase orders (written or verbal) or by contract with
governmental or international parties, in which performance is
satisfied by delivery and acceptance of the physical product. Given
that the contracts are sufficiently similar in nature, we have
assessed these contracts as a portfolio of similar contracts as
allowed under the practical expedient. Doing so does not result in
a materially different outcome compared to individually accounting
for each contract. All domestic and international deliveries are
subject to certain specifications as identified in contracts. The
transaction price is determined daily based on reference market
prices for biodiesel, refined glycerin, and Palm Fatty Acid
Distillers (“PFAD”) net of taxes. There is no
transaction price allocation needed.
The
below table shows our sales in India by product
category:
India (in thousands)
|
|
|
|
|
|
For the three months ended
September 30,
|
For the nine months ended
September 30,
|
|
|
|
|
|
Biodiesel
sales
|
$7,325
|
$17,057
|
$12,267
|
$32,201
|
Refined
glycerin sales
|
449
|
951
|
909
|
2,186
|
PFAD
sales
|
-
|
-
|
774
|
-
|
Other
sales
|
18
|
1,561
|
51
|
1,567
|
|
$7,792
|
$19,569
|
$14,001
|
$35,954
|
In
India, we also assessed principal versus agent criteria as we buy
our feedstock from our customers and process and sell finished
goods to those same customers in certain contractual agreements. In
those cases, we receive the legal title to feedstock from our
customers once it is on our premises. We control the processing and
production of biodiesel based on contract terms and specifications.
The pricing for both feedstock and biodiesel is set independently.
We hold the title and risk to biodiesel according to agreements we
enter into in these situations. Hence, we are the principal in
India sales scenarios where our customer and vendor may be the
same.
Cost of Goods
Sold. Cost of goods sold
includes those costs directly associated with the production of
revenues, such as raw material consumed, factory overhead and other
direct production costs. During periods of idle plant capacity,
costs otherwise charged to cost of goods sold are reclassified to
selling, general and administrative expense.
Accounts Receivable.
The Company sells ethanol and WDG
through third-party marketing arrangements generally without
requiring collateral and high-grade alcohol directly to customers
on a variety of terms including advanced payment terms, based on
the size and creditworthiness of the customer. DCO is marketed and
sold to A.L. Gilbert and other customers under the J.D. Heiskell
Purchasing Agreement. The Company sells CDS directly to customers
on standard 30 day payment terms. The Company sells biodiesel,
glycerin, and processed natural oils to a variety of customers and
may require advanced payment based on the size and creditworthiness
of the customer. Usually, invoices are due within 30 days on net
terms. Accounts receivables consist of product sales made to large
creditworthy customers. Trade accounts receivable are presented at
original invoice amount, net of any allowance for doubtful
accounts.
The
Company maintains an allowance for doubtful accounts for balances
that appear to have specific collection issues. The collection
process is based on the age of the invoice and requires attempted
contacts with the customer at specified intervals. If, after a
specified number of days, the Company has been unsuccessful in its
collection efforts, a bad debt allowance is recorded for the
balance in question. Delinquent accounts receivables are charged
against the allowance for doubtful accounts once un-collectability
has been determined. The factors considered in reaching this
determination are the apparent financial condition of the customer
and the Company’s success in contacting and negotiating with
the customer. If the financial condition of the Company’s
customers were to deteriorate, additional allowances may be
required. We reserved $647 thousand and none in the allowances for
doubtful accounts as of September 30, 2020 and December 31, 2019,
respectively.
Notes Receivable.
During the third quarter, the India
subsidiary provided an interest bearing short-term note, with an
interest rate of 12% per annum, to a working capital partner. The
balance was recorded on the balance sheet under notes receivable
for $3.7 million as of September 30,
2020.
Inventories. Finished goods, raw materials, and
work-in-process inventories are valued using methods which
approximate the lower of cost (first-in, first-out) or net
realizable value (“NRV”). Distillers’ grains and
related products are stated at NRV. In the valuation of
inventories, NRV is determined as estimated selling price in the
ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation.
Property, Plant and
Equipment. Property, plant and
equipment are carried at cost less accumulated depreciation after
assets are placed in service and are comprised primarily of
buildings, furniture, machinery, equipment, land, and the Keyes
Plant, Goodland Plant and Kakinada Plant. The Goodland Plant is
partially completed and is not ready for operation. The first two
dairy digesters and pipeline in the Biogas Project were completed,
commissioned and began to be depreciated during the third quarter
of 2020. The CO2 Project was completed and commenced operations in
the second quarter of 2020. Accordingly, any assets under the CO2
Project began being depreciated starting in May 2020. It is the
Company’s policy to depreciate capital assets over their
estimated useful lives using the straight-line
method.
The Company evaluates the recoverability of
long-lived assets with finite lives in accordance with ASC Subtopic
360-10-35 Property Plant and
Equipment—Subsequent Measurements, which requires recognition of impairment of
long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of an asset group may not be
recoverable. When events or changes in circumstances indicate that
the carrying amount of an asset group may not be recoverable, based
on estimated undiscounted cash flows, the impairment loss would be
measured as the difference between the carrying amount of the
assets and its estimated fair value. Additionally, the impact of
the COVID-19 pandemic was assessed, and based upon this assessment,
there is no impairment of assets needed.
California Energy Commission
Technology Demonstration Grant.
The Company has been awarded and completed the demonstration
project associated with the $825 thousand matching grant program
from the California Energy Commission (“CEC”) Natural
Resources Agency to optimize the effectiveness of technologies to
break down biomass to produce cellulosic ethanol. The Company has
received all of the awarded grant proceeds as of September 30,
2020. The project focused on the deconstruction and conversion of
sugars liberated from California-relevant feedstocks and then
converting the sugars to ethanol. The Company receives these funds
as reimbursement for actual expenses incurred. Due to the
uncertainty associated with the expense approval process under the
grant program, the Company recognizes the grant as a reduction of
the expenses in the period when approval is
received.
California Department of Food
and Agriculture Dairy Digester Research and Development
Grant. The Company has been
awarded $3.2 million in matching grants from the California
Department of Food and Agriculture (“CDFA”) Dairy
Digester Research and Development program. The CDFA grant
reimburses the Company for costs required to permit and construct
two of the Company’s biogas capture systems under contract
with central California dairies. The Company received $2.7 million
as of September 30, 2020 as reimbursement for actual costs
incurred. Due to the uncertainty associated with the approval
process under the grant program, the Company recognizes the grant
as a reduction of the costs in the period when approval is
received.
California Energy Commission
Low Carbon Advanced Ethanol Grant Program. In May 2019, the Company was awarded the right
to receive reimbursements from the CEC in an amount up to $5.0
million (the “CEC Reimbursement Program”) in connection
with the Company’s expenditures toward the development of the
Riverbank Cellulosic Ethanol Facility. To comply with the
guidelines of the CEC Reimbursement Program, the Company must make
a minimum of $7.9 million in matching contributions to the
Riverbank Project. The Company receives the CEC funds under the CEC
Reimbursement Program for actual expenses incurred up to $5.0
million as long as the Company makes the minimum matching
contribution. Given that the Company has not made the minimum
matching contribution, the grant for reimbursement of capital
expenditures of $256 thousand received during the third quarter of
2020 and of $1.36 million received during the third quarter of 2019
were recorded as other long term liabilities as of September 30,
2020 and December 31, 2019.
Basic and Diluted Net Loss per
Share. Basic net loss per share
is computed by dividing net loss attributable to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted net loss per share reflects the
dilution of common stock equivalents such as options, convertible
preferred stock, debt, and warrants to the extent the impact is
dilutive. As the Company incurred net losses for the three and nine
months ended September 30, 2020 and 2019, potentially dilutive
securities have been excluded from the diluted net loss per share
computations as their effect would be
anti-dilutive.
The
following table shows the number of potentially dilutive shares
excluded from the diluted net loss per share calculation as of
September 30, 2020 and 2019:
|
As of
|
|
|
|
|
|
|
Series
B preferred (post split basis)
|
132
|
132
|
Common
stock options and warrants
|
5,846
|
3,910
|
Debt
with conversion feature at $30 per share of common
stock
|
1,294
|
1,255
|
Total
number of potentially dilutive shares excluded from the diluted net
income (loss) per share calculation
|
7,272
|
5,297
|
Comprehensive Loss.
ASC 220 Comprehensive Income requires
that an enterprise report, by major components and as a single
total, the change in its net assets from non-owner sources. The
Company’s other comprehensive income (loss) and accumulated
other comprehensive loss consists solely of cumulative currency
translation adjustments resulting from the translation of the
financial statements of its foreign subsidiary.
Foreign Currency
Translation/Transactions. Assets and liabilities of the Company’s
non-U.S. subsidiary that operates in a local currency environment,
where that local currency is the functional currency, are
translated into U.S. dollars at exchange rates in effect at the
balance sheet date and the resulting translation adjustments
directly recorded to a separate component of accumulated other
comprehensive loss. Income and expense accounts are translated at
average exchange rates during the year. Transactional gains and
losses from foreign currency transactions are recorded in other
(income) loss, net.
Operating Segments.
Operating segments are defined as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how
to allocate resources and in assessing performance. Aemetis
recognized two reportable geographic segments: “North
America” and “India.”
The
“North America” operating segment includes the Keyes
Plant, the Riverbank Cellulosic Ethanol Facility, the Biogas
Project, the Goodland Plant and the research and development
facility in Minnesota.
The
“India” operating segment includes the Company’s
50 million gallon per year capacity Kakinada Plant in India, the
administrative offices in Hyderabad, India, and the holding
companies in Nevada and Mauritius.
Fair Value of Financial
Instruments. Financial
instruments include accounts receivable, accounts payable, accrued
liabilities, current and non-current portion of subordinated debt,
notes payable, and long-term debt. Due to the unique terms of our
notes payable and long-term debt and the financial condition of the
Company, the fair value of the debt is not readily determinable.
The fair value, determined using level 3 inputs, of all other
current financial instruments is estimated to approximate carrying
value due to the short-term nature of these
instruments.
Share-Based
Compensation. The Company
recognizes share-based compensation expense in accordance with ASC
718 Stock Compensation requiring the Company to recognize expenses
related to the estimated fair value of the Company’s
share-based compensation awards at the time the awards are granted,
adjusted to reflect only those shares that are expected to
vest.
Commitments and
Contingencies. The Company
records and/or discloses commitments and contingencies in
accordance with ASC 450 Contingencies. ASC 450 applies to an
existing condition, situation or set of circumstances involving
uncertainty as to possible loss that will ultimately be resolved
when one or more future events occur or fail to
occur.
Debt Modification
Accounting. The Company
evaluates amendments to its debt in accordance with ASC 470-50
Debt–Modification and Extinguishments for modification and
extinguishment accounting. This evaluation includes comparing the
net present value of cash flows of the new debt to the old debt to
determine if changes greater than 10 percent occurred. In instances
where the net present value of future cash flows changed more than
10 percent, the Company applies extinguishment accounting and
determines the fair value of its debt based on factors available to
the Company.
We
have evaluated the 1% extension fee for extending the maturity date
of the Third Eye Capital Notes to April 1, 2021 and Amendment No.
17 providing an option to extend to April 1, 2022 and certain
waivers for financial covenants, in accordance with ASC 470-60
Troubled Debt Restructuring. For additional information regarding
the 1% extension fee and Amendment No. 17, please see “Part
I, Item 1. Financial Statements – Note 4.
Debt.”
Convertible
Instruments. The Company
evaluates the impacts of convertible instruments based on the
underlying conversion features. Convertible instruments are
evaluated for treatment as derivatives that could be bifurcated and
recorded separately. Any beneficial conversion feature is recorded
based on the intrinsic value difference at the commitment
date.
Recently Issued Accounting Pronouncements.
For
a complete summary of the Company’s significant accounting
policies, please refer to the Company’s audited financial
statements and notes thereto for the years ended December 31, 2019
and 2018 included in the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 12,
2020. There were no new accounting pronouncements issued applicable
to the Company during the three and nine months ended September 30,
2020.
2. Inventories
Inventories consist of the following:
|
|
|
|
|
Raw
materials
|
$1,678
|
$2,566
|
Work-in-progress
|
1,365
|
1,455
|
Finished
goods
|
1,773
|
2,497
|
Total
inventories
|
$4,816
|
$6,518
|
As of September 30, 2020 and December 31, 2019, the Company
recognized a lower of cost or net realizable value impairment of
$0.3 and $0.1 million respectively, related to
inventory.
3. Property, Plant and Equipment
Property, plant and equipment consist of the
following:
|
|
|
Land
|
$4,088
|
$4,104
|
Plant
and buildings
|
96,089
|
83,139
|
Furniture
and fixtures
|
1,166
|
1,094
|
Machinery
and equipment
|
4,389
|
4,252
|
Construction
in progress
|
18,612
|
12,571
|
Property
held for development
|
15,408
|
15,408
|
Finance
lease right of use assets
|
2,988
|
-
|
Total
gross property, plant & equipment
|
142,740
|
120,568
|
Less
accumulated depreciation
|
(39,690)
|
(36,342)
|
Total
net property, plant & equipment
|
$103,050
|
$84,226
|
Construction in progress contains incurred costs for the Biogas
Project, Riverbank Project, and Zebrex equipment installation at
the Keyes Plant. In the second quarter of 2020,
CO2
Project commenced operations and was
placed in service at that time. In the third quarter of 2020, two
diary digesters commenced operations and were placed in service at
that time. Depreciation on the components of property, plant and
equipment is calculated using the straight-line method to allocate
their depreciable amounts over their estimated useful lives as
follows:
|
|
Plant
and buildings
|
20 - 30
|
Machinery
and equipment
|
5 - 10
|
Furniture
and fixtures
|
3 - 5
|
For the three months ended September 30, 2020 and 2019, the Company
recorded depreciation expense of $1.3 million and $1.1 million for
each period. For the nine months ended September 30, 2020 and 2019,
the Company recorded depreciation expense of $3.5 million and $3.3
million, respectively.
Management is required to evaluate these long-lived assets for
impairment whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. Management
determined there was no impairment on the long-lived assets during
the three and nine months ended September 30, 2020 and
2019.
4. Debt
Debt consists of the notes from our senior lender, Third Eye
Capital, other working capital lenders and subordinated lenders as
follows:
|
|
|
Third
Eye Capital term notes
|
$7,039
|
$7,024
|
Third
Eye Capital revolving credit facility
|
75,605
|
62,869
|
Third
Eye Capital revenue participation term notes
|
11,824
|
11,794
|
Third
Eye Capital acquisition term notes
|
26,313
|
25,518
|
Third
Eye Capital promissory note
|
1,840
|
2,815
|
Cilion
shareholder seller notes payable
|
6,236
|
6,124
|
Subordinated
notes
|
12,315
|
11,502
|
Term
loan on Equipment purchase
|
5,652
|
-
|
EB-5
promissory notes
|
42,965
|
41,932
|
PPP
loans
|
1,134
|
-
|
Unsecured
working capital loans
|
2,540
|
2,631
|
GAFI
Term and Revolving loans
|
32,883
|
30,216
|
Total debt
|
226,346
|
202,425
|
Less
current portion of debt
|
59,336
|
22,740
|
Total long term debt
|
$167,010
|
$179,685
|
On July 6, 2012, Aemetis, Inc. and Aemetis Advanced Fuels Keyes,
Inc. (“AAFK”), entered into an Amended and Restated
Note Purchase Agreement with Third Eye Capital (the “Note
Purchase Agreement”). Pursuant to the Note Purchase
Agreement, Third Eye Capital extended credit in the form of (i)
senior secured term loans in an aggregate principal amount of
approximately $7.2 million to replace existing notes held by Third
Eye Capital (the “Term Notes”); (ii) senior secured
revolving loans in an aggregate principal amount of $18.0 million
(the “Revolving Credit Facility”); (iii) senior secured
term loans in the principal amount of $10.0 million to convert the
prior revenue participation agreement to a note (the “Revenue
Participation Term Notes”); and (iv) senior secured term
loans in an aggregate principal amount of $15.0 million (the
“Acquisition Term Notes”) used to fund the cash portion
of the acquisition of Cilion, Inc. (the Term Notes, Revolving
Credit Facility, Revenue Participation Term Notes and Acquisition
Term Notes are referred to herein collectively as the
“Original Third Eye Capital Notes”).
On March 27, 2018, Third Eye Capital agreed to Limited Waiver and
Amendment No. 14 to the Note Purchase Agreement (“Amendment
No. 14”) to: (i) extend the maturity date of the Third Eye
Capital Notes by two years to April 1, 2020 in exchange for an
amendment fee consisting of 6% (3% per year) of the outstanding
note balance in the form of an increase in the fee payable in the
event of a redemption of the Third Eye Capital Notes (as defined in
the Note Purchase Agreement); (ii) provide that the maturity date
may be further extended at our election to April 1, 2021 in
exchange for an extension fee of 5%; (iii) provide for an optional
waiver of the ratio of note indebtedness covenant until January 1,
2019 with the payment of a waiver fee of $0.25 million; and (iv)
remove the redemption fee described in (i) above from the
calculation of the ratio of note indebtedness covenant. In addition
to the fee discussed in (i), as consideration for such amendment
and waiver, the borrowers also agreed to pay Third Eye Capital an
amendment and waiver fee of $0.5 million to be added to the
outstanding principal balance of the Revolving Credit
Facility.
On March 11, 2019, Third Eye Capital agreed to Limited Waiver and
Amendment No. 15 to the Note Purchase Agreement (“Amendment
No. 15”), to waive the ratio of note indebtedness covenant
through December 31, 2019. As a consideration for this amendment,
the Company also agreed to pay Third Eye Capital an amendment fee
of $1.0 million to be added to the redemption fee which is due upon
redemption of the Notes.
On November 11, 2019, Third Eye Capital agreed to Limited Waiver
and Amendment No. 16 to the Note Purchase Agreement
(“Amendment No. 16”), to waive the ratio of note
indebtedness covenant for the quarters ended March 31, 2020,
September 30, 2020, September 30, 2020 and December 31, 2020. As a
consideration for this amendment, the Company also agreed to pay
Third Eye Capital an amendment fee of $0.5 million to be added to
the redemption fee which is due upon redemption of the
Notes.
Based on Amendment No. 16, the ratio of note indebtedness covenant
is waived for the quarters ended September 30, 2020 and December
31, 2020. Based on the Amendment No. 17, the ratio of note
indebtedness covenant is waived for the quarters ended March 31,
2021 and June 30, 2021. On November 5, 2020, Third Eye Capital
agreed to Amendment No. 18 to waive the ratio of note indebtedness
covenant for the quarter ended September 30, 2021 for a fee of $50
thousand. According to ASC 470-10-45 debt covenant classification
guidance, if it is probable that the Company will not be able to
cure the default at measurement dates within the next 12 months,
the related debt needs to be classified as current. As the
Amendment No. 16 , Amendment No. 17, and Amendment No.18 waived the
ratio of the note indebtedness covenant over the next four
quarters, the notes are classified as long-term debt.
On February 27, 2019, a Promissory Note (the “February 2019
Note”, together with the Original Third Eye Capital Notes,
the “Third Eye Capital Notes”) for $2.1 million was
advanced by Third Eye Capital to Aemetis, Inc., as a short-term
credit facility for working capital and other general corporate
purposes with an interest rate of 14% per annum maturing on the
earlier of (a) receipt of proceeds from any financing, refinancing,
or other similar transaction, (b) extension of credit by payee, as
lender or as agent on behalf of certain lenders, to the Company or
its affiliates, or (c) April 30, 2019. In consideration of the
February 2019 Note, $0.1 million of the total proceeds were paid to
Third Eye Capital as financing charges. On April 30, 2019, the
February 2019 Note was modified to remove the stated maturity date
and instead will be due on demand by Third Eye Capital. In third
quarter of 2019, the February 2019 Note was modified to include
additional borrowings of $0.7 million. In first quarter of 2020,
the February 2019 Note was modified to include additional
borrowings of $0.6 million. As of September 30, 2020, the
outstanding balance of principal and interest on the February 2019
Note was $1.8 million.
On April 1, 2020, the Company exercised the option to extend the
maturity of Third Eye Capital Notes to April 1, 2021 for a fee of
1% of the outstanding note balance instead of agreed fee of 5% in
the Amendment No.14. We have evaluated the reduction in extension
fee to 1% in accordance with ASC 470-60 Troubled Debt
Restructuring. According to the guidance, we considered the 1%
extension fee to be a troubled debt restructuring. We assessed all
the terms to confirm if there is a concession granted by the
creditor. The maturity date of the Third Eye Capital Notes was
extended to April 1, 2021 for a 1% fee, which was lower than the
extension fee of 5% provided by Amendment No. 14 for a one-year
extension. On August 11, 2020, Third Eye Capital agreed to Limited
Waiver and Amendment No. 17 to the Note Purchase Agreement
(“Amendment No. 17”), to (i) provide that the maturity
date of the Third Eye Capital Notes may be further extended at our
election to April 1, 2022 in exchange for an extension fee equal to
1% of the Note Indebtedness in respect to each Note, provided that
such fee may be added to the outstanding principal balance of each
Note on the effective date of each such extension, (ii) provide for
a waiver of the ratio of note indebtedness covenant for the
quarters ended March 31, 2021 and June 30, 2021. As consideration
for such amendment and waivers, the borrowers also agreed to pay
Third Eye Capital an amendment and waiver fee of $0.3 million in
cash (the “Amendment No. 17 Fee”). We have evaluated
the 1% extension fee and Amendment No. 17 in accordance with ASC
470-60 Troubled Debt Restructuring. According to the guidance, we
considered 1% extension and Amendment No.17 Fee to be a troubled
debt restructuring. In order to assess whether the creditor granted
a concession, we calculated the post-restructuring effective
interest rate by projecting cash flows on the new terms and
calculated a discount rate equal to the carrying amount of
pre-restructuring of debt, and by comparing this calculation to the
terms of Amendment No. 15, we determined that Third Eye Capital
provided a concession in accordance with the provisions of ASC
470-60 Troubled Debt Restructuring and thus applied troubled debt
restructuring accounting, resulting in no gain or loss from the
application of this accounting. Using the effective interest method
of amortization, the 1% extension fee of $1.0 million and the
Amendment No. 17 Fee of $0.3 million will be amortized over the
stated remaining life of the Third Eye Capital Notes.
Terms of Third Eye Capital Notes
A.
Term
Notes. As of September 30, 2020, the Company had $7.0
million outstanding under the Term Notes net of $53 thousand
unamortized discount issuance costs. The Term Notes accrue interest
at 14% per annum and mature on April 1, 2021*.
B.
Revolving
Credit Facility. The Revolving Credit Facility accrues interest at
the prime rate plus 13.75% (17.00% as of September 30, 2020),
payable monthly in arrears. The Revolving Credit Facility matures
on April 1, 2021*. As of September 30, 2020, AAFK had $75.6 million
outstanding under the Revolving Credit Facility net of $0.5 million
unamortized discount issuance costs.
C.
Revenue
Participation Term Notes. The Revenue Participation Term Note bears interest
at 5% per annum and matures on April 1, 2021*. As of September 30,
2020, AAFK had $11.8 million outstanding on the Revenue
Participation Term Notes net of $87 thousand unamortized discount
issuance costs.
D.
Acquisition
Term Notes. The Acquisition Term Notes accrue interest at the
prime rate plus 10.75% (14.00% per annum as of September 30, 2020)
and mature on April 1, 2021*. As of September 30, 2020, Aemetis
Facility Keyes, Inc. had $26.3 million outstanding net of
unamortized discount issuances costs of $0.1 million. The
outstanding balance includes a total of $7.5 million in
non-interest bearing redemption fees.
E.
Reserve
Liquidity Notes. The Reserve Liquidity Notes, with available
borrowing capacity in the amount of $18.0 million, accrue interest
at the rate of 30% per annum and are due and payable upon the
earlier of: (i) the closing of new debt or equity financings, (ii)
receipt from any sale, merger, debt or equity financing, or (iii)
April 1, 2021. We have no borrowings outstanding under the Reserve
Liquidity Notes as of September 30, 2020.
The Third Eye Capital Notes contain various covenants, including
but not limited to, debt to plant value ratio, minimum production
requirements, and restrictions on capital expenditures. The terms
of the Third Eye Capital Notes allow the lender to accelerate the
maturity in the occurrence of any event that could reasonably be
expected to have a material adverse effect, such as any change in
the business, operations, or financial condition. The terms of the
notes allow interest to be capitalized.
The Third Eye Capital Notes are secured by first priority liens on
all real and personal property of, and assignment of proceeds from
all government grants and guarantees from the Company's North
American subsidiaries. The Third Eye Capital Notes all contain
cross-collateral and cross-default provisions. McAfee Capital, LLC
(“McAfee Capital”), owned by Eric McAfee, the
Company’s Chairman and CEO, provided a guaranty of payment
and performance secured by all of its Company shares. In addition,
Eric McAfee provided a blanket lien on substantially all of his
personal assets, and McAfee Capital provided a guarantee in the
amount of $8.0 million.
*The
note maturity date can be extended by the Company to April 2022. As
a condition to any such extension, the Company would be required to
pay a fee of 1% of the carrying value of the debt which can be paid
in cash or added to the outstanding debt. As a result of this
ability to extend the maturity at the Company’s will, the
Third Eye Capital Notes are classified as non-current
debt.
Cilion shareholder seller notes payable. In connection with the Company’s merger
with Cilion, Inc., (“Cilion”) on July 6, 2012, the
Company issued $5.0 million in notes payable to Cilion shareholders
as merger compensation subordinated to the senior secured Third Eye
Capital Notes. The liability bears interest at 3% per annum and is
due and payable after the Third Eye Capital Notes have been paid in
full. As of September 30, 2020, Aemetis Facility Keyes, Inc. had
$6.2 million outstanding under the Cilion shareholder seller notes
payable.
Subordinated Notes. On January
6 and January 9, 2012, AAFK entered into Note and Warrant Purchase
Agreements with two accredited investors (the “Note and
Warrant Purchase Agreements”) pursuant to which it issued
$0.9 million and $2.5 million in original notes to the investors
(the “Subordinated Notes”). The Subordinated Notes
mature every six months. Upon maturity, the Subordinated Notes are
generally extended with a fee of 10% added to the balance
outstanding plus issuance of warrants exercisable at $0.01 with a
two-year term. Interest accrues at 10% and is due at maturity.
Neither AAFK nor Aemetis may make any principal payments under the
Subordinated Notes until all loans made by Third Eye Capital to
AAFK are paid in full.
On July 1, 2020, the Subordinated Notes were amended to extend the
maturity date until the earlier of (i) December 31, 2020; (ii)
completion of an equity financing by AAFK or Aemetis in an amount
of not less than $25.0 million; or (iii) after the occurrence of an
Event of Default (as defined in the Note and Warrant Purchase
Agreements), including failure to pay interest or principal when
due and breaches of note covenants. A 10% cash extension fee was
paid by adding the fee to the balance of the new note and warrants
to purchase 113 thousand shares of common stock were granted with a
term of two years and an exercise price of $0.01 per share. We
evaluated the July 1, 2020 amendment and the refinancing terms of
the Subordinated Notes and applied modification accounting in
accordance with ASC 470-50 Debt – Modification and
Extinguishment.
At September 30, 2020 and December 31, 2019, the Company had,
in aggregate, $12.3 million and $11.5 million outstanding net of
discount issuance costs of $0.2 million and none, respectively,
under the Subordinated Notes.
EB-5 promissory notes. EB-5 is
a U.S. government program authorized by the Immigration and
Nationality Act designed to foster employment-based visa preference
for immigrant investors to encourage the flow of capital into the
U.S. economy and to promote employment of U.S. workers. The Company
entered into a Note Purchase Agreement dated March 4, 2011 (as
further amended on January 19, 2012 and July 24, 2012) with
Advanced BioEnergy, LP, a California limited partnership authorized
as a Regional Center to receive EB-5 investments, for the issuance
of up to 72 subordinated convertible promissory notes (the
“EB-5 Notes”) bearing interest at 2-3%. Each note was
issued in the principal amount of $0.5 million and due and payable
four years from the date of each note, for a total aggregate
principal amount of up to $36.0 million (the “EB-5 Phase I
funding”). The original maturity date on the promissory notes
can be extended automatically for a one or two-year period
initially and is eligible for further one-year automatic extensions
as long as there is no notice of non-extension from investors and
the investors’ immigration process is in progress. On
February 27, 2019, Advanced BioEnergy, LP, and the Company entered
into an Amendment to the EB-5 Notes which restated the original
maturity date on the promissory notes with automatic six-month
extensions as long as the investors’ immigration processes
are in progress. Except for six early investor EB-5 Notes, the
Company was granted 12 months from the date of the completion of
immigration process to redeem these EB-5 Notes. Accordingly, the
notes have been recognized as long-term debt while the five early
investor notes and one investor who obtained the Green Card
approval have been classified as current debt. The EB-5 Notes are
convertible after three years at a conversion price of $30 per
share.
Advanced BioEnergy, LP arranges investments with foreign investors,
who each make loans to the Keyes Plant in increments of $0.5
million. The Company has sold an aggregate principal amount of
$36.0 million of EB-5 Notes under the EB-5 Phase I funding since
2012 to the date of this filing. As of September 30, 2020, $35.5
million has been released from the escrow amount to the Company,
with $0.5 million remaining to be funded to escrow. As of September
30, 2020, $35.5 million in principal and $3.3 million in accrued
interest was outstanding on the EB-5 Notes sold under the EB-5
Phase I funding.
On October 16, 2016, the Company launched its EB-5 Phase II
funding, with plans to issue $50.0 million in additional EB-5 Notes
on substantially similar terms and conditions as those issued under
the Company’s EB-5 Phase I funding, to refinance indebtedness
and capital expenditures of Aemetis, Inc. and GAFI (the “EB-5
Phase II funding”). On November 21, 2019, the minimum
investment was raised from $0.5 million per investor to $0.9
million per investor. The Company entered into a Note Purchase
Agreement dated with Advanced BioEnergy II, LP, a California
limited partnership authorized as a Regional Center to receive EB-5
Phase II funding investments, for the issuance of up to 100 EB-5
Notes bearing interest at 3%. On May 1, 2020 Supplement No. 3
amended the offering documents and lowered the total eligible new
EB-5 Phase II funding investors to 60. Eight EB-5 investors have
funded at the $0.5 million per investor amount, so 52 new EB-5
Phase II funding investors are eligible at the new $0.9 million per
investor amount under the current offering. Job creation studies
show additional investors may be possible to increase the total
offering amount in the future. Each new note will be issued in the
principal amount of $0.9 million and due and payable five years
from the date of each note, for a total aggregate principal amount
of up to $50.8 million.
Advanced BioEnergy II, LP arranges investments with foreign
investors, who each make loans to the Riverbank Cellulosic Ethanol
Facility in increments of $0.9 million after November 21, 2019. The
Company has sold an aggregate principal amount of $4.0 million of
EB-5 Notes under the EB-5 Phase II funding since 2016 to the date
of this filing. As of September 30, 2020, $4.0 million has been
released from escrow to the Company and $46.8 million remains to be
funded to escrow. As of September 30, 2020, $4.2 million was
outstanding on the EB-5 Notes under the EB-5 Phase II
funding.
Working capital loans. On April
16, 2017, the Company entered into an operating agreement with
Gemini Edibles and Fats India Private Limited
(“Gemini”). Under this agreement, Gemini agreed to
provide the Company with working capital, on an as needed basis, to
fund the purchase of feedstock and other raw materials for the
Kakinada Plant. Working capital cash advances bear interest at 12%
and working capital can be induced through trading of feedstock or
finished goods by Gemini which does not have any interest accrual.
In return, the Company agreed to pay Gemini an amount equal to 30%
of the plant’s monthly net operating profit and recognized
these as operational support charges in the financials. In the
event that the Company’s biodiesel facility operates at a
loss, Gemini owes the Company 30% of the losses as operational
support charges. Either party can terminate the agreement at any
time without penalty. Additionally, Gemini received a first
priority lien on the assets of the Kakinada Plant. During the nine
months ended September 30, 2020, we have accrued no interest on
Gemini balance as the investment was for feedstock purchase and
finished goods trade. During the nine months ended September 30,
2020 and 2019, the Company made principal payments to Gemini of
approximately $8.5 million and $35.6 million, respectively. As of
September 30, 2020 and December 31, 2019, the Company had none and
$2.0 million outstanding under this agreement,
respectively.
In November 2008, the Company entered into an operating agreement
with Secunderabad Oils Limited (“Secunderabad Oils”).
On July 15, 2017, the agreement with Secunderabad Oils was amended
to provide the working capital funds for British Petroleum business
operations only in the form of inter-corporate deposit for an
amount of approximately $2.3 million over a 95 days period at the
rate of 14.75% per annum interest rate. The term of the agreement
continues until either party terminates it. Secunderabad Oils has a
second priority lien on the assets of the Company’s Kakinada
Plant after this agreement. On April 15, 2018, the agreement was
amended to purchase the raw material for business operations at 12%
per annum interest rate. During the nine months ended September 30,
2020 and 2019, the Company made principal and interest payments to
Secunderabad Oils of approximately $0.9 million and $0.5 million,
respectively. As of September 30, 2020 and December 31, 2019, the
Company had $2.5 million and $0.6 million outstanding under this
agreement, respectively.
GAFI Term loan and Revolving loan. On July 10, 2017, GAFI entered into a Note
Purchase Agreement (“GAFI Note Purchase Agreement”)
with Third Eye Capital (“Noteholders”). Pursuant to the
GAFI Note Purchase Agreement, the Noteholders agreed, subject to
the terms and conditions of the GAFI Note Purchase Agreement and
relying on each of the representations and warranties set forth
therein, to make (i) a single term loan to GAFI in an aggregate
amount of $15 million (“GAFI Term Loan”) and (ii)
revolving advances not to exceed ten million dollars in the
aggregate (“GAFI Revolving Loan”). The interest rate
per annum applicable to the GAFI Term Loan is equal to ten percent
(10%). The interest rate per annum applicable to the GAFI Revolving
Loans is the greater of Prime Rate plus seven and three quarters
percent (7.75%) and twelve percent (12.00%). The applicable
interest rate as of September 30, 2020 was 12.00%. The maturity
date of the GAFI Term Loan and GAFI Revolving Loan (“GAFI
Loan Maturity Date”) was July 10, 2020, provided that the
GAFI Loan Maturity Date may be extended at the option of Aemetis
for up to one-year period upon prior written notice and upon
satisfaction of certain conditions and the payment of a renewal fee
for such extension. The Company exercised the option to extend the
GAFI Loan Maturity Date for a fee of $0.5 million and the current
GAFI Loan Maturity Date is July 10, 2021. We evaluated the
extension fee and applied modification accounting in accordance
with ASC 470-50 Debt – Modification and
Extinguishment.
On June 28, 2018, GAFI entered into Amendment No. 1 to the GAFI
Term Loan with Third Eye Capital for an additional amount of $1.5
million with a fee of $75 thousand added to the loan from Third Eye
Capital at a 10% interest rate. On December 20, 2018, $1.6 million
from Amendment No. 1 was repaid. Pursuant to Amendment No. 1,
Aemetis, Inc. entered into a Stock Appreciation Rights Agreement to
issue 1,050,000 Stock Appreciation Rights (“SARs”) to
Third Eye Capital on August 23, 2018, with an exercise date of one
year from the issuance date with a call option for the Company at
$2.00 per share during the first 11 months of the agreement either
to pay $2.1 million in cash or issue common stock worth $2.1
million based on the 30-day weighted average price of the stock on
the call date, and a put option for Third Eye Capital at $1.00 per
share during the 11th month of the agreement where the Company can
redeem the SARs for $1.1 million in cash. In the event that none of
the above options is exercised, the SARs will be automatically
exercised one year from the issuance date based upon the 30-day
weighted average stock price and paid in cash and cash equivalents.
On July 22, 2019, Third Eye Capital exercised the put option at
$1.00 per share for $1.1 million. The exercise value of the SARs of
$1.1 million was added to the GAFI Term Loan and the SARs fair
value liability was released.
On December 3, 2018, GAFI entered into Amendment No. 2 to the GAFI
Term Loan with Third Eye Capital for an additional amount of $3.5
million from Third Eye Capital at a 10% interest rate. GAFI
borrowed $1.8 million against this Amendment No. 2 with a $175
thousand fee added to the loan and $0.2 million was withheld from
the $1.8 million for interest payments. $1.5 million is available
to draw under GAFI Amendment No. 2 for the CO2 Project (“CO2
Term Loan”). Among other requirements, the Company is also
required to make the following mandatory repayments of the CO2 Term
Loan: (i) on a monthly basis, an amount equal to 75% of any
payments received by the Company for CO2 produced by Messer, (ii)
an amount equal to 100% of each monthly payment received by the
Company for land use by Linde for CO2 plant, (iii) on a monthly
basis, an amount equal to the product of: $0.01 multiplied by the
number of bushels of corn grain used in the ethanol production at
the Keyes Plant. Based on the mandatory payments, an amount of $1.0
million is estimated to be paid in the next 12 months and is
classified as current debt as of September 30, 2020.
As of September 30, 2020, GAFI had $21.5 million net of discount
issuance costs of $0.6 million outstanding on the GAFI Term Loan
and $11.4 million on the GAFI Revolving Loan respectively,
classified as current portion of long-term debt.
Payroll Protection Program. On
May 5, 2020, certain wholly owned subsidiaries of the Company
received loan proceeds of approximately $1.1 million, (“PPP
Loans”) under the Paycheck Protection Program
(“PPP”). The PPP, established as part of the
Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), provides loans to qualifying businesses for payroll
expenses of the qualifying business. The PPP Loan and accrued
interest are forgivable after twenty-four weeks if the borrower
uses the loan proceeds for eligible purposes, including payroll,
benefits, rent and utilities, and maintains its payroll levels. The
amount of loan forgiveness will be reduced if the borrower
terminates employees or reduces salaries during the
twenty-four-week period. The Company anticipates that it will
utilize the proceeds in accordance with the PPP guidelines and
repay amounts that are not forgiven or utilized. In order to obtain
full or partial forgiveness of the PPP Loan, the Company must
request forgiveness and must provide satisfactory documentation in
accordance with applicable Small Business Administration
(“SBA”) guidelines.
The PPP Loans are evidenced by promissory notes, dated May 1, 2020
and April 30, 2020 (the “Notes”), between the Company,
as Borrower, and Bank of America, N.A., as Lender (the
“Lender”). The interest rate on the Note is 1.00% per
annum. No payments of principal or interest are due during the
six-month period beginning on the funding date (the “Deferral
Period”). If the SBA does not confirm forgiveness or only
partly confirms forgiveness of the PPP Loans, or Borrower fails to
apply for loan forgiveness, the Borrower will be obligated to repay
to the Bank the total outstanding balance remaining due under the
PPP Loans, including principal and interest and in such case, the
Lender will establish the terms for repayment of the Loan in a
separate letter to be provided to the Borrower in which the letter
will set forth the loan balance, the amount of each monthly
payment, the interest rate (not in excess of a fixed rate of one
percent (1.00%) per annum), the term of the PPP Loans, and the
maturity date, which, if not established by the Lender, shall be
two (2) years from the funding date of the PPP Loans.
Scheduled debt repayments for the Company’s loan obligations
follow:
Twelve months ended September 30,
|
|
2021
|
$59,336
|
2022
|
145,530
|
2023
|
13,435
|
2024
|
5,172
|
2025
|
2,436
|
Thereafter
|
1,247
|
Total
debt
|
227,156
|
Debt
issuance costs
|
(810)
|
Total
debt, net of debt issuance costs
|
$226,346
|
5. Commitments and Contingencies
Leases
We have identified assets as the corporate office, warehouse,
monitoring equipment and laboratory facilities over which we have
control and obtain economic benefits fully. We classified these
identified assets as operating leases after assessing the terms
under classification guidance. We have entered into several leases
for trailers and carbon units with purchase option at the end of
the term. We have concluded that it is reasonably certain that we
would exercise the purchase option at the end of the term, hence
the leases were classified as finance leases. All of our leases
have remaining term of less than a year to 8 years.
When discount rates implicit in leases cannot be readily
determined, the Company uses the applicable incremental borrowing
rate at lease commencement to perform lease classification tests on
lease components and measure lease liabilities and right-of-use
(“ROU”) assets. The incremental borrowing rate used by
the Company was based on weighted average baseline rates
commensurate with the Company’s secured borrowing rate over a
similar term. At each reporting period, when there is a new lease
initiated, the rates established for that quarter will be
used.
The components of lease expense and sublease income
follow:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
|
|
Operating lease cost
|
|
|
|
|
Operating
lease expense
|
$201
|
$219
|
$561
|
$543
|
Short
term lease expense
|
75
|
18
|
104
|
71
|
Variable
lease expense
|
29
|
31
|
89
|
80
|
Sub
lease income
|
-
|
(50)
|
-
|
(118)
|
Total
operating lease cost
|
$305
|
$218
|
$754
|
$576
|
|
|
|
|
|
Finance lease cost
|
|
|
|
|
Amortization
of right-of-use assets
|
$94
|
$-
|
$155
|
$-
|
Interest
on lease liabilities
|
26
|
-
|
44
|
-
|
Total
finance lease cost
|
$120
|
$-
|
$199
|
$-
|
Cash paid for amounts included in the measurement of lease
liabilities:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
|
|
Operating
cash flows used in operating leases
|
$131
|
185
|
$448
|
$517
|
Operating
cash flows used in finance leases
|
26
|
-
|
44
|
-
|
Financing
cash flows used in finance leases
|
435
|
-
|
$1,137
|
-
|
Supplemental non-cash flow information related to the operating ROU
asset and lease liabilities was as follows for the three and nine
months ended September 30, 2020 and 2019:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
|
|
|
|
Operating leases
|
|
|
|
|
Accretion
of the lease liability
|
$101
|
$31
|
$160
|
$107
|
Amortization
of right-of-use assets
|
100
|
151
|
402
|
438
|
Weighted
Average Remaining Lease Term
|
|
Operating
leases
|
|
Finance
leases
|
|
|
|
Weighted
Average Discount Rate
|
|
Operating
leases
|
13.9%
|
Finance
leases
|
5.2%
|
Supplemental balance sheet information related to leases was as
follows:
|
|
|
|
|
Operating leases
|
|
|
Operating
lease right-of-use assets
|
$2,843
|
$557
|
|
|
|
Current
portion of operating lease liability
|
286
|
377
|
Long
term operating lease liability
|
2,662
|
200
|
Total
operating lease liabilities
|
$2,948
|
$577
|
|
|
|
Finance leases
|
|
|
Property
and equipment, at cost
|
$2,988
|
$-
|
Accumulated
depreciation
|
(155)
|
-
|
Property
and equipment, net
|
$2,833
|
$-
|
|
|
|
Other
current liability
|
621
|
-
|
Long
term other liability
|
1,270
|
-
|
Total
finance lease liabilities
|
$1,891
|
$-
|
Maturities of operating and finance lease liabilities were as
follows:
Twelve
months ended September 30,
|
|
|
|
|
|
2021
|
$666
|
$704
|
2022
|
613
|
577
|
2023
|
569
|
494
|
2024
|
586
|
290
|
2025
|
603
|
-
|
Thereafter
|
1,698
|
-
|
Total
lease payments
|
4,735
|
2,065
|
Less
imputed interest
|
(1,787)
|
(174)
|
|
|
|
Total
lease liability
|
$2,948
|
$1,891
|
Other Commitments
The Company entered into an agreement with Mitsubishi Chemical
America, Inc. to purchase certain equipment to save energy used in
the Keyes Plant. We also entered into a financing agreement with
the seller for $5.7 million for this equipment. Payments pursuant
to the financing transaction will commence after the installation
date and interest will be charged based on the certain performance
metrics after operation of the equipment. The equipment was
delivered in March 2020; however the installation has been delayed
due to the COVID-19 pandemic. Hence, we recorded the asset in
construction in progress and related liability in the short and
long term debt of $0.7 million and $5 million, respectively as of
September 30, 2020.
Property taxes
The Company entered into a payment plan with Stanislaus County for
unpaid property taxes for the Keyes Plant site on June 28, 2018 by
paying $1.5 million as a first payment. Under the annual payment
plan, the Company was set to pay 20% of the outstanding redemption
amount, in addition to the current year property taxes and any
interest incurred on the unpaid balance to date annually, on or
before April 10 starting in 2019. After making one payment, Company
defaulted on the payment plan and as of September 30, 2020 and
December 31, 2019, the balance in property tax accrual was $5.4
million and $4.1 million, respectively. Stanislaus County agreed
not to enforce collection actions and we are now in discussions
with Stanislaus County regarding a payment plan.
Legal Proceedings
On August 31, 2016, the Company filed a lawsuit in Santa Clara
County Superior Court against defendant EdenIQ, Inc.
(“EdenIQ”). The lawsuit was based on EdenIQ’s
wrongful termination of a merger agreement that would have
effectuated the merger of EdenIQ into a new entity that would be
primarily owned by Aemetis. The lawsuit asserted that EdenIQ had
fraudulently induced the Company into assisting EdenIQ to obtain
EPA approval for a new technology that the Company would not have
done but for the Company’s belief that the merger would
occur. The relief sought included EdenIQ’s specific
performance of the merger, monetary damages, as well as punitive
damages, attorneys’ fees, and costs. In response to the
lawsuit, EdenIQ filed a cross-complaint asserting causes of action
relating to the Company’s alleged inability to consummate the
merger, the Company’s interactions with EdenIQ’s
business partners, and the Company’s use of EdenIQ’s
name and trademark in association with publicity surrounding the
merger. Further, EdenIQ named Third Eye Capital Corporation
(“TEC”) as a defendant in a second amended
cross-complaint alleging that TEC had failed to disclose that its
financial commitment to fund the merger included terms that were
not disclosed. Finally, EdenIQ claimed that TEC and the Company
concealed material information surrounding the financing of the
merger. By way of its cross-complaint, EdenIQ sought monetary
damages, punitive damages, injunctive relief, attorneys’ fees
and costs. In November 2018, the claims asserted by the Company
were dismissed on summary judgment and the Company filed a motion
to amend its claims, which remains pending. In December 2018,
EdenIQ dismissed all of its claims prior to trial. In February
2019, the Company and EdenIQ each filed motions seeking
reimbursement of attorney fees and costs associated with the
litigation. On July 24, 2019, the court awarded EdenIQ a portion of
the fees and costs it had sought in the amount of approximately
$6.2 million. The Company recorded the $6.2 million as loss
contingency on litigation during the year ended December 31, 2019.
The Company’s ability to amend its claims and present its
claims to the court or a jury could materially affect the
court’s decision to award EdenIQ its fees and costs. In
addition to further legal motions and a potential appeal of the
Court’s summary judgment order, the Company plans to appeal
the court’s award of EdenIQ’s fees and costs. The
Company intends to continue to vigorously pursue its legal claims
and defenses against EdenIQ.
6. Biogas LLC – Series A Preferred Financing
On December 20, 2018, Aemetis Biogas LLC entered into a Series A
Preferred Unit Purchase Agreement (the “Preferred Unit
Agreement”) by selling Series A Preferred Units to Protair-X
Americas, Inc. (the “Purchaser”), with Third Eye
Capital acting as an agent for the purchaser (the
“Agent”). ABGL plans to construct and collect biogas
from dairies located near the Keyes Plant. Biogas is a blend of
methane along with CO2 and other impurities that can be captured
from dairies, landfills and other sources. After a gas cleanup and
compression process, biogas can be converted into bio-methane,
which is a direct replacement of petroleum natural gas and can be
transported in existing natural gas pipelines.
ABGL is authorized to issue 11,000,000 common units, and up to
6,000,000 convertible, redeemable, secured, preferred membership
units (the “Series A Preferred Units”). ABGL issued
6,000,000 common units to the Company. ABGL also issued 1,660,000
Series A Preferred Units to the Purchaser for $8,300,000 with the
ability to issue an additional 4,340,000 Series A Preferred Units
at $5.00 per Unit for a total of up to $30,000,000 in funding.
Additionally, 5,000,000 common units of ABGL are held in reserve as
potential conversion units issuable to the Purchaser upon certain
triggering events discussed below.
The Preferred Unit Agreement includes (i) preference payments of
$0.50 per unit on the outstanding Series A Preferred Units
commencing on the second anniversary, (ii) conversion rights for up
to 1,200,000 common units or up to maximum number of 5,000,000
common units (also at a one Series A Preferred Unit to one common
unit basis) if certain triggering events occur, (iv) one board seat
of the three available to be elected by Series A Preferred Unit
holders, (iii) mandatory redemption value at $15 per unit payable
at an amount equal to 75% of free cash flow generated by ABGL, up
to $90 million in the aggregate (if all units are issued), (iv)
full redemption of the units on the sixth anniversary, (v) minimum
cash flow requirements from each digester, and (vi) $0.9 million
paid as fees to the Agent from the proceeds.
Triggering events occur upon ABGL’s failure to redeem units,
comply with covenants, any other defaults or cross defaults, or to
perform representations or warranties. Upon a triggering event: (i)
the obligation of the Purchaser to purchase additional Series A
Preferred Units is terminated, (ii) cash flow payments for
redemption payments increases from 75% to 100% of free cash flows,
and (iii) total number of common units into which preferred units
may be converted increases from 1,200,000 common units to 5,000,000
common units on a one for one basis. As of September 30, 2020, ABGL
has not generated minimum quarterly operating cash flows by
operating the dairies. As a result of the violation of this
covenant, free cash flows, when they occur, may be applied for
redemption payments at the increased rate of 100% instead of the
initial rate of 75% of free cash flows.
From inception of the agreement to date, ABGL issued 3,200,000
Series A Preferred Units on first tranche for a value of $16.0
million and also issued 1,735,833 Series A Preferred Units on
second tranche for a value of $8.7 million. The Company is
accreting these two tranches to the redemption value of $74 million
over the estimated future cash flow periods of six years using the
effective interest method. In addition, the Company identified
freestanding future tranche rights and the accelerated redemption
feature related to a change in control provision as derivatives
which required bifurcation. These derivative features were assessed
to have minimal value as of September 30, 2020 and December 31,
2019 based on the evaluation of the other conditions included in
the agreement.
During the quarter ended September 30, 2020, ABGL issued 732,372 of
Series A Preferred Units for incremental proceeds of $3.7 million
as part of the second tranche of the Preferred Unit Agreement.
Consistent with the previous issuances, the units are treated as a
liability as the conversion option was deemed to be
non-substantive. The Company is accreting up to the redemption
value of $11.0 million over the estimated future cash flow periods
of six years from the original anniversary date using the effective
interest method.
The Company recorded Series A Preferred Unit liabilities, net of
unit issuance costs and inclusive of accretive preference pursuant
to this agreement, classified as other current liabilities, of $1.2
million and none, and long-term liabilities of $28.5 million and
$14.1 million as of September 30, 2020 and December 31, 2019,
respectively.
7. Stock-Based Compensation
2019 Plan
On April 29, 2019, the Aemetis 2019 Stock Plan (the “2019
Stock Plan”) was approved by stockholders of the Company.
This plan permits the grant of Incentive Stock Options,
Non-Statutory Stock Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Performance Units, Performance
Shares and other stock or cash awards as the Administrator of the
plan may determine in its discretion. The 2019 Stock Plan’s
term is 10 years and supersedes all prior plans. The 2019 Stock
Plan authorized the issuance of 200,000 shares of common stock for
the 2019 calendar year, in addition to permitting the transfer and
grant of any available and unissued or expired options under the
prior Amended and Restated 2007 Stock Plan in an amount up to
177,246 options.
Employee grants have a general vesting term of 1/12th every three
months and are exercisable at any time after vesting subject to
continuation of employment. Option grants for directors have
immediate vesting with a 10-year term expiration.
With the approval of the 2019 Stock Plan, the Zymetis 2006 Stock
Plan and the Amended and Restated 2007 Stock Plan (the “Prior
Plans,” and together with the 2019 Stock Plan, the
“Stock Plans”) are terminated for granting any options
under either plan. However, any options granted before the 2019
Stock Plan approved will remain outstanding and can be exercised,
and any expired options issued pursuant to the Prior Plans can be
granted under the 2019 Stock Plan.
On January 9, 2020, 771,500 stock option grants were issued for
employees and directors under the 2019 Stock Plan. On March 28,
2020, 1,075,500 stock options grant were approved by the Board for
employees and directors under the 2019 Stock Plan.
On April 3, 2020, 450,000 stock option grants were issued for
employees under the 2019 Stock Plan with 10 year term and immediate
vesting.
On June 4, 2020, 10,000 stock option grants were approved by the
Board for a director under the 2019 Stock Plan with 10 year term
and 2 year vesting.
On August 27, 2020, 13,000 stock option grants were approved by the
Board for new employees under the 2019 Stock Plan with 10 year term
and 3 year vesting.
As of September 30, 2020, 5.8 million options are outstanding under
the Stock Plans.
Common Stock Reserved for Issuance
The following is a summary of options granted under the
Plans:
|
Shares Available for Grant
|
Number of Shares Outstanding
|
Weighted-Average Exercise Price
|
Balance
as of December 31, 2019
|
147
|
3,746
|
$1.38
|
Authorized
|
2,342
|
-
|
-
|
Granted
|
(2,320)
|
2,320
|
0.69
|
Exercised
|
-
|
(232)
|
1.27
|
Forfeited/expired
|
83
|
(83)
|
0.76
|
|
|
|
|
Balance
as of September 30, 2020
|
252
|
5,751
|
$1.12
|
As of September 30, 2020, there were 3.9 million options vested
under all the Plans.
Stock-based compensation for employees
Stock-based compensation is accounted for in accordance with the
provisions of ASC 718, Compensation-Stock Compensation, which
requires the measurement and recognition of compensation expense
for all stock-based awards made to employees and directors based on
estimated fair values on the grant date. We estimate the fair value
of stock-based awards on the date of grant using the Black-Scholes
option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the
requisite service periods using the straight-line
method.
For the three months ended September 30, 2020 and 2019, the Company
recorded stock compensation expense in the amount of $191 thousand
and $144 thousand, respectively. For the nine months ended
September 30, 2020 and 2019, the Company recorded stock
compensation expense in the amount of $826 thousand and $630
thousand, respectively.
Valuation and Expense Information
All issuances of stock options or other issuances of equity
instruments to employees as the consideration for services received
by us are accounted for based on the fair value of the equity
instrument issued. The fair value of options granted to employees
is estimated on the grant date using the Black-Scholes option
valuation model. This valuation model for stock based compensation
expense requires us to make assumptions and judgments about the
variables used in the calculation, including the fair value of our
common stock, the expected term (the period of time that the
options granted are expected to be outstanding), the volatility of
our common stock, a risk-free interest rate, and expected
dividends. We also estimate forfeitures of unvested stock options.
To the extent actual forfeitures differ from our estimates, the
difference will be recorded as a cumulative adjustment in the
period estimates are revised. Compensation cost is recorded only
for vested options. 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 and the plan.
During the nine months ended September 30, 2020 and 2019, 2,320,000
and 399,000 options were granted respectively. The weighted average
fair value calculations for options granted during the nine months
ended September 30, 2020 and 2019 are based on the following
assumptions:
|
For the nine months ended
September 30,
|
Description
|
|
|
Dividend-yield
|
0%
|
0%
|
Risk-free
interest rate
|
0.94%
|
2.38%
|
Expected
volatility
|
88.15%
|
88.54%
|
Expected
life (years)
|
6.55
|
6.55
|
Market
value per share on grant date
|
$0.69
|
$0.78
|
Fair
value per share on grant date
|
$0.52
|
$0.59
|
As of September 30, 2020, the Company had $1.1 million of total
unrecognized compensation expense for employees, which the Company
will amortize over the 2.0 years weighted average remaining
term.
8. Agreements
Working Capital Arrangement. Pursuant to a Corn Procurement and Working Capital
Agreement with J.D. Heiskell, the Company agreed to procure whole
yellow corn and grain sorghum, primarily from J.D. Heiskell. The
Company has the ability to obtain grain from other sources subject
to certain conditions; however, in the past all the Company’s
grain purchases have been from J.D. Heiskell. Title and risk of
loss of the corn pass to the Company when the corn is deposited
into the Keyes Plant weigh bin. The term of the Corn Procurement
and Working Capital Agreement expires on December 31, 2020 and the
term can be automatically renewed for additional one-year terms.
J.D. Heiskell further agrees to sell all WDG the Company produces
to A.L. Gilbert. The Company markets and sells DCO to A.L. Gilbert
and other third parties under the J.D. Heiskell Purchasing
Agreement. The Company’s relationships with J.D. Heiskell,
and A.L. Gilbert are well established and the Company believes that
the relationships are beneficial to all parties involved in
utilizing the distribution logistics, reaching out to widespread
customer base, managing inventory, and building working capital
relationships. These agreements are ordinary purchase and sale
agency agreements for the Keyes Plant. On May 13, 2020, J.D.
Heiskell and the Company entered into Amendment No.1 to the J.D.
Heiskell Purchasing Agreement to remove J.D. Heiskell’s
obligations to purchase ethanol from the Company under the J.D.
Heiskell Purchasing Agreement.
The J.D. Heiskell’s sales activity associated with the Corn
Procurement and Working Capital Agreement for the three and nine
months ended September 30, 2020 and 2019 are as
follows:
|
As of and for the three months ended
September 30,
|
As of and for the nine months ended
September 30,
|
|
|
|
|
|
Ethanol
sales
|
$-
|
$27,456
|
$26,049
|
$84,453
|
Wet
distiller's grains sales
|
7,143
|
8,783
|
22,983
|
26,119
|
Corn
oil sales
|
827
|
934
|
2,806
|
2,586
|
Corn
purchases
|
25,513
|
30,446
|
77,268
|
90,426
|
Accounts
receivable
|
161
|
1,066
|
161
|
1,066
|
Accounts
payable
|
1,978
|
2,484
|
1,978
|
2,484
|
Ethanol and Wet Distillers Grains Marketing Arrangement.
The Company entered into an Ethanol
Marketing Agreement with Kinergy and a Wet Distillers Grains
Marketing Agreement with A.L. Gilbert. Under the terms of the
agreements, subject to certain conditions, the Ethanol Marketing
Agreement matures on August 31, 2021 and the Wet Distillers Grains
Marketing Agreement matures on December 31, 2020 with automatic
one-year renewals thereafter. For the three months ended September
30, 2020 and 2019, the Company expensed marketing costs of $0.6
million for each period under the terms of both the Ethanol
Marketing Agreement and the Wet Distillers Grains Marketing
Agreement. For the nine months ended September 30, 2020 and 2019,
the Company expensed marketing costs of $1.7 million and $1.9
million, respectively.
9. Segment Information
Aemetis recognizes two reportable geographic segments: “North
America” and “India.” The “North
America” operating segment includes the Keyes Plant, the
Riverbank Cellulosic Ethanol Facility, the Biogas Project, the
Goodland Plant and the research and development facility in
Minnesota.
The “India” operating segment includes the Kakinada
Plant, the administrative offices in Hyderabad, India, and the
holding companies in Nevada and Mauritius. The Company’s
biodiesel is marketed and sold primarily to customers in India
through brokers and by the Company directly.
Summarized financial information by reportable segment for the
three and nine months ended September 30, 2020 and 2019
follows:
|
Three months ended
September 30, 2020
|
Three months ended
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$33,131
|
$7,792
|
$40,923
|
$37,820
|
$19,569
|
$57,389
|
Cost
of goods sold
|
33,534
|
6,618
|
40,152
|
37,990
|
15,417
|
53,407
|
|
|
|
|
|
|
|
Gross
(loss) profit
|
(403)
|
1,174
|
771
|
(170)
|
4,152
|
3,982
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
Research
and development expenses
|
37
|
-
|
37
|
37
|
-
|
37
|
Selling,
general and administrative expenses
|
4,340
|
223
|
4,563
|
2,716
|
1,813
|
4,529
|
Interest
expense
|
6,461
|
9
|
6,470
|
6,293
|
49
|
6,342
|
Accretion
of Series A preferred units
|
1,765
|
-
|
1,765
|
589
|
-
|
589
|
Other
(income) expense
|
155
|
(2)
|
153
|
(265)
|
(24)
|
(289)
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
$(13,161)
|
$944
|
$(12,217)
|
$(9,540)
|
$2,314
|
$(7,226)
|
|
|
|
|
|
|
|
Capital
expenditures
|
$6,187
|
$113
|
$6,300
|
$3,664
|
$351
|
$4,015
|
Depreciation
|
1,085
|
168
|
1,253
|
942
|
161
|
1,103
|
|
For the nine months ended
September 30, 2020
|
For the nine months ended
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$114,226
|
$14,001
|
$128,227
|
$113,942
|
$35,954
|
$149,896
|
Cost
of goods sold
|
101,231
|
12,599
|
113,830
|
113,440
|
29,552
|
142,992
|
|
|
|
|
|
|
|
Gross
profit
|
12,995
|
1,402
|
14,397
|
502
|
6,402
|
6,904
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
Research
and development expenses
|
175
|
-
|
175
|
160
|
-
|
160
|
Selling,
general and administrative expenses
|
11,206
|
1,342
|
12,548
|
9,972
|
2,743
|
12,715
|
Interest
expense
|
19,490
|
44
|
19,534
|
18,805
|
332
|
19,137
|
Accretion
of Series A preferred units
|
4,087
|
-
|
4,087
|
1,509
|
-
|
1,509
|
Loss
contingency on litigation
|
-
|
-
|
-
|
6,200
|
-
|
6,200
|
Other
expense (income)
|
416
|
(23)
|
393
|
(228)
|
(773)
|
(1,001)
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
$(22,379)
|
$39
|
$(22,340)
|
$(35,916)
|
$4,100
|
$(31,816)
|
|
|
|
|
|
|
|
Capital
expenditures
|
$13,571
|
1,350
|
14,921
|
$4,249
|
$804
|
$5,053
|
Depreciation
|
3,030
|
485
|
3,515
|
2,883
|
454
|
3,337
|
North America: During the three
and nine months ended September 30, 2020, the Company amended the
Corn Procurement and Working Capital Agreement and the J.D.
Heiskell Purchasing Agreement to procure corn from J.D. Heiskell
and sell all WDG and corn oil the Company produces to J.D.
Heiskell. Sales of ethanol, WDG, corn oil, and high-grade alcohol
to two customers accounted for 72% and 24% of the Company’s
North America segment revenues for the three months ended September
30, 2020. Sales to three customers accounted for 45%, 32% and 11%
of the Company’s North America segment revenues for the nine
months ended September 30, 2020.
During the three and nine months ended September 30, 2019, the
Company’s revenues from ethanol, WDG, and corn oil were made
pursuant to the Corn Procurement and Working Capital Agreement.
Sales of ethanol, WDG, and corn oil to J.D. Heiskell accounted for
98.3% and 99.3% of the Company’s North America segment
revenues for the three and nine months ended September 30, 2019,
respectively.
India. During the three months
ended September 30, 2020, two biodiesel customers accounted for 56%
and 26% of the Company’s consolidated India segment revenues
while none of the refined glycerin customers accounted for more
than 10%, compared to three biodiesel customers accounting for 41%,
16% and 15% of the Company’s consolidated India segment
revenues and none of the refined glycerin customers accounting for
more than 10% of such revenues during the three months ended
September 30, 2019.
During the nine months ended September 30, 2020, two biodiesel
customers accounted for 51% and 33%, of the Company’s
consolidated India segment revenues while none of the refined
glycerin customers accounted for more than 10% of such revenues,
compared to three biodiesel customers accounted for 29%, 18% and
15% of the Company’s consolidated India segment revenues
while none of the refined glycerin customers accounted for more
than 10% of such revenues during the nine months ended September
30, 2019.
Total assets by segment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$105,619
|
$82,990
|
India
|
16,551
|
16,906
|
Total
Assets
|
$122,170
|
$99,896
|
10. Related Party Transactions
The Company owes Eric McAfee, the Company’s Chairman and CEO,
and McAfee Capital LLC (“McAfee Capital”), owned by
Eric McAfee, $0.4 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 September 30, 2020 and
December 31, 2019. For the three months ended September 30, 2020
and 2019, the Company expensed $7 thousand and $1 thousand,
respectively, to reimburse actual expenses incurred by McAfee
Capital and related entities. For the nine months ended September
30, 2020 and 2019, the Company expensed $7 and $22 thousand,
respectively, to reimburse actual expenses incurred by McAfee
Capital and related entities. The Company previously prepaid $0.2
million to Redwood Capital, a company controlled by Eric McAfee,
for the Company’s use of flight time on a corporate jet. As
of September 30, 2020, $0.1 million remained as a prepaid
expense.
As consideration for the reaffirmation of guaranties required by
Amendment No. 13 and 14 to the Note Purchase Agreement which the
Company entered into with Third Eye Capital on March 1, 2017 and
March 27, 2018 respectively, the Company also agreed to pay $0.2
million annually in consideration to McAfee Capital in exchange for
its willingness to provide the guaranties. On May 7, 2020 the Audit
Committee of the Company approved a guarantee fee of 0.4% on the
outstanding balance of Third Eye Capital Notes annually. Based on
this approval, we accrued $0.5 million in guarantee fee as of
September 30, 2020. The balance of $627 thousand and $304 thousand
for guaranty fee remained as an accrued liability as of September
30, 2020 and December 31, 2019 respectively.
The Company owes various members of the Board amounts totaling $1.2
million as of September 30, 2020 and December 31, 2019, for each
period, in connection with board compensation fees, which are
included in accounts payable on the balance sheet. For the three
months ended September 30, 2020 and 2019, the Company expensed $94
thousand and $96 thousand respectively, in connection with board
compensation fees. For the nine months ended September 30, 2020 and
2019, the Company expensed $256 thousand and $294 thousand
respectively, in connection with board compensation
fees.
11. Subsequent Events
Third Eye Capital Limited Waiver and Amendment No. 18
On November 5, 2020, Third Eye Capital agreed to Limited Waiver and
Amendment No. 18 to the Note Purchase Agreement (“Amendment
No. 18”) to provide for a waiver of the ratio of note
indebtedness covenant for the quarter ended September 30, 2021. As
consideration for such amendment and waivers, the borrowers also
agreed to pay Third Eye Capital an amendment fee of $50 thousand in
cash.
12. 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 a working capital deficit, which includes approximately $59.3
million of debt maturing within the next 12 months, and the Company
has been required to remit substantially all excess cash from
operations to its senior lender and is therefore reliant on its
senior lender to provide additional funding when required.
In order to meet its obligations
during the next 12 months, the Company will need to either
refinance the Company’s debt or receive the continued
cooperation from its senior lender. This dependence on the senior
lender raises substantial doubt about the Company’s ability
to continue as a going concern. The Company plans to pursue the
following strategies to improve the course of the
business:
●
Operate the Keyes
Plant and continue to improve operational performance at the Plant,
including the expansion into new products, new markets for existing
products, and adoption of new technologies or process changes that
allow for energy efficiency, cost reduction or revenue
enhancements.
●
Continue to develop
and expand the markets for high-grade alcohol by extending the
value chain to allow for higher margin sales to
consumers.
●
Execute upon
awarded grants at the Keyes Plant that improve operational
efficiencies resulting in lower cost, lower carbon demands, and
overall margin improvement.
●
Operate the
existing biogas digesters to capture and monetize RNG as well as
continue to build new dairy digesters and extend the existing
pipeline in order to capture high value California LCFS credits and
RFS RINs.
●
Raise the funds
necessary to construct and operate the Riverbank Cellulosic Ethanol
Facility using the licensed technology from LanzaTech and InEnTec
Technology to generate federal and state carbon credits available
for ultra-low carbon fuels utilizing lower cost, non-food advanced
feedstocks to significantly increase margins.
●
Secure higher fuel
shipment volumes from the India plant by developing the sales
channels and expanding the existing domestic markets.
●
Continue to locate
funding for existing and new business opportunities through a
combination of working with our senior lender, restructuring
existing loan agreements, selling the current offering for $50.8
million from the EB-5 Phase II funding, or by vendor financing
arrangements.