AEMETIS, INC annual report, FY2017

Aemetis, Inc. — FY 2017 Form 10-K

Reporting period: Fiscal year ended December 31, 2017. This is an annual filing, not a standalone fourth-quarter report. Aemetis operates a California ethanol business and an India biodiesel and glycerin business; it also consolidated Goodland Advanced Fuels (GAFI), a Kansas project, as a variable interest entity.

Financial results and liquidity

Metric	2017	2016
Revenue	$150.2 million	$143.2 million
Gross profit (margin)	$3.4 million (2.2%)	$11.6 million (8.1%)
Operating loss	$12.2 million	$0.8 million
Net loss	$31.8 million	$15.6 million
Net cash used in operations	$8.7 million	$0.4 million provided

• Revenue rose 5%, but cost of goods sold rose 12%, driving gross profit down 71%. North America revenue increased 6% to $136.7 million; India revenue fell 7% to $13.4 million.
• North America gross profit fell to $3.1 million from $11.7 million, reflecting higher corn costs, lower WDG prices, and ethanol pricing pressure. India gross profit was $0.2 million versus a $0.1 million loss, despite lower sales volume.
• Interest expense was $13.9 million and debt-related amortization expense was $5.4 million. The net loss widened substantially; the 2016 comparison included a $2.0 million gain on debt extinguishment. The 2017 tax reform remeasurement generated a $19.6 million non-cash deferred-tax expense, offset by a reduction in the valuation allowance; reported income tax expense was $6,000.
• Cash was $0.4 million at year-end, down from $1.5 million. Current assets were $11.5 million and current liabilities $36.0 million; the reported current ratio was 0.32. Total debt was $153.8 million, up from $111.7 million, and total stockholders’ deficit was $79.9 million.
• Financing activities provided $8.4 million in cash, while investing activities used $1.1 million. Operating cash flow was negative despite a $10.8 million increase in accrued interest and other working-capital movements.

Operations and material changes

• Keyes sold 60.8 million gallons of ethanol, up 9%, and 407,000 tons of WDG, up 9%. Average prices declined 1.7% for ethanol and 8% for WDG. The plant operated at an average 110% of its stated 55-million-gallon capacity reference.
• India biodiesel volume declined 24% to 12,161 metric tons, while average price rose 15% to $851 per ton. Refined glycerin volume fell 14% to 3,793 tons, while average price rose 39% to $810 per ton. Management attributed weaker domestic growth and margins in part to the GST increase from 11% to 18% in July 2017.
• R&D expense increased to $2.4 million from $0.4 million, principally to build and test an integrated demonstration unit for the Riverbank cellulosic ethanol project. GAFI’s Kansas assets were acquired and consolidated during 2017; its year-end secured and revolving debt was $24.4 million.

Outlook, risks, contingencies, and unusual items

• Management expects 2018 growth opportunities from India’s GST reduction to 12%, European biodiesel tariff preferences, broader sales channels, and a planned Keyes CO₂ sales arrangement. These are expectations, not assured outcomes. The Riverbank project depends on financing and a proposed $125 million USDA loan guarantee; approval and funding are not established in the filing.
• Management identified substantial doubt about the Company’s ability to continue as a going concern, citing limited liquidity, operating losses, debt-service needs, and dependence on financing. It stated that planned operating improvements, financing, EB-5 proceeds, and subsequent debt amendments could provide liquidity, but there is no assurance these measures will succeed.
• Third Eye Capital debt was amended in March 2018 to extend maturity to April 1, 2020, with a further extension option to 2021 subject to a fee. A separate reserve facility of up to $6 million carries 30% annual interest, or 40% following default; the Company said it did not expect to draw it. The amendments improve near-term maturity timing but add fees and do not resolve the underlying funding risk.
• Key risks include high leverage and interest costs, limited cash, volatile feedstock and product spreads, reliance on J.D. Heiskell and India working-capital partners, customer concentration, project execution and financing risk, regulatory and foreign-exchange exposure, and potential dilution. Nasdaq had notified the Company of minimum-bid-price and publicly-held-share-value deficiencies, with stated compliance deadlines in April and May 2018.
• Legal matters include EdenIQ-related litigation, for which the Company could not estimate the outcome, and a patent dispute over corn-oil extraction. The Company reported favorable court rulings in the patent matter but noted appeal activity; it stated potential damages could be $1 million or more if the adverse appeal outcome occurred.
• The independent auditor issued an unmodified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.

Important facts for investors to verify

• Whether operating cash flow and working-capital support can improve enough to meet debt service, and the detailed terms, covenants, and fees on all Third Eye Capital and GAFI obligations.
• Whether the amended debt maturities, EB-5 funding, any new financing, and the high-cost reserve facility provide adequate liquidity; confirm the status of EB-5 escrow funds and the Phase II offering.
• Actual progress, financing, permits, and economics for Riverbank and Goodland, including whether the USDA loan guarantee and CO₂ sales project proceed.
• Whether the India GST reduction and export-market access translate into higher volumes and margins, and whether the Company can reduce dependence on concentrated suppliers and customers.
• Current Nasdaq listing status and the status and potential financial impact of the EdenIQ and patent litigation.