Aemetis(AMTX) - 2020 Q4 - Annual Report

Part I Business Aemetis is an international renewable fuels company operating in North America and India, producing advanced biofuels and by-products while leveraging government policies General Overview Aemetis is a renewable natural gas and fuels company with operations in North America and India, expanding into RNG, CO2, and high-grade alcohol production - Operates a 65 million gallon per year ethanol production facility in Keyes, California, producing ethanol, Wet Distillers Grains (WDG), Distillers Corn Oil (DCO), and Condensed Distillers Solubles (CDS)[10] - Formed Aemetis Biogas, LLC (ABGL) in 2018 to construct bio-methane anaerobic digesters at local dairies, producing Renewable Natural Gas (RNG); the first two digesters and pipeline became operational in Q3 2020[12] - Commenced selling captured CO2 to Messer Group in Q2 2020 from a new liquification plant adjacent to the Keyes Plant[13] - In response to the COVID-19 pandemic, began producing and selling high-grade alcohol for hand sanitizer in March 2020 under its Aemetis Health Products subsidiary[21][22] - Owns and operates a 50 million gallon per year biodiesel and refined glycerin production facility in Kakinada, India[20] Strategy The company's strategy focuses on leveraging technology for advanced biofuels and diversifying revenue through by-products in North America, while capitalizing on favorable government policies and feedstock diversification in India - North America Strategy: - Leverage technology to produce renewable hydrogen, jet fuel, diesel, and cellulosic ethanol from waste wood at the Riverbank facility - Diversify revenue by adopting value-added systems like CO2 capture (operational Q2 2020), mechanical vapor recovery (MVR), and an integrated solar microgrid - Develop additional revenue streams, such as the Aemetis Biogas Central Dairy Digester Cluster, which commenced operations in Q3 2020 - Evaluate opportunities to acquire, license technology to, or form joint ventures with other biofuel plants[23][24][25][26][27] - India Strategy: - Capitalize on policy changes like the Goods and Services Tax (GST) and pursue tender offers from Government Oil Marketing Companies - Diversify feedstocks to include lower-cost options like animal oils, fats, and used cooking oil (UCO), supported by a pretreatment unit upgraded in 2019 - Invest in technologies to produce high-margin products like renewable diesel from waste oils[28][30][31][32] 2020 Highlights In 2020, North America diversified into high-grade alcohol for sanitizer, improving average sales price, while India experienced significant sales volume reductions due to pandemic-related delays North America Production & Sales (2020 vs. 2019) (in thousands) | Product | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | | Ethanol & High-Grade Alcohol | Gallons Sold (thousands) | 60,286 | 64,708 | -6.8% | | | Average Sales Price/Gallon | $1.84 | $1.77 | 4.0% | | WDG | Tons Sold (thousands) | 393 | 428 | -8.1% | | | Average Sales Price/Ton | $81.49 | $80.65 | 1.0% | India Production & Sales (2020 vs. 2019) (in thousands) | Product | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | | Biodiesel | Tons Sold | 15,987 | 46,971 | -66.0% | | | Average Sales Price/Ton | $863 | $904 | -4.6% | | Refined Glycerin | Tons Sold | 1,440 | 5,173 | -72.2% | | | Average Sales Price/Ton | $814 | $543 | 49.9% | - In North America, the company transitioned to selling ethanol directly to Kinergy Marketing LLC and began selling high-grade alcohol for sanitizer and captured CO2, diversifying its revenue streams[34] Competition, Customers, and Suppliers Aemetis competes with numerous ethanol producers in the U.S. and government/private oil companies in India, relying on key partners for corn procurement and product sales in North America, while sourcing palm stearin locally in India - Competition: Competes with ~200 U.S. ethanol producers and Midwestern ethanol transported into California; in India, competes with large Government Oil Marketing Companies (Indian Oil, Bharat Petroleum, Hindustan Petroleum) and private refiners[41][42] - Customers (North America): As of May 2020, ethanol is sold to Kinergy Marketing; WDG is sold to A.L. Gilbert; CO2 is sold to Messer; high-grade alcohol is sold to various customers[44] - Customers (India): In 2020, two biodiesel customers accounted for 42% and 26% of India segment revenues[45] - Suppliers (North America): Procures all corn for the Keyes Plant from J.D. Heiskell under a supply agreement expiring December 31, 2021, with automatic one-year renewals[50] - Suppliers (India): Primary feedstock is refined palm stearin sourced locally; the company is not dependent on any single supplier for raw materials[51] Environmental and Regulatory Matters The company's operations are subject to extensive environmental regulations in both North America and India, with key U.S. regulations like RFS and LCFS significantly impacting its low-carbon products and requiring substantial compliance costs EPA Renewable Fuel Volume Requirements (in gallons) | Fuel Type | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Cellulosic biofuel (million) | 418 | 590 | n/a | | Biomass-based diesel (billion) | 2.1 | 2.4 | 2.4 | | Advanced biofuel (billion) | 4.92 | 5.09 | n/a | | Renewable fuel (billion) | 19.92 | 20.09 | n/a | - The company is subject to federal, state, and local environmental laws (e.g., Clean Air Act, CERCLA) that may require significant capital costs for permits, monitoring, and compliance[67][69][71] - Climate change legislation and regulations, such as the RFS and California's LCFS, significantly impact the biofuels industry and the company's operations[72] Risk Factors The company faces significant financial, operational, and regulatory risks, including unprofitability, high debt, volatile commodity prices, and dependence on external factors - Financial Risks: The company has a history of significant losses ($36.7 million in 2020) and an accumulated deficit of $274.1 million; it is dependent on external financing and has substantial debt ($161.5 million to Third Eye Capital as of Dec 31, 2020), which carries high interest expense and restrictive covenants[78][79][81][86] - Operational & Market Risks: Profitability is dependent on the volatile spread between feedstock/energy costs and fuel/feed prices; the business is vulnerable to disruptions in infrastructure (rail, utilities) and is highly dependent on principal suppliers (J.D. Heiskell) and customers (Kinergy, A.L. Gilbert)[91][92][90][102] - Regulatory & Strategic Risks: The business is highly dependent on government mandates like the RFS and California's LCFS, which are subject to change; there are risks in executing its business plan, including developing new facilities (Riverbank) and technologies, and entering new markets like hand sanitizer[118][120][98][125] - International Risks: A substantial portion of assets and operations are in India, subject to regulatory, economic, and political uncertainties, as well as currency fluctuations between the Indian rupee and the U.S. dollar[130][131][132] - COVID-19 Risk: The pandemic has negatively impacted the global economy, disrupted supply chains, and reduced demand for transportation fuels, creating uncertainty for operational and financial performance[146] Properties Aemetis owns and leases various properties for its North American operations, including ethanol, CO2, biogas, and cellulosic ethanol facilities, and its Indian biodiesel plant - North America: - Corporate HQ in Cupertino, CA (leased) - Ethanol Plant in Keyes, CA (owned, 11 acres) - CO2 Land in Keyes, CA (owned, 5.32 acres) - Biogas Digesters in Central Valley, CA (leased land at 17 dairies) - Cellulosic Ethanol Plant site in Riverbank, CA (leased, 71,000 sq. ft.) - Land and buildings in Goodland, KS (owned, 93 acres)[188][189][190] - India: - Biodiesel Plant in Kakinada (owned, 32,000 sq. meters) - Administrative Office in Hyderabad (leased)[191] Legal Proceedings The company is involved in ongoing litigation with EdenIQ, Inc. regarding a terminated merger agreement, facing a $6.2 million award against it that it plans to appeal - The company is in litigation with EdenIQ, Inc. over a wrongfully terminated merger agreement[193] - On July 24, 2019, a court awarded EdenIQ approximately $6.2 million in fees and costs, which the company has recorded as a loss contingency and intends to appeal[193] Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[194] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'AMTX', has 215 stockholders, and does not anticipate paying cash dividends, with equity compensation governed by the 2019 Stock Plan - Common stock is traded on the NASDAQ Stock Market under the symbol "AMTX"[196] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[198] - The Aemetis 2019 Stock Plan is the primary vehicle for equity compensation, superseding prior plans[199] Selected Financial Data This item is not applicable - Not applicable[201] Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues decreased 18% to $165.6 million in 2020, driven by India segment declines, resulting in a $36.7 million net loss and ongoing liquidity challenges mitigated by a new $70 million facility Results of Operations (2020 vs. 2019) For 2020, total revenues decreased 18% to $165.6 million due to a 67% drop in India's revenue, while North America's revenue saw a slight 3% decrease, leading to an overall 13% decline in gross profit and a $36.7 million net loss Revenues by Segment (in thousands) | Segment | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | North America | $149,762 | $154,148 | $(4,386) | -3% | | India | $15,795 | $47,850 | $(32,055) | -67% | | Total | $165,557 | $201,998 | $(36,441) | -18% | Gross Profit by Segment (in thousands) | Segment | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | North America | $9,423 | $3,951 | $5,472 | 138% | | India | $1,602 | $8,747 | $(7,145) | -82% | | Total | $11,025 | $12,698 | $(1,673) | -13% | - North America's revenue decrease was mitigated by entering the high-grade alcohol market, which generated 15% of the segment's revenue in 2020[239] - India's revenue decline was due to delays in government tender contracts and general sales slowness from COVID-19, leading to a 66% decrease in biodiesel sales volume[240] - Total SG&A expenses decreased by 3% to $16.9 million, primarily due to a 58% reduction in India's SG&A, which offset a 14% increase in North America[248] Liquidity and Capital Resources The company's liquidity is constrained with $0.6 million cash, a 0.08 current ratio, and $229.6 million total debt, relying heavily on its senior lender and a new $70 million reserve liquidity facility to mitigate going concern risks Liquidity Summary (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $592 | $656 | | Current assets | $8,683 | $12,576 | | Current liabilities (ex-debt) | $80,264 | $51,843 | | Total Debt (Current & LT) | $229,619 | $202,425 | - The company has substantial doubt about its ability to continue as a going concern, which is mitigated by a $70 million Reserve Credit Facility from its senior lender established in March 2021[260][261][606] - Cash provided by financing activities was $14.8 million in 2020, primarily from a $13.8 million Series A Preferred Unit issuance for the biogas project and $5.1 million from an at-the-market equity offering[274] - Cash used in investing activities was $17.3 million, mainly for capital expenditures on projects like the biogas digesters and CO2 capture facility[272] - The maturity date for most Third Eye Capital debt has been extended to April 1, 2022[265] Critical Accounting Policies The company's critical accounting policies involve significant management judgment in revenue recognition, impairment assessments of long-lived assets, and the accounting for frequent debt modifications - Revenue Recognition (ASC 606): Revenue is recognized when performance obligations are satisfied, typically upon delivery of the product; the company assesses principal vs. agent criteria for transactions where it both buys from and sells to the same party (e.g., J.D. Heiskell), concluding it acts as the principal[279][285][288] - Impairment of Long-Lived Assets: The company reviews its property, plant, and equipment for impairment whenever events indicate the carrying amount may not be recoverable, requiring significant management judgment in projecting future cash flows; no impairment was recorded in 2020 or 2019[290][291][292] - Debt Modification Accounting (ASC 470): Amendments to debt are evaluated to determine if they represent a troubled debt restructuring or if the change in cash flows exceeds 10%, which would require extinguishment accounting; this analysis is critical due to frequent debt amendments[294] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and notes, with the independent auditor highlighting liquidity as a critical audit matter Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the financial statements, identifying "Liquidity & Management's Plan" as a critical audit matter due to reliance on the senior lender and judgments in cash flow forecasts - The auditor issued an unqualified opinion on the financial statements[372] - A critical audit matter was identified concerning the company's liquidity and management's plan to fund future operations, specifically the adequacy of the reserve liquidity facility and the reasonableness of cash flow forecasts[377][378] Consolidated Financial Statements The consolidated financial statements show total assets of $125.1 million and total liabilities of $309.9 million as of December 31, 2020, resulting in a stockholders' deficit of $184.7 million, with $165.6 million in revenues and a $36.7 million net loss for the year Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $125,139 | $99,896 | | Total Liabilities | $309,883 | $254,268 | | Total Stockholders' Deficit | $(184,744) | $(154,372) | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Revenues | $165,557 | $201,998 | | Gross Profit | $11,025 | $12,698 | | Operating Loss | $(6,070) | $(4,931) | | Net Loss | $(36,659) | $(39,477) | Consolidated Cash Flow Highlights (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $2,480 | $(2,034) | | Net cash used in investing activities | $(17,309) | $(8,578) | | Net cash from financing activities | $14,775 | $10,085 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on significant accounting policies, $229.6 million in debt obligations, $4.5 million in lease liabilities, the $34.0 million Aemetis Biogas project, segment performance, and management's plan to address going concern doubts with a $70 million reserve credit facility - Debt (Note 4): Total debt was $229.6 million at year-end 2020; this includes various notes with senior lender Third Eye Capital, EB-5 promissory notes, and subordinated notes, with Third Eye Capital notes secured by first priority liens on all North American assets[456][474] - Commitments and Contingencies (Note 5): The company has operating and finance lease liabilities totaling $4.5 million; it also has a $6.2 million loss contingency recorded for the EdenIQ litigation[506][512] - Aemetis Biogas LLC (Note 6): The biogas project is funded through a Series A Preferred Unit Purchase Agreement, which is treated as a liability; as of Dec 31, 2020, the liability was $34.0 million; ABGL is consolidated as a Variable Interest Entity (VIE) with Aemetis as the primary beneficiary[515][520][521] - Segment Information (Note 12): In 2020, the North America segment had revenues of $149.7 million and a gross profit of $9.4 million; the India segment had revenues of $15.8 million and a gross profit of $1.6 million[569] - Management's Plan / Going Concern (Note 17): Management acknowledges substantial doubt about the company's ability to continue as a going concern; this is mitigated by a $70 million Reserve Credit Facility from its senior lender, along with plans to improve operations and secure additional financing[605][606][607] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the period - None[295] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2020, due to a material weakness in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2020[296] - A material weakness was identified in internal control over financial reporting, relating to a failure to design and maintain effective controls over the supervision and review of the completeness and accuracy of complex transactions[301] - Remediation efforts are ongoing and include hiring personnel with appropriate technical accounting knowledge and experience[302][304] Other Information On March 14, 2021, the company enhanced liquidity by increasing its reserve facility with Third Eye Capital to $70.0 million and extending debt maturities to April 1, 2022 - On March 14, 2021, the company increased its reserve liquidity facility with Third Eye Capital to $70.0 million, with maturity extended to April 1, 2022[305] - On March 14, 2021, the company entered into Amendment No. 19 with Third Eye Capital, waiving certain debt covenants and extending the maturity of its notes to April 1, 2022[306] Part III Directors, Executive Officers and Corporate Governance The information required by this item concerning directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[308] Executive Compensation The information required by this item concerning executive compensation is incorporated by reference from the company's Proxy Statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[308] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item concerning security ownership is incorporated by reference from the company's Proxy Statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[308] Certain Relationships and Related Transactions, and Director Independence The information required by this item concerning related party transactions and director independence is incorporated by reference from the company's Proxy Statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[308] Principal Accounting Fees and Services The information required by this item concerning principal accounting fees and services is incorporated by reference from the company's Proxy Statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[309] Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including consolidated financial statements and a detailed index of exhibits, with all financial statement schedules omitted - The company's consolidated financial statements are filed as part of the report[311] - All financial statement schedules have been omitted[311] - A comprehensive list of exhibits is provided, including numerous amendments to the Note Purchase Agreement with Third Eye Capital, employment agreements, and SEC-required certifications[313][364]