Aemetis, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. The unaudited consolidated statements cover Aemetis’s U.S. ethanol operations and India biodiesel, glycerin, and refined-oil operations.
Key financial results
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $47.35 million | $44.28 million | $66.77 million | $88.48 million |
| Gross profit (loss) | $3.75 million | ($2.02 million) | $4.00 million | ($4.28 million) |
| Operating loss | ($0.36 million) | ($4.58 million) | ($4.55 million) | ($9.00 million) |
| Net loss | ($9.59 million) | ($9.75 million) | ($19.41 million) | ($18.11 million) |
| Net loss per share, basic and diluted | ($0.05) | ($0.07) | ($0.10) | ($0.14) |
- Gross margin was approximately 7.9% in Q2 2013, compared with negative 4.6% in Q2 2012; for the six-month periods it was approximately 6.0% versus negative 4.8%.
- Interest and amortization expense totaled approximately $9.0 million in Q2 and $13.9 million for the first half. Six-month amortization expense was $8.49 million; the company also recorded a $1.19 million debt-extinguishment loss.
- Cash from operations was negative $5.79 million for the first half, compared with negative $4.98 million a year earlier. Investing activities provided $0.33 million and financing activities provided $5.30 million. Cash declined by $0.17 million to $125,102.
- At June 30, current assets were $10.11 million and current liabilities were $35.29 million; working capital was negative $25.18 million and the reported current ratio was 0.28. Management said available funds covered less than one month of operating costs.
- Total debt was reported at $83.69 million, net of discounts; stockholders’ deficit was $10.47 million. Cash and liquidity were limited, despite the improvement in the current ratio from 0.12 at year-end 2012.
Material changes and operating context
- Q2 revenue increased about 7% year over year, while first-half revenue fell about 25%. India revenue rose substantially as biodiesel sales channels and refined-glycerin and palm-oil operations expanded. North American revenue declined, largely reflecting the Keyes ethanol plant’s extended idle period.
- Keyes averaged 88% of nameplate capacity during Q2 production periods, but 44% for the first half. North American first-half gross profit improved from a substantial loss to a small profit; India also moved to positive gross profit.
- SG&A increased to $3.98 million in Q2 and $8.20 million for the first half. The company attributed much of the North American increase to reclassifying fixed costs during the plant idle period, as well as higher audit fees; India costs also increased with operating support and refining activity.
- Common shares outstanding rose from 180.3 million at December 31, 2012 to 191.7 million at June 30, 2013. Financing included equity issuance, warrant exercises, and shares issued to settle certain fees and obligations.
Debt, outlook, risks, and unusual items
- Third Eye Capital was the principal secured lender. The company had repeatedly amended or received waivers under its facilities, including waivers of financial, production, and payment covenants. Amendment No. 5, signed July 26, 2013 and effective June 30, extended maturity to July 6, 2014 and changed repayment terms, including a sweep of 20% of daily operating cash deposits. It also imposed minimum quarterly ethanol production of 10 million gallons and assigned priority to repayment of specified advances.
- Amendment No. 5 added substantial fees, including $3.0 million in additional notes, a $1.5 million extension fee in additional notes, a $750,000 share fee, and further fees due in cash or shares. The company expected to record an approximately $2.52 million extinguishment loss in Q3 2013.
- The State Bank of India loan remained in default, with missed principal and interest payments and a recovery case before the Debt Recovery Tribunal in Hyderabad. The filing warns that enforcement could affect operations and could lead to seizure of company property.
- Management’s plans include operating Keyes in a positive-margin environment, using lower-cost feedstock, raising funds (including pursuing up to $35 million in additional EB-5 notes), restructuring the India bank loan, and expanding India sales. Management believed these actions could fund operations for the foreseeable future, but stated there was no assurance of adequate financing or continued lender support.
- There is no specific financial guidance. The filing describes significant financing, working-capital, customer and supplier concentration, plant-operation, and execution risks. No legal proceedings were reported in Item 1, although the SBI recovery matter is discussed in the notes and MD&A.
- Disclosure controls were reported ineffective because of inadequate personnel with sufficient GAAP expertise, experience, and training. Remediation efforts included seeking qualified accounting staff, retaining a consultant, and additional staff training.
- After quarter-end, the company sold ethanol-plant equipment for a $116,532 gain. The filing also reported no impairment of long-lived assets as of June 30.
Important facts for investors to verify
- Whether operating cash flow and financing are sufficient to meet near-term obligations, given the minimal cash balance and negative working capital.
- Compliance with Amendment No. 5’s cash-sweep, production, and fee-payment terms, and the effect of additional debt and potential share issuance.
- Progress in restructuring or resolving the defaulted State Bank of India loan and related recovery proceedings.
- Whether Keyes can sustain required production and positive margins, and whether India sales growth and customer concentration are manageable.
- Whether the company remediates its disclosure-control weaknesses and obtains adequate accounting personnel.