Aemetis, Inc. — Form 10-Q Summary
Period: The filing covers the quarter ended June 30, 2012, with comparative results for 2011. The request metadata says 2011 Q2, but the filing itself is for 2012 Q2. The report was signed October 31, 2012.
Business context and financial performance
Aemetis produces renewable fuels and chemicals. Its principal operations were the Keyes, California ethanol plant and the Kakinada, India biodiesel and glycerin business. On July 6, 2012, after the reporting period, the company acquired Cilion, owner of the Keyes plant.
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2012 | $44.3 million | $88.5 million |
| Revenue, 2011 | $27.3 million | $28.0 million |
| Gross loss, 2012 | $2.0 million | $4.3 million |
| Operating loss, 2012 | $4.6 million | $9.0 million |
| Net loss, 2012 | $9.7 million | $18.1 million |
| Basic and diluted loss per share, 2012 | $0.07 | $0.14 |
| Operating cash flow, 2012 | Not clearly provided for the quarter | $(5.0) million |
Revenue growth mainly reflected a full half-year of Keyes operations in 2012 versus a partial start-up period in 2011, plus higher India sales. Gross margin remained negative: approximately (4.6%) for the quarter and (4.8%) for the six months. Six-month net loss increased from $10.6 million in 2011; quarterly net loss increased from $6.4 million. Interest expense rose to $9.3 million for the first half from $5.8 million, principally due to debt costs and revenue participation obligations.
Liquidity, debt, and balance sheet
- June 30 cash was $103,000, versus $249,000 at year-end 2011. Current assets were $5.4 million and current liabilities $35.8 million; the reported current ratio was 0.15.
- Stockholders’ deficit was $37.4 million, compared with $22.2 million at December 31, 2011. Accounts payable totaled $16.9 million.
- Total debt was approximately $39.1 million as of June 30, up from $29.6 million at year-end. The filing gives slightly inconsistent debt totals: the debt note reports $39.062 million, while MD&A reports $39.172 million.
- Six-month financing cash flow was $4.3 million, primarily from borrowing; investing cash flow was positive $454,000, including $1.1 million of land-sale proceeds. Cash declined by $147,000 overall.
- Management disclosed recurring losses, negative operating cash flow, a working-capital deficit and substantial dependence on its senior lender. It stated that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
Material changes, outlook, and risks
- Keyes production averaged 100% of nameplate capacity in the first half, versus 85% in the comparable 2011 period. North America accounted for 94% of consolidated first-half revenue, and sales to J.D. Heiskell accounted for 94% of consolidated revenue, creating significant customer concentration.
- Following the quarter, the Cilion acquisition consideration included $16.5 million cash, 20 million Aemetis shares, and contingent consideration with an estimated fair value of $3.824 million. Financing included a $15 million term loan, a $10 million revenue-participation loan, and an $18 million revolving facility; 15 million common shares were issued in connection with the financing. In October, the lender increased the revolver to $24 million and granted covenant and payment waivers in exchange for a $4 million fee. The filing reported $2 million remaining available after that fee.
- At June 30, the company had not complied with all Third Eye Capital covenants and paid fees, including issuing shares, to obtain waivers. The India subsidiary was in default on its State Bank of India loan, with missed principal and interest payments; the bank had filed a recovery case that could put company property at risk.
- Management planned to rely on lender support, additional financing, possible investment through Advanced BioEnergy, equity issuance, joint ventures and shareholder support. It cautioned that additional financing may not be available on acceptable terms. No quantified operating guidance was provided.
- Disclosure controls were described as ineffective due to insufficient GAAP-qualified resources. A later passage in the controls discussion appears to say they were effective at a reasonable-assurance level, an inconsistency that merits review.
- UBS Securities filed a breach-of-contract complaint in August 2012. The company said the case was at an early stage and it could not estimate the likelihood or amount of any loss.
Most important facts for investors to verify
- Confirm the reporting period: the filing is for Q2 2012, despite the request metadata identifying Q2 2011.
- Review post-quarter Cilion acquisition accounting, financing terms, share issuance, contingent consideration and remaining borrowing availability.
- Assess near-term liquidity, debt maturities, covenant compliance, lender waivers and the consequences of the State Bank of India default.
- Evaluate the sustainability of negative gross margins, interest costs, cash burn and the company’s going-concern assumptions.
- Verify the extent of customer concentration and the status and potential exposure of the UBS litigation.