AEMETIS, INC annual report, FY2018

Aemetis, Inc. — FY 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018. Although the request refers to 2018 Q4, this filing reports full-year results; it does not provide a clear standalone Q4 income statement or cash-flow summary. Amounts below are in U.S. dollars unless noted.

Business context

Aemetis produces renewable fuels and related products through two operating segments: North America and India. Its principal operating assets are a 60-million-gallon-per-year ethanol plant in Keyes, California, and a biodiesel and glycerin plant in Kakinada, India. The company is also developing cellulosic ethanol, dairy biogas, and a Keyes CO₂ project.

Financial performance and liquidity

Metric	FY 2018	FY 2017
Revenue	$171.5 million	$150.2 million
Gross profit	$5.4 million; 3.2% margin	$3.4 million; 2.2% margin
Operating loss	$10.9 million	$12.2 million
Net loss	$36.3 million	$31.8 million
Net loss attributable to Aemetis	$33.0 million	$30.3 million
Net loss per common share, diluted	$1.63	$1.53
Cash used in operating activities	$5.5 million	$8.7 million
Cash used in investing activities	$4.1 million	$1.1 million
Cash provided by financing activities	$10.4 million	$8.4 million

Revenue rose 14%. North America revenue increased 10% to $150.0 million; India revenue increased 60% to $21.5 million.
North American ethanol sales volume increased 7.9% to 65.6 million gallons, while average price edged down to $1.74 per gallon. WDG volume rose 4.2% and average price rose 17.6% to $76.38 per ton.
India biodiesel volume rose 63% to 19,846 metric tons; refined glycerin volume rose 25% to 4,748 metric tons. Management attributed stronger India sales partly to the GST reduction from 18% to 12% in January 2018.
Year-end cash was $1.2 million, versus $0.4 million a year earlier. Current assets were $10.3 million against current liabilities of $42.6 million; the reported current ratio was 0.23.
Total debt was $175.1 million, up from $153.8 million; total liabilities were $207.4 million and total stockholders’ deficit was $115.6 million. The company reported $25.8 million of GAFI debt net of discounts, alongside a limited guaranty exposure.
Interest-rate expense was $18.2 million and debt-related fees and amortization were $7.5 million. Operating cash flow benefited from a $12.5 million increase in accrued interest, among other working-capital changes.

Material changes and unusual items

Gross profit increased $2.0 million, but net loss widened by $4.5 million. Higher revenue and segment gross profit were offset by increased SG&A and financing costs.
North American SG&A increased 25%, including $2.5 million of additional non-recurring legal fees. The company recognized a $0.9 million impairment/write-off of patents related to Z-microbe and enzymatic technologies it no longer planned to develop commercially.
The company raised $8.3 million in Series A preferred-unit financing for its biogas subsidiary; $6.0 million was paid to Aemetis as management fees. The units have mandatory redemption features and other conditions.
The 2017 U.S. tax reform led to a $19.6 million non-cash deferred-tax remeasurement charge in 2017. The company maintained a full valuation allowance against net deferred tax assets in 2018.
Management and the auditor identified ineffective internal control over financial reporting. Management cited a material weakness in supervision and review of a third-party specialist’s work on complex preferred-stock accounting. The auditor expressed an opinion on the financial statements but was not engaged to audit internal control.

Outlook, risks, and contingencies

Management’s 2019 liquidity plan depends on plant operations, additional financing or lender support, further EB-5 fundraising, and execution of growth projects. Targets include completing the Linde CO₂ facility construction in 2019, developing dairy biogas and Riverbank cellulosic ethanol, and improving India sales. These are plans, not guaranteed outcomes or quantified earnings guidance.
The filing states that substantial doubt existed about the company’s ability to continue as a going concern. Management believed planned actions and subsequent financing arrangements could alleviate that doubt, but success depends on execution and funding availability.
Third Eye Capital debt maturity was April 1, 2020, with an option to extend to April 2021 for a fee. The company had no remaining availability under its revolving credit facility. On March 11, 2019, Third Eye provided an $8 million reserve facility at 30% annual interest (40% after default), due no later than April 1, 2020; the company said it did not then expect to draw it. The same date, Amendment No. 15 waived a debt covenant through January 1, 2020 and added a $1.0 million fee to the redemption fee.
Management’s plans also rely on approval of a proposed $125 million USDA loan guarantee for Riverbank and further EB-5 Phase II fundraising; only $1.5 million had been released under Phase II by year-end 2018.
Key risks include recurring losses, heavy debt and interest burden, limited liquidity, refinancing and covenant risk, reliance on working-capital partners and concentrated customers, commodity-price exposure, project execution and permitting risks, and dependence on renewable-fuel policies and credits.
Nasdaq notified the company in December 2018 that it did not meet minimum bid-price and publicly held share market-value requirements, with compliance deadlines in June 2019. EdenIQ litigation claims were denied or dismissed, but both parties’ motions for attorney fees remained pending; Aemetis sought about $1.8 million and EdenIQ about $8.5 million.

Most important facts for investors to verify

Whether operating cash flow, cash balances, or new financing can meet near-term obligations and the 2020 senior debt maturity, including covenant and extension fees.
Whether the company’s going-concern uncertainty has changed and whether the $8 million reserve facility or other financing has been drawn or replaced.
Progress, funding, permitting, construction costs, and commercial performance for the Riverbank, biogas, and Linde CO₂ projects, including the USDA loan-guarantee status.
Remediation of the material weakness in financial reporting controls and the accounting and redemption terms of the Series A preferred units.
Nasdaq listing compliance, the outcome of the EdenIQ fee motions, and any material changes in customer, supplier, or commodity-price exposure.