10-Q 1 amtx_10q.htm QUARTERLY REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM 10-Q
———————
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2019
Or
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to
 
Commission File Number: 001-36475
———————
AEMETIS, INC.
 (Exact name of registrant as specified in its charter)
———————
Nevada
26-1407544
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
 
20400 Stevens Creek Blvd., Suite 700
Cupertino, CA 95014
 (Address of Principal Executive Offices, including zip code)
 
(408) 213-0940
 (Registrant’s telephone number, including area code)
 
Title of each class of registered securities
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
AMTX
 
NASDAQ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ☑ No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐     Non-accelerated filer ☐ Smaller reporting company ☑
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
 
The number of shares outstanding of the registrant’s Common Stock on October 31, 2019 was 20,570,187 shares.
 

 
 
 
AEMETIS, INC.
 
FORM 10-Q
 
Quarterly Period Ended September 30, 2019
 
INDEX
 
PART I--FINANCIAL INFORMATION
 
Item 1
Financial Statements.
4
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
36
Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
48
Item 4.
Controls and Procedures.
48
 
PART II--OTHER INFORMATION
 
Item 1.
Legal Proceedings
49
Item 1A.
Risk Factors.
49
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
50
Item 3.
Defaults Upon Senior Securities.
50
Item 4.
Mine Safety Disclosures.
50
Item 5.
Other Information.
50
Item 6.
Exhibits.
50
SIGNATURES
 
51
 
 
 
 
 
 
2
 
 
SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS
 
On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q, including statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events or other statements that are not historical facts. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding management’s plans; trends in market conditions with respect to prices for inputs for our products versus prices for our products; our ability to leverage approved feedstock pathways; our ability to leverage our location and infrastructure; our ability to incorporate lower-cost, non-food advanced biofuels feedstock at the Keyes plant; our ability to adopt value-add by-product processing systems; our ability to expand into alternative markets for biodiesel and its by-products, including continuing to expand our sales into international markets; our ability to maintain and expand strategic relationships with suppliers; our ability to continue to develop new, and to maintain and protect new and existing, intellectual property rights; our ability to adopt, develop and commercialize new technologies; our ability to refinance our senior debt on more commercial terms or at all; our ability to continue to fund operations and our future sources of liquidity and capital resources; our ability to sell additional notes under our EB-5 note program and our expectations regarding the release of funds from escrow under our EB-5 note program; our ability to improve margins; and our ability to raise additional capital. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on current assumptions and predictions and are subject to numerous risks and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference as well as those business risks and factors described elsewhere in this report and in our other filings with the Securities and Exchange Commission (the “SEC”), including without limitation, our most recent Annual Report on Form 10-K.
 
 
 
 
 
 
 
 
3
 
 
PART I - FINANCIAL INFORMATION
 
Item 1 - Financial Statements.
 
AEMETIS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except for par value)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Assets
 
(unaudited)
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $919 
 $1,188 
Accounts receivable
  5,421 
  1,096 
Inventories
  3,521 
  6,129 
Prepaid expenses
  558 
  942 
Other current assets
  2,186 
  956 
Total current assets
  12,605 
  10,311 
 
    
    
Property, plant and equipment, net
  80,843 
  78,492 
Operating lease right-of-use assets
  743 
  - 
Other assets
  2,492 
  3,018 
Total assets
 $96,683 
 $91,821 
 
    
    
Liabilities and stockholders' deficit
    
    
Current liabilities:
    
    
Accounts payable
 $17,453 
 $13,500 
Current portion of long term debt
  5,059 
  2,396 
Short term borrowings
  17,417 
  14,902 
Mandatorily redeemable Series B convertible preferred stock
  3,124 
  3,048 
Accrued property taxes
  4,234 
  3,337 
Accrued contingent litigation fees
  6,200 
  - 
Other current liabilities
  4,995 
  5,396 
Total current liabilities
  58,482 
  42,579 
Long term liabilities:
    
    
Senior secured notes
  102,463 
  89,884 
EB-5 notes
  35,500 
  36,500 
GAFI secured and revolving notes
  29,013 
  25,461 
Long term subordinated debt
  6,086 
  5,974 
Series A preferred units
  10,239 
  7,005 
Other long term liabilities
  1,652 
  - 
Total long term liabilities
  184,953 
  164,824 
 
    
    
Stockholders' deficit:
    
    
Series B convertible preferred stock, $0.001 par value; 7,235 authorized; 1,323 shares issued and outstanding each period, respectively (aggregate liquidation preference of $3,969 for each period respectively)
  1
 
  1 
Common stock, $0.001 par value; 40,000 authorized; 20,570 and 20,345 shares issued and outstanding each period, respectively
  21
 
  20 
Additional paid-in capital
  86,708 
  85,917 
Accumulated deficit
  (222,195)
  (193,204)
Accumulated other comprehensive loss
  (3,715)
  (3,576)
Total stockholders' deficit attributable to Aemetis, Inc.
  (139,180)
  (110,842)
Non-controlling interest - GAFI
  (7,572)
  (4,740)
Total stockholders' deficit
  (146,752)
  (115,582)
Total liabilities and stockholders' deficit
 $96,683 
 $91,821 
 
The accompanying notes are an integral part of the financial statements.
 
4
 
 
AEMETIS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited, in thousands except for earnings per share)
 
 
 For the three months ended
September 30,
 
 
For the nine months ended
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenues
 $57,389 
 $44,635 
 $149,896 
 $132,681 
 
    
    
    
    
Cost of goods sold
  53,407 
  41,967 
  142,992 
  125,379 
 
    
    
    
    
Gross profit
  3,982 
  2,668 
  6,904 
  7,302 
 
    
    
    
    
Research and development expenses
  37 
  74 
  160 
  191 
Selling, general and administrative expenses
  4,529 
  3,893 
  12,715 
  11,289 
 
    
    
    
    
Operating loss
  (584)
  (1,299)
  (5,971)
  (4,178)
 
    
    
    
    
Other (income) expense:
    
    
    
    
 
    
    
    
    
Interest expense
    
    
    
    
Interest rate expense
  5,396 
  4,692 
  15,572 
  13,395 
Debt related fees and amortization expense
  946 
  719 
  3,565 
  6,395 
Accretion of Series A preferred units
  589 
  - 
  1,509 
  - 
Loss contingency on litigation
  - 
  - 
  6,200 
  - 
Other (income) expense
  (289)
  (61)
  (1,001)
  2 
 
    
    
    
    
Loss before income taxes
  (7,226)
  (6,649)
  (31,816)
  (23,970)
 
    
    
    
    
Income tax expense
  - 
  - 
  7 
  6 
 
    
    
    
    
Net loss
 $(7,226)
 $(6,649)
 $(31,823)
 $(23,976)
 
    
    
    
    
Less: Net loss attributable to non-controlling interest
  (900)
  (792)
  (2,832)
  (2,386)
 
    
    
    
    
Net loss attributable to Aemetis, Inc.
 $(6,326)
 $(5,857)
 $(28,991)
 $(21,590)
 
    
    
    
    
Other comprehensive income (loss)
    
    
    
    
Foreign currency translation loss
  (254)
  (423)
  (139)
  (967)
Comprehensive loss
 $(7,480)
 $(7,072)
 $(31,962)
 $(24,943)
 
    
    
    
    
Net loss per common share attributable to Aemetis, Inc.
    
    
    
    
Basic
 $(0.31)
 $(0.29)
 $(1.42)
 $(1.07)
Diluted
 $(0.31)
 $(0.29)
 $(1.42)
 $(1.07)
 
    
    
    
    
Weighted average shares outstanding
    
    
    
    
Basic
  20,554 
  20,252 
  20,433 
  20,220 
Diluted
  20,554 
  20,252 
  20,433 
  20,220 
 
The accompanying notes are an integral part of the financial statements.
 
 
5
 
 
AEMETIS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
 
 
For the nine months ended
September 30,
 
 
 
2019
 
 
2018
 
Operating activities:
 
 
 
 
 
 
Net loss
 $(31,823)
 $(23,976)
 
Adjustments to reconcile net loss to net cash used in operating activities:
 
    
Share-based compensation
  630 
  783 
Stock issued for services
  - 
  22 
Depreciation
  3,337 
  3,457 
Debt related fees and amortization expense
  3,565 
  6,395 
Intangibles and other amortization expense
  36 
  105 
Accretion of Series A preferred units
  1,509 
  - 
Change in fair value of Stock Appreciation Rights
  (80)
  (44)
Changes in operating assets and liabilities:
    
    
Accounts receivable
  (4,359)
  670 
Inventories
  2,563 
  (2,588)
Prepaid expenses
  384 
  1,551 
Other assets
  (154)
  (344)
Accounts payable
  3,429 
  2,999 
Accrued interest expense and fees
  13,272 
  8,451 
Other liabilities
  6,565 
  (835)
Net cash used in operating activities
  (1,126)
  (3,354)
 
    
    
Investing activities:
    
    
Capital expenditures
  (5,053)
  (2,498)
 
    
    
Net cash used in investing activities
  (5,053)
  (2,498)
 
    
    
Financing activities:
    
    
Proceeds from borrowings
  38,203 
  16,484 
Repayments of borrowings
  (35,722)
  (12,449)
GAFI proceeds from borrowings
  1,043 
  1,500 
GAFI repayments of borrowings
  (164)
  - 
GAFI renewal fee payment
  (530)
  - 
Grant proceeds received for capital expenditures
  1,364 
  - 
Proceeds from Series A preferred units financing
  1,725 
  - 
Net cash provided by financing activities
  5,919 
  5,535 
 
    
    
Effect of exchange rate changes on cash and cash equivalents
  (9)
  (43)
Net change in cash and cash equivalents for period
  (269)
  (360)
Cash and cash equivalents at beginning of period
  1,188 
  428 
Cash and cash equivalents at end of period
 $919 
 $68 
 
    
    
Supplemental disclosures of cash flow information, cash paid:
    
    
Cash paid for interest, net of capitalized interest of $231 and $0 for the nine months ended September 30, 2019 and 2018, respectively
 $1,836 
 $4,700 
Income taxes paid
  - 
  6 
Supplemental disclosures of cash flow information, non-cash transactions:
    
    
Subordinated debt extension fees added to debt
  680 
  680 
Fair value of warrants issued to subordinated debt holders
  162 
  235 
TEC debt extension, waiver fees, promissory notes fees added to debt
  1,102 
  4,255 
Capital expenditures in accounts payable
  1,443 
  - 
Operating lease liabilities arising from obtaining right of use assets
  1,181 
  - 
Stock Appreciation Rights issued for GAFI Amendment No. 1 added to GAFI debt
  1,050 
  1,277 
 
    
    
 
The accompanying notes are an integral part of the financial statements.
 
 
6
 
 
AEMETIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited, in thousands)
 
 
For the three and nine months ended September 30, 2019
 
Description
 
Series B Preferred Stock
 
 
Common Stock
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
Accumulated
 
 
Comprehensive
 
 
 Noncotrolling
 
 
 Stockholders'
 
 
 
Shares
 
 
Dollars
 
 
Shares
 
 
Dollars
 
 
Paid-in Capital
 
 
Deficit
 
 
Income/(Loss)
 
 
 Interest
 
 
 deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
  1,323 
 $1 
  20,345 
 $20 
 $85,917 
 $(193,204)
 $(3,576)
 $(4,740)
 $(115,582)
 
    
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  290 
  - 
  - 
  - 
  290 
Issuance and exercise of warrants
  - 
  - 
  30 
  - 
  67 
  - 
  - 
  - 
  67 
Foreign currency translation gain
  - 
  - 
  - 
  - 
  - 
  - 
  58 
  - 
  58 
Net loss
  - 
  - 
  - 
  - 
  - 
  (9,729)
  - 
  (938)
  (10,667)
 
    
    
    
    
    
    
    
    
    
Balance at March 31, 2019
  1,323 
 $1 
  20,375 
 $20 
 $86,274 
 $(202,933)
 $(3,518)
 $(5,678)
 $(125,834)
 
    
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  196 
  - 
  - 
  - 
  196 
Foreign currency translation gain
  - 
  - 
  - 
  - 
  - 
  - 
  57 
  - 
  57 
Net loss
  - 
  - 
  - 
  - 
  - 
  (12,936)
  - 
  (994)
  (13,930)
 
    
    
    
    
    
    
    
    
    
Balance at June 30, 2019
  1,323 
 $1 
  20,375 
 $20 
 $86,470 
 $(215,869)
 $(3,461)
 $(6,672)
 $(139,511)
 
    
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  144 
  - 
  - 
  - 
  144 
Issuance and exercise of warrants
  - 
  - 
  195 
  1 
  94 
  - 
  - 
  - 
  95 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (254)
  - 
  (254)
Net loss
  - 
  - 
  - 
  - 
  - 
  (6,326)
  - 
  (900)
  (7,226)
Balance at September 30, 2019
  1323 
 $1 
  20,570 
 $21 
 $86,708 
 $(222,195)
 $(3,715)
 $(7,572)
 $(146,752)
 
  For the three and nine months ended September 30, 2018
Description
 
Series B Preferred Stock
 
 
Common Stock
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
Accumulated
 
 
 Comprehensive
 
 
 Noncotrolling
 
 
Stockholders'
 
 
 
Shares
 
 
Dollars
 
 
Shares
 
 
Dollars
 
 
Paid-in Capital
 
 
Deficit
 
 
 Income/(Loss)
 
 
 Interest
 
 
 deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
  1,323 
 $1 
  20,088 
 $20 
 $84,679 
 $(160,188)
 $(2,904)
 $(1,469)
 $(79,861)
Conversion of Series B preferred to common stock
    
    
    
    
    
    
    
    
  - 
Options exercised
  - 
  - 
  2 
  - 
  - 
  - 
  - 
  - 
  - 
Stock-based compensation
  - 
  - 
  - 
  - 
  264 
  - 
  - 
  - 
  264 
Issuance and exercise of warrants
  - 
  - 
  113 
  - 
  65 
  - 
  - 
  - 
  65 
Shares issued to consultants and other services
  - 
  - 
  20 
  - 
  22 
  - 
  - 
  - 
  22 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (150)
  - 
  (150)
Net loss
  - 
  - 
  - 
  - 
  - 
  (10,368)
  - 
  (737)
  (11,105)
 
    
    
    
    
    
    
    
    
    
Balance at March 31, 2018
  1,323 
 $1 
  20,223 
 $20 
 $85,030 
 $(170,556)
 $(3,054)
 $(2,206)
 $(90,765)
 
  - 
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  317 
  - 
  - 
  - 
  317 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (394)
  - 
  (394)
Net loss
  - 
  - 
  - 
  - 
  - 
  (5,365)
  - 
  (857)
  (6,222)
 
    
    
    
    
    
    
    
    
    
Balance at June 30, 2018
  1,323 
 $1 
  20,223 
 $20 
 $85,347 
 $(175,921)
 $(3,448)
 $(3,063)
 $(97,064)
 
    
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  202 
  - 
  - 
  - 
  202 
Shares issued to consultants and other services
  - 
  - 
  10 
  - 
  - 
  - 
  - 
  - 
  - 
Issuance and exercise of warrants
  - 
  - 
  112 
  - 
  170 
  - 
  - 
  - 
  170 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (423)
  - 
  (423)
Net loss
  - 
  - 
  - 
  - 
  - 
  (5,857)
  - 
  (792)
  (6,649)
Balance at September 30, 2018
  1323 
 $1 
  20,345 
 $20 
 $85,719 
 $(181,778)
 $(3,871)
 $(3,855)
 $(103,764)
 
The accompanying notes are an integral part of the financial statements.
 
 
7
AEMETIS, INC.
 
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 is an advanced renewable fuels and biochemicals company focused on the acquisition, development and commercialization of innovative technologies that replace traditional petroleum-based products through the conversion of second-generation ethanol and biodiesel plants into advanced biorefineries.  Founded in 2006, we own and operate a 60 million gallon per year ethanol facility (“Keyes Plant”) in the California Central Valley near Modesto where we manufacture and produce ethanol, wet distillers’ grains (“WDG”), condensed distillers solubles (“CDS”), and distillers’ corn oil (“DCO”). We also own and operate a 50 million gallon per year renewable chemical and advanced fuel production facility (“Kakinada Plant”) on the East Coast of India producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. We operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and biochemicals. Additionally, we have the option to own a partially completed plant in Goodland, Kansas (the “Goodland Plant”) through a variable interest entity (“VIE”) Goodland Advanced Fuels, Inc., (“GAFI”), which was formed to acquire the Goodland Plant. Upon exercise of the option, we plan to deploy a cellulosic ethanol technology to the Goodland Plant.
 
We also lease a site in Riverbank, California, near the Keyes Plant, where we plan to utilize biomass-to-fuel technology that we have licensed from LanzaTech Technology (“LanzaTech”) and InEnTec Technology (“InEnTec”) to build a cellulosic ethanol production facility (the “Riverbank Cellulosic Ethanol Facility”) capable of converting local California surplus biomass – principally agricultural waste – into ultra-low carbon renewable cellulosic ethanol. By producing ultra-low carbon renewable cellulosic ethanol, we expect to capture higher value D3 cellulosic renewable identification numbers (“RINs”) and California’s Low Carbon Fuel Standard (“LCFS”) credits.
 
In December 2018, we acquired a 5.2-acre parcel of land for the construction of a facility by Linde LLC industrial gas company to sell carbon dioxide (“CO2”) produced at the Keyes Plant, which will add incremental income for the North America segment.
 
During 2018, Aemetis Biogas, LLC (“ABGL”) was formed to construct bio-methane digesters at local dairies near the Keyes Plant, many of whom are already customers of the distillers’ grain produced at the Keyes Plant. The digesters are connected by a pipeline to a gas cleanup and compression facility to produce Renewable Natural Gas (“RNG”).  ABGL currently has signed participation agreements with over a dozen local dairies and three fully executed leases with dairies near the Keyes Plant in order to capture their methane, which would otherwise be released into the atmosphere, primarily from manure wastewater lagoons. We plan to capture biogas from multiple dairies and pipe the gas to a centralized location at our Keyes Plant where we will remove the impurities of the methane and clean it into bio-methane for injection into the local utility pipeline or to a renewable compressed natural gas (“RCNG”) truck loading station that will service local trucking fleets to displace diesel fuel.  The biogas can also be used in our Keyes Plant to displace petroleum-based natural gas. The environmental benefits of the ABGL project are potentially significant because dairy biogas has a negative carbon intensity (“CI”) under the California LCFS. The biogas produced by ABGL will also receive D3 RINs under the federal Renewable Fuel Standard (“RFS”).
 
 
8
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
Basis of Presentation and Consolidation. These consolidated financial statements include the accounts of Aemetis, Inc., a Nevada corporation, and its wholly owned subsidiaries (collectively, Aemetis or the Company). Additionally, we consolidate all entities in which we have a controlling financial interest 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. An enterprise must consolidate a 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.
 
The accompanying consolidated condensed balance sheet as of September 30, 2019, the consolidated condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and 2018, the consolidated condensed statements of cash flows for the nine months ended September 30, 2019 and 2018, and the consolidated condensed statements of stockholders’ deficit for the three and nine months ended September 30, 2019 and 2018 are unaudited. The consolidated condensed balance sheet as of December 31, 2018 was derived from the 2018 audited consolidated financial statements and notes thereto. The consolidated condensed financial statements in this report should be read in conjunction with the 2018 audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018. 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 management, the unaudited interim consolidated condensed financial statements for the three and nine months ended September 30, 2019 and 2018 have been prepared on the same basis as the audited consolidated statements as of December 31, 2018 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, 2019 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 and related co-products in North America, and of biodiesel and refined glycerin in India based on the supply agreements and purchase order contracts. We assessed the following criteria under the ASC 606 guidance: (i) identify the contracts with customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when the entity satisfies the performance obligations.
 
 
9
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
We have elected to adopt the practical expedient that allows for ignoring the significant financing component of a contract when estimating the transaction price when the transfer of promised goods to the customer and customer payment for such goods are expected to be within one year of contract inception. Further, we have elected to adopt the practical expedient in which incremental costs of obtaining a contract are expensed when the amortization period would otherwise be less than one year.
 
North America:  In North America, we sell the majority of our production to one customer under a supply contract, with individual sales transactions occurring under this contract. Given the similarity of these transactions, we have assessed them as a portfolio of similar contracts. The performance obligation is satisfied by delivery of the physical product to the tank of J.D. Heiskell or to one of their contracted trucking companies. At this point in time, the customer has the ability to direct the use of the product and receive substantially all of its benefits. The transaction price is determined based on daily market prices negotiated by Kinergy for ethanol and by A.L. Gilbert on WDG and DCO. There is no transaction price allocation needed.
 
The below table shows our sales in North America by product category:
 
North America (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 For the three months ended
September 30,
 
 
 For the nine months ended
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Ethanol sales
 $27,456 
 $29,661 
 $84,453 
 $88,002 
Wet distiller's grains sales
  8,783 
  8,116 
  26,119 
  24,443 
Other sales
  1,581 
  799 
  3,370 
  2,935 
 
    
    
    
    
 
 $37,820 
 $38,576 
 $113,942 
 $115,380 
 
We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those customers in some contractual agreements.
 
In North America, we buy corn as feedstock in producing ethanol from our working capital partner J.D. Heiskell and we sell all ethanol, WDG, and corn oil produced in this process to J.D. Heiskell. Our finished goods tank is leased by J.D. Heiskell and they require us to transfer legal title to the product upon transfer of our finished ethanol to this location. We consider the purchase of corn as a cost of goods sold and the sale of ethanol upon transfer to the finished goods tank as revenue on the basis that (i) we control and bear the risk of gain or loss on the processing of corn which is purchased at market prices into ethanol and (ii) we have legal title to the goods during the processing time. The pricing for both corn and ethanol is set independently. Revenues from sales of ethanol and its co-products are billed net of the related transportation and marketing charges. The transportation component is accounted for in cost of goods sold and the marketing component is accounted for in sales, general and administrative expense. Transportation and marketing charges are known within days of the transaction and are recorded at the actual amounts. The Company has elected an accounting policy under which these charges have been treated as fulfillment activities provided after control has transferred. As a result, these charges are recognized in cost of goods sold and selling, general and administrative expenses, respectively, when revenue is recognized. Revenues are recorded at the gross invoiced amount. Hence, we are the principal in North America sales scenarios where our customer and vendor may be the same.
 
 
10
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
We have a contract liability of $0.4 million as of September 30, 2019, in connection with a contract with a customer to sell LCFS credits produced from April 1, 2019 to May 21, 2019. However, the credits were not transferred to the customer until October 2, 2019 while we received cash in advance.
 
India:  In India where we sell products on purchase orders (written or verbal) or by contract with governmental or international parties, the performance obligation is satisfied by delivery and acceptance of the physical product. Given that the contracts are sufficiently similar in nature, we have assessed these contracts as a portfolio of similar contracts as allowed under the practical expedient. Doing so does not result in a materially different outcome compared to individually accounting for each contract. All domestic and international deliveries are subject to certain specifications as identified in contracts. The transaction price is determined based on reference market prices for biodiesel and refined glycerin every day net of taxes. There is no transaction price allocation needed.
 
The below table shows our sales in India by product category:
 
India (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 For the three months ended
September 30,
 
 
 For the nine months ended
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Biodiesel sales
 $17,057 
 $5,206 
 $32,201 
 $13,548 
Refined Glycerin sales
  951 
  853 
  2,186 
  3,753 
Other sales
  1,561 
  - 
  1,567 
  - 
 
 $19,569 
 $6,059 
 $35,954 
 $17,301 
 
We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those customers in some contractual agreements.
 
In India, we occasionally enter into contracts where we purchase feedstock from the customer, process the feedstock into biodiesel, and sell to the same customer. In those cases, we receive the legal title to feedstock from our customers once it is on our premises. We control the processing and production of biodiesel based on contract terms and specifications. The pricing for both feedstock and biodiesel is set independently. We hold the title and risk to biodiesel according to agreements we enter into in these situations. Hence, we are the principal in India sales scenarios where our customer and vendor may be the same.
 
Cost of Goods Sold. Cost of goods sold includes those costs directly associated with the production of revenues, such as raw material consumed, factory overhead and other direct production costs. During periods of idle plant capacity, costs otherwise charged to cost of goods sold are reclassified to selling, general and administrative expense.
 
Accounts Receivable. The Company sells ethanol, WDG, CDS, and DCO through third-party marketing arrangements generally without requiring collateral. The Company sells biodiesel, glycerin, and processed natural oils to a variety of customers and may require advanced payment based on the size and creditworthiness of the customer. Usually, invoices are due within 30 days on net terms. Accounts receivables consist of product sales made to large creditworthy customers. Trade accounts receivable are presented at original invoice amount, net of any allowance for doubtful accounts.
 
 
11
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and it requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivable are charged against the allowance for doubtful accounts once un-collectability has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate, additional allowances may be required. We did not reserve any balance for allowances for doubtful accounts as of September 30, 2019 and December 31, 2018.
 
Inventories. Finished goods, raw materials, and work-in-process inventories are valued at 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, the Keyes Plant, Goodland Plant and Kakinada Plant. The Goodland Plant is partially completed and is not ready for operation; hence, we are not depreciating these assets yet. Otherwise, it is the Company’s policy to depreciate capital assets over their estimated useful lives using the straight-line method.
 
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.
 
California Energy Commission Technology Demonstration Grant. The Company has been awarded an $825 thousand matching grant from the California Energy Commission (“CEC”) Natural Resources Agency to optimize and demonstrate the effectiveness of technologies to break down biomass to produce cellulosic ethanol. The Company will receive the grant proceeds as a subcontractor to the Lawrence Berkeley National Laboratory. The project will focus on the deconstruction and conversion of sugars liberated from California-relevant feedstocks and then converting the sugars to ethanol. The Company receives these funds as reimbursement for actual expenses incurred. Due to the uncertainty associated with the expense approval process under the grant program, the Company recognizes the grant as a reduction of the expenses in the period when approval is received.
 
California Department of Food and Agriculture Dairy Digester Research and Development Grant. The Company has been awarded $3.2 million in matching grants from the California Department of Food and Agriculture (“CDFA”) Dairy Digester Research and Development program. The CDFA grant reimburses the Company for costs required to permit and construct two of the Company’s biogas capture systems under contract with central California dairies. The Company receives these funds as reimbursement for actual costs incurred. Due to the uncertainty associated with the cost approval process under the grant program, the Company recognizes the grant as a reduction of the expenses or as a reduction in fixed assets in the period when approval is received.
 
 
12
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
California Energy Commission Low Carbon Advanced Ethanol Grant Program. In May 2019, the Company was awarded the right to receive reimbursements from the CEC in an amount up to $5.0 million (the “CEC Reimbursement Program”) in connection with the Company’s expenditures toward the development of the Aemetis low carbon advanced cellulosic ethanol production plant (the “Riverbank Project”). To comply with the guidelines of the CEC Reimbursement Program, the Company must make a minimum of $7.9 million in matching contributions to the Riverbank Project. The Company receives the CEC funds under the CEC Reimbursement Program for actual expenses incurred up to $5.0 million as long as the Company makes the minimum matching contribution. Given that the Company has not made the minimum matching contribution, the grant of $1.36 million received for capital expenditures during the third quarter of 2019 was recorded in the other long term liabilities as of September 30, 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, 2019 and 2018, 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, 2019 and 2018:
 
 
 
  As of
 
 
 
September 30,
2019
 
 
September 30,
2018
 
 
 
 
 
 
 
 
Series B preferred (post split basis)
  132 
  132 
Common stock options and warrants
  3,910 
  2,990 
Debt with conversion feature at $30 per share of common stock
  1,255 
  1,228 
SARs conversion if stock issued at $1.11 per share to cover $2.1 million
  - 
  1,893 
Total number of potentially dilutive shares excluded from the diluted net loss per share calculation
  5,297 
  6,243 
 
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 operate in a local currency environment, where that local currency is the functional currency, and is translated into U.S. dollars at exchange rates in effect at the balance sheet date, with 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. Gains and losses from other foreign currency transactions are recorded in other income (expense).
 
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 in deciding how to allocate resources and in assessing performance. Aemetis recognized two reportable geographic segments: “North America” and “India.”
 
 
13
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
The “North America” operating segment includes the Company’s 60 million gallons per year capacity Keyes Plant in California, the cellulosic ethanol facility in Riverbank, the cluster of biogas digesters on dairies near the Keyes Plant, the Goodland Plant in Kansas and the research and development facility in Minnesota.
 
The “India” operating segment encompasses the Company’s 50 million gallon per year capacity Kakinada Plant in India, the administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius.
 
Fair Value of Financial Instruments. Financial instruments include accounts receivable, accounts payable, accrued liabilities, current and non-current portion of subordinated debt, SARs liability, notes payable, and long term debt.  Due to the unique terms of our notes payable and long term debt and the financial condition of the Company, the fair value of the debt is not readily determinable. The fair value of all other current financial instruments is estimated using level 3 inputs 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 of the estimated fair value of the Company’s share-based compensation awards calculated at the grant date over the vesting period, adjusted to reflect only those shares that are expected to vest.
 
Leases. In February 2016, the FASB issued guidance that amended the existing accounting standards for leases. Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee is required to recognize right-of-use assets and lease liabilities on the balance sheet. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new guidance was effective for us beginning January 1, 2019, and for interim periods within that year. We were required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available. On July 30, 2018, the FASB issued ASU 2018-11 amendments to ASC 842, which included the optional transition relief approach in which entities may elect not to recast the comparative periods presented when transitioning to ASC 842 and lessors may not select to separate lease and non-lease components when certain conditions are met.
 
We assessed all leases, equipment rentals, and supply agreements under this guidance. We adopted the standard as of January 1, 2019 using the optional transition relief approach. We elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification. We made an accounting policy election to keep leases with a term of 12 months or less off of the balance sheet. We recognized those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. Please refer to Note 7 for additional information regarding the Company’s adoption of ASC 842 and outstanding leases.
 
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.
 
 
14
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
The Company entered into a payment plan with Stanislaus County for unpaid property taxes on June 28, 2018 by paying $1.5 million as a first payment. Under the annual payment plan, the Company is 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. This payment was not made on April 10, 2019. The full tax amount is now due and the property is subject to a process by the county that ranges from the collection of all past due taxes to the potential sale of the asset. As of September 30, 2019, the balance in property tax accrual was $4.2 million.
 
In connection with dismissed lawsuit based on EdenIQ’s wrongful termination of a merger agreement, the Company and EdenIQ filed motions for attorney’s fees and costs in February 2019. On July 24, 2019, the court granted $6.2 million of attorney’s fees and costs to EdenIQ. As a result, a $6.2 million loss on contingency was recorded within the Company’s consolidated financial statements as of September 30, 2019.
 
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.
 
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, 2018 and 2017, filed with the Securities and Exchange Commission on March 15, 2019. There were no new accounting pronouncements issued applicable to the Company during the nine months ended September 30, 2019.
 
2.            
Inventory
 
Inventory consists of the following:
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Raw materials
 $979 
 $3,647 
Work-in-progress
  1,285 
  1,327 
Finished goods
  1,257 
  1,155 
Total inventories
 $3,521 
 $6,129 
 
As of September 30, 2019 and December 31, 2018, the Company recognized a lower of cost or net realizable value impairment of $0.1 million and $0.2 million respectively, related to inventory.
 
 
15
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
3.          
Property, Plant and Equipment
 
Property, plant and equipment consist of the following:
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Land
 $4,108 
 $4,116 
Plant and buildings
  83,244 
  82,445 
Furniture and fixtures
  1,093 
  1,056 
Machinery and equipment
  4,207 
  3,928 
Construction in progress
  8,076 
  3,581 
GAFI property, plant & equipment
  15,408 
  15,408 
Total gross property, plant & equipment
  116,136 
  110,534 
Less accumulated depreciation
  (35,293)
  (32,042)
Total net property, plant & equipment
 $80,843 
 $78,492 
 
During the nine months ended September 30, 2019 and for the year ended December 31, 2018, interest capitalized in property, plant, and equipment was $231 thousand and $135 thousand, respectively.
 
Depreciation on the components of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:
 
 
Years
Plant and Buildings
20-30
Machinery & Equipment
5-7
Furniture & Fixtures
3-5
 
For the three months ended September 30, 2019 and 2018, the Company recorded depreciation expense of $1.1 million and $1.2 million respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded depreciation expense of $3.3 million and $3.5 million respectively.
 
Management is required to evaluate these long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Management determined there was no impairment of long-lived assets during the three and nine months ended September 30, 2019 and 2018. 
 
 
16
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
  
4.          
Debt
 
Debt consists of the following:
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Third Eye Capital term notes
 $7,022 
 $7,024 
Third Eye Capital revolving credit facility
  58,742 
  47,225 
Third Eye Capital revenue participation term notes
  11,792 
  11,794 
Third Eye Capital acquisition term notes
  24,907 
  23,841 
Third Eye Capital promissory note
  2,814 
  - 
Cilion shareholder seller notes payable
  6,086 
  5,974 
Subordinated notes
  11,085 
  10,080 
EB-5 promissory notes
  40,199 
  38,536 
Unsecured working capital loans
  3,518 
  4,822 
GAFI Term and Revolving loans
  29,373 
  25,821 
Total debt
  195,538 
  175,117 
Less current portion of debt
  22,476 
  17,298 
Total long term debt
 $173,062 
 $157,819 
 
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, or Amendment No. 14, to: (i) extend the maturity date of the Third Eye Capital Notes by two years to April 1, 2020 in exchange for an amendment fee consisting of 6% (3% per year) of the outstanding note balance in the form of an increase in the fee payable in the event of a redemption of the Third Eye Capital Notes (as defined in the Note Purchase Agreement); (ii) provide that the maturity date may be further extended at our election to April 1, 2021 in exchange for an extension fee of 5%; (iii) provide for an optional waiver of the ratio of note indebtedness covenant until January 1, 2019 with the payment of a waiver fee of $0.25 million; and (iv) remove the redemption fee described in (i) above from the calculation of the ratio of note indebtedness covenant. In addition to the fee discussed in (i), as consideration for such amendment and waiver, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.5 million to be added to the outstanding principal balance of the Revolving Credit Facility.
 
 
17
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
We evaluated Amendment No. 14 in accordance with ASC 470-60 Troubled Debt Restructuring. According to guidance, we considered Amendment No. 14 to be a troubled debt restructuring. We assessed all the terms to confirm if there is a concession granted by the creditor. The maturity date of the Third Eye Capital Notes was extended to April 1, 2020 for a 6% fee, which was lower on an annual basis than the extension fee of 5% provided by Amendment No. 13 for a one-year extension. No interest is accrued on these fees and there were no other settlements in Amendment No. 14 on these Notes. In order to assess whether the creditor granted a concession, we calculated the post-restructuring effective interest rate by projecting cash flows on the new terms and solved for a discount rate equal to the carrying amount of pre-restructuring of debt, and by comparing this calculation to the terms of Amendment No. 13, we determined that Third Eye Capital provided a concession in accordance with the provisions of ASC 470-60 Troubled Debt Restructuring and thus applied troubled debt restructuring accounting. The extension fee, due at maturity, was discounted at the effective interest rate of the Third Eye Capital Notes, and an immediate charge was taken to recognize the fees into amortization expense on the income statement related to the trouble debt restructuring of $3.1 million and amendment fees of $0.5 million. Using the effective interest method of amortization, the remaining extension fee of $1.4 million will be amortized over the stated remaining life of the Third Eye Capital Notes.
 
On March 27, 2018, Third Eye Capital also agreed to a one-year reserve liquidity facility governed by a promissory note, payable in the principal amount of up to $6 million. Borrowings under the facility are available from March 27, 2018 until maturity on April 1, 2019. Interest on borrowed amounts accrues at a rate of 30% per annum, paid monthly in arrears, or 40% if an event of default has occurred and continues. The outstanding principal balance of the indebtedness evidenced by the promissory note, plus any accrued but unpaid interest and any other sums due thereunder, shall be due and payable in full at the earlier to occur of (a) the closing of any new debt or equity financing, refinancing or other similar transaction between Third Eye Capital or any fund or entity arranged by them and the Company or its affiliates, (b) receipt by the Company or its affiliates of proceeds from any sale, merger, equity or debt financing, refinancing or other similar transaction from any third party and (c) April 1, 2019. The promissory note is secured by liens and security interests upon the property and assets of the Company. If any amounts are drawn under the facility, the Company will pay a non-refundable fee in the amount of $200 thousand payable from the proceeds of the first drawing under the facility. We did not draw any amounts under the facility and no balance was outstanding as of December 31, 2018 under this facility. On March 11, 2019, Third Eye Capital agreed to increase the amount available under the reserve liquidity facility up to $8.0 million and extend the maturity date to April 1, 2020 with the same terms as above.
 
Based on the terms of Amendment No. 14, the Company intends to extend the maturity to April 1, 2021 for a fee of 5% on the outstanding debt which can be paid or added to the outstanding balance of the revolving notes.
 
On March 11, 2019, Third Eye Capital agreed to Limited Waiver and Amendment No. 15 to the Note Purchase Agreement (“Amendment No. 15”), to waive the ratio of note indebtedness covenant through December 31, 2019. As a consideration for this amendment, the Company also agreed to pay Third Eye Capital an amendment fee of $1.0 million to be added to the redemption fee which is due upon redemption of the Notes.
 
On November 11, 2019, Third Eye Capital agreed to Limited Waiver and Amendment No. 16 to the Note Purchase Agreement (“Amendment No. 16”), to waive the ratio of note indebtedness covenant through December 31, 2020. As a consideration for this amendment, the Company also agreed to pay Third Eye Capital an amendment fee of $0.5 million to be added to the redemption fee which is due upon redemption of the Notes.
 
 
18
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
Based on the Amendment No. 15, the ratio of note indebtedness covenant is waived for the quarters ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019. Based on the Amendment No. 16 dated November 11, 2019, the ratio of note indebtedness covenant is waived for the quarters ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020. According to ASC 470-10-45 debt covenant classification guidance, if it is probable that the Company will not be able to cure the default at measurement dates within the next 12 months, the related debt needs to be classified as current. Given the waivers are available for the ratio of note indebtedness covenant through December 31, 2020, hence the notes are classified as long term debt.
 
On February 27, 2019, a Promissory Note (the “February 2019 Note”, together with the Original Third Eye Capital Notes, the “Third Eye Capital Notes”) for $2.1 million was advanced by Third Eye Capital to Aemetis, Inc., as a short-term credit facility for working capital and other general corporate purposes with an interest rate of 14% per annum maturing on the earlier of (a) receipt of proceeds from any financing, refinancing, or other similar transaction, (b) extension of credit by payee, as lender or as agent on behalf of certain lenders, to the Company or its affiliates, or (c) April 30, 2019. In consideration of the February 2019 Note, $0.1 million of the total proceeds were paid to Third Eye Capital as financing charges. On April 30, 2019, the February 2019 Note was modified to remove the stated maturity date and instead will be due on demand by Third Eye Capital. As of September 30, 2019, the outstanding balance of principal and interest on the February 2019 note was $2.8 million.
 
Terms of Third Eye Capital Notes
 
A. 
Term Notes. As of September 30, 2019, the Company had a total of $7.0 million in principal and interest outstanding under the Term Notes. The Term Notes accrue interest at 14% per annum. The Term Notes mature on April 1, 2020*.
 
B. 
Revolving Credit Facility. The Revolving Credit Facility accrues interest at the prime rate plus 13.75% (18.75% as of September 30, 2019), payable monthly in arrears. The Revolving Credit Facility matures on April 1, 2020*. As of September 30, 2019, AAFK had $58.7 million in principal, interest, and waiver fees outstanding under the Revolving Credit Facility net of $0.2 million unamortized discount issuance costs.
 
C. 
Revenue Participation Term Notes. The Revenue Participation Term Notes bear interest at 5% per annum and mature on April 1, 2020*. As of September 30, 2019, the Company had a total of $11.8 million in principal and interest outstanding on the Revenue Participation Term Notes.
 
D. 
Acquisition Term Notes. The Acquisition Term Notes accrue interest at the prime rate plus 10.75% (15.75% per annum as of September 30, 2019) and mature on April 1, 2020*. As of September 30, 2019, Aemetis Facility Keyes, Inc. had $24.9 million in principal, interest and redemption fees outstanding net of unamortized discount issuances costs of $0.9 million. The outstanding principal balance includes a total of $7.0 million in redemption fees, including $4.5 million which was added to the Acquisition Term Notes on March 27, 2018 as part of Amendment No. 14 and $1.0 million covenant waiver fees as part of Amendment No. 15.
 
E. 
Reserve Liquidity Notes. The Reserve Liquidity Notes, with available borrowing capacity in the amount of $8.0 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, 2020*. We have no borrowings outstanding under the Reserve Liquidity Notes as of September 30, 2019.
 
 
19
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
The Third Eye Capital Notes contain various covenants, including but not limited to, debt to plant value ratio, minimum production requirements, and restrictions on capital expenditures. The terms of the 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 Third Eye Capital Notes are secured by first priority liens on all real and personal property of, and assignment of proceeds from all government grants and guarantees from Aemetis, Inc. The Third Eye Capital Notes all contain cross-collateral and cross-default provisions. McAfee Capital, LLC (“McAfee Capital”), owned by Eric McAfee, the Company’s Chairman and CEO, provided a guaranty of payment and performance secured by all of its Company shares. In addition, Eric McAfee provided a blanket lien on substantially all of his personal assets, and McAfee Capital provided a guarantee in the amount of $8.0 million.
 
*The note maturity date can be extended by the Company to April 2021. As a condition to any such extension, the Company would be required to pay a fee of 5% of the carrying value of the debt which can be paid in cash or added to the outstanding debt. As a result of this ability to extend the maturity at the Company’s will, the Third Eye Capital Notes are classified as non-current debt.
 
Cilion shareholder seller notes payable. In connection with the Company’s merger with Cilion, Inc., (Cilion) on July 6, 2012, the Company issued $5.0 million in notes payable to Cilion shareholders 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, 2019, Aemetis Facility Keyes, Inc. had $6.1 million in principal and interest outstanding under the Cilion shareholder seller notes payable.
 
Subordinated Notes. On January 6 and January 9, 2012, AAFK entered into Note and Warrant Purchase Agreements with two accredited investors pursuant to which it issued $0.9 million and $2.5 million in original notes to the investors (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, 2019, the Subordinated Notes were amended to extend the maturity date until the earlier of (i) December 31, 2019; (ii) completion of an equity financing by AAFK or Aemetis in an amount of not less than $25.0 million; or (iii) after the occurrence of an Event of Default, including failure to pay interest or principal when due and breaches of note covenants. A 10% cash extension fee was paid by adding the fee to the balance of the new note and warrants to purchase 113 thousand shares of common stock were granted with a term of two years and an exercise price of $0.01 per share. We evaluated the July 1, 2019 amendment and the refinancing terms of the Subordinated Notes and applied modification accounting treatment in accordance with ASC 470-50 Debt – Modification and Extinguishment.
 
At September 30, 2019 and December 31, 2018, the Company had, in aggregate, $11.1 million net of unamortized discount costs of $0.2 million and $10.1 million in principal and interest outstanding, respectively, under the Subordinated Notes.
 
 
20
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
EB-5 long-term promissory notes. EB-5 is a U.S. government program authorized by the Immigration and Nationality Act designed to foster employment-based visa preference for immigrant investors to encourage the flow of capital into the U.S. economy and to promote employment of U.S. workers. The Company entered into a Note Purchase Agreement dated March 4, 2011 (as further amended on January 19, 2012 and July 24, 2012) with Advanced BioEnergy, LP, a California limited partnership authorized as a Regional Center to receive EB-5 investments, for the issuance of up to 72 subordinated convertible promissory notes (the “EB-5 Notes”) bearing interest at 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 processes are 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 four early investor EB-5 Notes, the Company was granted 12 months from the date of the completion of immigration process to redeem these EB-5 Notes. Accordingly, the notes have been recognized as long term while the four early investor notes have been classified as current debt. The EB-5 Notes are convertible into Company’s common stock 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, 2019, $35.0 million has been released from the escrow amount to the Company, with $0.5 million remaining in escrow and $0.5 million to be funded to escrow. As of September 30, 2019, $35.0 million in principal and $2.7 million in accrued interest was outstanding on the EB-5 Phase I Notes.
 
On October 16, 2016, the Company launched its EB-5 Phase II funding, with plans to issue $50.0 million in additional EB-5 Notes on substantially similar terms and conditions as those issued under the Company’s EB-5 Phase I funding to refinance indebtedness and capital expenditures of Aemetis, Inc. and GAFI. The Company entered into a Note Purchase Agreement dated with Advanced BioEnergy II, LP, a California limited partnership authorized as a Regional Center to receive EB-5 Phase II investments, for the issuance of up to 100 EB-5 Notes bearing interest at 3%. Each note will be issued in the principal amount of $0.5 million and due and payable five years from the date of each note, for a total aggregate principal amount of up to $50.0 million (the “EB-5 Phase II funding”).
 
Advanced BioEnergy II, LP arranges investments with foreign investors, who each make loans to the Riverbank Cellulosic Ethanol Facility in increments of $0.5 million. The Company has sold an aggregate principal amount of $2.5 million of EB-5 Notes under the EB-5 Phase II funding since 2016 to the date of this filing. As of September 30, 2019, $2.5 million was released from escrow to the Company and $47.5 million remains to be funded to escrow. As of September 30, 2019, $2.5 million in principal and interest was outstanding on the EB-5 Phase II Notes.
 
 
21
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
Unsecured working capital loans. On April 16, 2017, the Company entered into an operating agreement with Gemini Edibles and Fats India Private Limited (“Gemini”). Under this agreement, Gemini agreed to provide the Company with working capital, on an as needed basis, to fund the purchase of feedstock and other raw materials for the Kakinada Plant. Working capital advances bear interest at 12%. In return, the Company agreed to pay Gemini an amount equal to 30% of the plant’s monthly net operating profit and recognized these as operational support charges in the financials. 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. The Company made principal and interest payments to Gemini of approximately $35.6 million and $10.4 million during the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019 and December 31, 2018, the Company had $2.9 million and $4.6 million outstanding under this agreement, respectively.
 
In November 2008, the Company entered into an operating agreement with Secunderabad Oils Limited (“Secunderabad Oils”). The 2008 agreement provided the working capital and had the first priority lien on assets in return for 30% of the plant’s monthly net operating profit. These expenses were recognized as selling, general, and administrative expenses by the Company in the financials. All terms of the 2008 agreement with Secunderabad Oils were terminated to amend the agreement as below. On July 15, 2017, the agreement with Secunderabad Oils was amended to provide the working capital funds for British Petroleum business operations only in the form of inter-corporate deposit for an amount of approximately $2.3 million over a 95 days period at the rate of 14.75% per annum interest rate. The term of the agreement continues until the 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, 2019 and 2018, the Company made principal and interest payments to Secunderabad Oils of approximately $0.5 million and $3.0 million, respectively. As of September 30, 2019 and December 31, 2018, the Company had $0.6 million and $0.3 million outstanding under this agreement, respectively.
 
Variable Interest Entity (GAFI) Term loan and Revolving loan
 
On July 10, 2017, GAFI entered into a Note Purchase Agreement (the “GAFI Note Purchase Agreement”) with Third Eye Capital (the “Noteholders”). See further discussion regarding GAFI in Note 5. 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 (the “GAFI Term Loan”) and (ii) revolving advances not to exceed $10.0 million in the aggregate (the “GAFI Revolving Loan”). The interest rate per annum applicable to the GAFI Term Loan is equal to ten percent (10.0%). 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, 2019 was 12.75%. On June 10, 2019, notice was given to renew the maturity date of GAFI notes to July 10, 2020 by following extension terms in the GAFI Note Purchase Agreement in exchange for a fee of $0.5 million. The maturity date of the loans (“Maturity Date”) is July 10, 2020, provided that the Maturity Date may be extended at the option of GAFI for up to one additional one-year period upon prior written notice and upon satisfaction of certain conditions and the payment of a renewal fee for such extension. An initial advance under the GAFI Revolving Loan was made for $2.2 million as a prepayment of interest on the GAFI Term Loan for the first eighteen months of interest payments. In addition, a fee of $1.0 million was paid in consideration to the Noteholders.
 
 
22
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
On June 28, 2018, GAFI entered into Amendment No. 1 to the GAFI Term Loan with Third Eye Capital for an additional amount of $1.5 million with a fee of $75 thousand added to the loan from Third Eye Capital at a 10% interest rate. The fee of $75 thousand was recognized as expense on the amendment date. On December 20, 2018, $1.6 million from Amendment No. 1 was repaid. Pursuant to Amendment No. 1, Aemetis, Inc. entered into a Stock Appreciation Rights Agreement to issue 1,050,000 Stock Appreciation Rights (SARs) to Third Eye Capital on August 23, 2018, with an exercise date of one year from the issuance date with a call option for the Company at $2.00 per share during the first 11 months of the agreement either to pay $2.1 million in cash or issue common stock worth $2.1 million based on the 30-day weighted average price of the stock on the call date, and a put option for Third Eye Capital at $1.00 per share during the 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 up to $3.5 million from Third Eye Capital at a 10% interest rate (the “CO2 Term Loan”). 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. Among other requirements, the Company is also required to make the following mandatory repayments of the CO2 Term Loan: (i) on a monthly basis, an amount equal to 75% of any payments received by the Company for CO2 produced by Linde LLC, (ii) an amount equal to 100% of each monthly payment received by the Company for land use by Linde for CO2 plant, and (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. Mandatory repayment amounts of $0.4 million is estimated to be paid in the next 12 months and is classified as current debt as of September 30, 2019. We evaluated the Amendment No. 2 to the GAFI Term Loan and applied modification accounting treatment in accordance with ASC 470-50 Debt – Modification and Extinguishment.
 
As of September 30, 2019, GAFI had $18.9 million, net of debt issuance costs of $0.5 million, outstanding on the Term Loan and $10.4 million outstanding on the Revolving Loan respectively.
 
Debt repayments for the Company’s loan obligations follow:
 
Twelve months ended September 30,
 
Debt Repayments
 
2020
 $22,476 
2021
  166,815 
2022
  3,500 
2023
  1,836 
2024
  2,500 
Total debt
  197,127 
Debt issuance costs
  (1,589)
Total debt, net of debt issuance costs
 $195,538 
 
 
23
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
5.          
Variable Interest Entity
 
GAFI was formed to acquire the partially completed Goodland ethanol plant in Goodland, Kansas. GAFI entered into the GAFI Note Purchase Agreement with Third Eye Capital to acquire the plant. GAFI, the Company and its subsidiary AAPK also entered into separate GAFI Intercompany Notes, pursuant to which GAFI may, from time to time, lend a portion of the proceeds of the GAFI Revolving Loan incurred under the GAFI Note Purchase Agreement to the Company. Aemetis, Inc. and AAPK (in such capacity, the “GAFI Guarantors”) also agreed to enter into a limited guaranty (the “GAFI Limited Guaranty”). Pursuant to the GAFI Limited Guaranty, the Guarantors agreed to guarantee the prompt payment and performance of all unpaid principal and interest on the GAFI Loans and all other obligations and liabilities of GAFI to the GAFI Noteholders in connection with the GAFI Note Purchase Agreement. The obligations of the GAFI Guarantors pursuant to the GAFI Limited Guaranty are secured by a first priority lien over all assets of the GAFI Guarantors pursuant to separate general security agreements entered into by each GAFI Guarantor. The aggregate obligations and liabilities of each GAFI Guarantor is limited to the sum of (i) the aggregate amount advanced by GAFI to such GAFI Guarantor under and in accordance with the GAFI Intercompany Notes and (ii) the obligation of the GAFI Guarantor pursuant to its indemnity and expense obligations under the GAFI Limited Guaranty prior to the date on which the option under the GAFI Option Agreement is exercised. Additionally, on July 10, 2017, the Company entered into the GAFI Option Agreement by and between GAFI and the sole shareholder of GAFI, pursuant to which the Company was granted an irrevocable option to purchase all, but not less than all, of the capital stock of GAFI for an aggregate purchase price equal to $0.01 per share for a total purchase price of $10.00 (such option, the “GAFI Option”). The GAFI Option provides for automatic triggering in the event of certain default circumstances. After the automatic exercise upon default, the GAFI Limited Guaranty no longer applies and the GAFI Guarantors are responsible for the outstanding balances of the GAFI Term Loan and the GAFI Revolving Loan. Additionally, Third Eye Capital was granted a warrant for the purchase of 250 shares, representing 20% of the outstanding shares of GAFI, for a period of 10 years at an exercise price of $0.01 per share. The sole shareholder of GAFI received 100,000 shares of common stock of the Company as consideration. On July 10, 2017, the Company issued the 100,000 shares and recognized $0.1 million of stock compensation expense during the year ended December 31, 2017.
 
After consideration of the above agreements, we concluded that GAFI did not have sufficient equity to finance its activities without additional subordinated financial support. Additionally, GAFI’s shareholder did not have a controlling financial interest in the entity. Hence, we concluded that GAFI is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly affect the economic performance of the VIE and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. In determining whether the Company is the primary beneficiary, a number of factors are considered, including the structure of the entity, contractual provisions that grant any additional rights to influence or control the economic performance of the VIE, and obligation to absorb significant losses. Through providing the GAFI Limited Guaranty and signing the GAFI Option Agreement, the Company took the risks related to operations, financing the Goodland Plant, and agreed to meet the financial covenants for GAFI to be in existence. Based upon this assessment, the Company has the power to direct the activities of GAFI and has been determined to be the primary beneficiary of GAFI and accordingly, the assets, liabilities, and operations of GAFI are consolidated into those of the Company.
 
 
24
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
The following are the Balance Sheets and Statements of Operations of GAFI:
 
 
 
  As of
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $4 
 $17 
Prepaid expenses
  25 
  215 
Other assets
  - 
  103 
Total current assets
  29 
  335 
 
    
    
Property, plant and equipment
  15,408 
  15,408 
Promissory note receivable from Aemetis
  6,659 
  6,182 
 
    
    
Total assets
 $22,096 
 $21,925 
 
    
    
Liabilities and stockholder deficit
    
    
 
    
    
Other accrued liabilities
 $295 
 $44 
Secured and revolving notes
  29,373 
  26,621 
 
    
    
Total liabilities
  29,668 
  26,665 
 
    
    
Accumulated deficit
  (7,572)
  (4,740)
Total liabilities and stockholder deficit
 $22,096 
 $21,925 
 
 
 
Goodland Advanced Fuels, Inc.        
 
 
 
Statements of Operations          
 
 
 
Three months ended
 
 
For the nine months ended
 
 
 
September 30, 2019
 
 
September 30, 2018
 
 
September 30, 2019
 
 
September 30, 2018
 
Other Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 $103 
 $89 
 $315 
 $321 
 
    
    
    
    
Operating loss
  (103)
  (89)
  (315)
  (321)
 
    
    
    
    
Interest expense
    
    
    
    
    Interest rate expense
  800 
  739 
  2,304 
  2,106 
    Debt related fees and amortization expense
  167 
  168 
  694 
  493 
Other income
  (170)
  (204)
  (481)
  (534)
 
    
    
    
    
Net loss
 $(900)
 $(792)
 $(2,832)
 $(2,386)
 
 
25
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
6. Biogas LLC – Series A Preferred Financing
 
On December 20, 2018, Aemetis Biogas LLC (the “ABGL”) entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Unit Agreement”) by selling Series A preferred Units to Protair-X Americas, Inc. (the “Purchaser”), with Third Eye Capital acting as an agent for the purchaser (the “Agent”). ABGL plans to construct and collect biogas from dairies located near the Keyes Plant (the “CO2 Project”). 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 are held in reserve as potential conversion units issuable to the Purchaser upon certain triggering events discussed below.
 
The Preferred Unit Agreement includes (i) preference payments of $0.50 per unit on the outstanding Series A Preferred Units commencing on the second anniversary, (ii) conversion rights for up to 1,200,000 common units or up to maximum number of 5,000,000 common units (also at a one Series A Preferred Unit to one Common Unit basis) if certain triggering events occur, (iv) one Board seat of the three available to be elected by Preferred Unit holders, (iii) mandatory redemption value at $15 per unit payable at an amount equal to 75% of free cash flow generated by ABGL, up to $90 million in the aggregate (if all units are issued), (iv) full redemption of the units on the sixth anniversary, (v) minimum cash flow requirements from each digester, and (vi) $0.9 million paid as fees to the Agent from the proceeds.
 
Triggering events occur upon ABGL’s failure to redeem units, comply with covenants, any other defaults or cross defaults, or to perform representations or warranties. Upon a triggering event: (i) the obligation of the Purchaser to purchase additional Series A Preferred Units is terminated, (ii) cash flow payments for redemption payments increases from 75% to 100% of free cash flows, and (iii) total number of common units into which preferred units may be converted increases from 1,200,000 common units to 5,000,000 common units on a one for one basis.
 
Pursuant to signing the agreement with the Purchaser, the ABGL issued 1,660,000 Series A Preferred Units for an amount of $8.3 million in first tranche of investment. ABGL paid $6.0 million of this amount to Aemetis, Inc. in the form of management fees for managing and executing the Project. We assessed the above terms and concluded that the minority shareholders lacks substantive participating rights, principally based on the ownership percentage, manager representation, and expertise in the industry. Therefore, ABGL is controlled by Aemetis, Inc. and accordingly consolidated into the Company. The Series A Preferred Units are recorded as mandatorily redeemable and treated as a liability as the conversion option was deemed to be non-substantive. The Company is accreting up to the redemption value of $24.9 million over the estimated future cash flow periods of six years using the effective interest method. In addition, the Company identified freestanding future tranche rights and the accelerated redemption feature related to a change in control provision as derivatives which required bifurcation. These derivative features were assessed to have minimal value as of September 30, 2019 and December 31, 2018 based on the evaluation of the other conditions included in the agreement.
 
 
26
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
On June 21, 2019, ABGL issued 50,000 Series A Preferred Units for incremental proceeds of $250 thousand as part of the first tranche of the Series A Preferred Unit Agreement. Consistent with the first issuance, 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 $750 thousand over the estimated future cash flow periods of six years from the original anniversary date using the effective interest method.
 
On July 16, 2019 and August 29, 2019, ABGL issued 186,000 and 109,000 Series A Preferred Units, respectively, for incremental proceeds of $1.5 million as part of the first tranche of the Series A Preferred Unit Agreement. Consistent with the previous issuances, the units are treated as a liability as the conversion option was deemed to be non-substantive. The Company is accreting up to the redemption value of $4.4 million over the estimated future cash flow periods of six years from the original anniversary date using the effective interest method.
 
As of September 30, 2019 and December 31, 2018, the Company recorded $10.2 million and $7.0 million outstanding under this agreement.
 
7. Leases
 
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
 
The new standard was effective for us on January 1, 2019. We adopted the new standard on its effective date. A modified retrospective transition approach was required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
 
The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the practical expedient pertaining to land easements. We made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. We will recognize those lease payments in the Consolidated Statements of Operations as we incur the expenses.
 
This standard had a material effect on our consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities. However, it did not have a material impact on the Consolidated Statement of Operations.
 
 
27
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
After assessment of this standard on our Company wide agreements and arrangements, we have identified assets as the corporate office, warehouse, monitoring equipment and laboratory facilities which we have control over these identified assets and obtain economic benefits fully. We classified these identified assets as operating leases after assessing the terms under classification guidance. Our leases have remaining lease terms of 1 year to 3 years. We have only one lease that has option to extend, we have concluded that it is not reasonably certain that we would exercise the option to extend the lease. Therefore, as of the lease commencement date, our lease terms generally did not include these options. We include options to extend the lease when it is reasonably certain that we will exercise that option. We have an equipment lease with extension options which the Company likely to extend, however, the equipment is billed based on the hours it is used in the period. According to the guidance, the variable payments based on other than index or rate, are to be expensed in the period incurred. The equipment cost is recognized as it is incurred. The corporate office has a sublease agreement in which we are a sub lessor and the term of the lease is for five months and then becomes month to month. We did not have any separate lease components in any of the leases and the property taxes and insurance charges are based on a variable rate in our real estate leases, hence we did not include them in the lease payments as in substance fixed payments.
 
When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on weighted average baseline rates commensurate with the Company’s secured borrowing rate, over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.
 
Upon adoption of the standard, we recognized additional operating liabilities of $1.2 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum lease payments for existing operating leases.
 
The components of lease expense and sublease income was as follows:
 
 
 
Three months ended September 30,
2019
 
 
Nine months ended September 30,
2019
 
 
 
 
 
 
 
 
Operating lease expense
 $219 
 $543 
Short term lease expense
  18 
  71 
Variable lease expense
  31 
  80 
Sub lease income
  (50)
  (118)
 
    
    
Total lease cost
 $218
 $576
 
 
28
 
AEMETIS, INC.
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, tabular data in thousands except par value and per share data)
 
Supplemental non-cash flow information related to right-of-use asset and lease liabilities was as follows for the three and nine months ended September 30, 2019:
 
 
 
Three months ended September 30,
2019
 
 
Nine months ended September 30,
2019
 
 Accretion of the lease liability
 $31 
 $107 
 
    
    
Amortization of right-of-use assets
 $151 
 $438 
 
 
Weighted Average Remaining Lease Term Operating Leases
 
1.6 years
Weighted Average Discount Rate Operating Leases
 
14.7%
 
 
Supplemental balance sheet information related to leases was as follows:
 
 
As of