AEMETIS, INC annual report, FY2015

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Aemetis, Inc. — FY 2015 Form 10-K

Business context and reporting period. This annual report covers the fiscal year ended December 31, 2015; the filing also provides unaudited fourth-quarter results. Aemetis operates a 60-million-gallon-per-year ethanol plant in Keyes, California, and a biodiesel facility in Kakinada, India, with nameplate capacity of 150,000 metric tons per year. Its products include ethanol and animal-feed co-products, biodiesel, and refined glycerin. The financial statements were audited by RSM US LLP, which gave an unqualified opinion on the statements.

Financial performance and liquidity

  • Revenue: $146.6 million in 2015, down 29% from $207.7 million in 2014. North America revenue fell 34% to $129.4 million; India revenue rose 41% to $17.2 million.
  • Profit and margins: Gross profit was $4.2 million versus $37.1 million; gross margin was approximately 2.9% versus 17.9%. Operating loss was $8.6 million, compared with operating income of $24.1 million. Net loss was $27.1 million, versus net income of $7.1 million; diluted loss per share was $1.37 versus diluted earnings per share of $0.34.
  • Fourth quarter: Revenue was $35.3 million, gross profit $1.4 million, operating loss $1.5 million, and net loss $6.5 million. In Q4 2014, revenue was $41.5 million, gross profit $2.5 million, operating loss $1.0 million, and net loss $3.7 million.
  • Cash flow: Cash used in operations was $0.8 million, versus $20.6 million provided in 2014. Investing cash use was $0.1 million; financing provided $0.8 million. Cash declined to $0.3 million from $0.3 million at year-end 2014.
  • Liquidity and debt: Current assets were $8.0 million and current liabilities $29.3 million; the current ratio was 0.27. Total debt was $100.9 million, up from $77.3 million, and stockholders’ deficit was $35.3 million. Senior secured notes and facilities with Third Eye Capital were reported at approximately $60.9 million net of discounts; EB-5 notes were $23.9 million gross in the debt note.
  • Interest and unusual charges: Interest-rate expense was $10.2 million and debt amortization expense $6.7 million. The company recorded $1.0 million of goodwill impairment and $76,000 for abandoned patents, included in a total $1.044 million impairment charge.

Material changes versus 2014

  • North American ethanol sales volume fell 7% to 55.8 million gallons, while average selling price fell 31% to $1.74 per gallon. WDG volume declined 12% and average price fell 13%.
  • India biodiesel sales increased 116% to 19,523 metric tons and refined glycerin sales increased 108% to 4,653 tons, but average selling prices fell 26% and 28%, respectively. Policy changes—including diesel price deregulation, bulk-customer sales authorization, and feedstock tax relief—supported higher activity.
  • North America gross profit fell to $3.1 million from $36.7 million. India gross profit improved to $1.1 million from $0.4 million, but remained modest.
  • Debt increased by $23.6 million, reflecting new EB-5 borrowing, fees and accrued interest, among other items. The company repurchased 1.5 million common shares for approximately $8.0 million during 2015, with the purchase price added to the senior revolving facility.

Outlook, risks, contingencies, and subsequent events

  • Management said it expected to fund operations through plant operations, lower-cost feedstocks when economical, additional EB-5 funding, refinancing, improved Kakinada sales, and working-capital facilities. It cautioned that cash generation and access to additional financing were not assured. The filing gives no quantified earnings or revenue guidance.
  • Management anticipated processing milo at Keyes during 2016 when economical and expected a $3 million California Energy Commission grant to support milo procurement and development. Completion of the Kakinada fractionation unit was estimated to require about $2 million.
  • Liquidity is a significant risk: cash was $0.3 million, operations used cash, debt service is substantial, and the company relies on Third Eye Capital and working-capital relationships with J.D. Heiskell and Secunderabad Oils. A portion of EB-5 proceeds remained in escrow pending USCIS approval; release was uncertain.
  • The State Bank of India loan was in default. A 2015 settlement required four payments totaling $4.3 million; upon full performance, approximately $2.1 million of accrued interest would be relieved. The filing reports payments made and further payments due in 2016.
  • After year-end, Third Eye Capital’s March 2016 amendment extended note maturities to April 1, 2017, with a company option to extend to 2018 for a fee, and waived certain financial-covenant requirements. The amendment added a $1.5 million fee to debt and required USCIS approval for at least $35 million of additional EB-5 financing by June 1, 2016.
  • Also after year-end, a subsidiary signed a binding letter of intent to acquire Goodland, Kansas property and equipment for $15 million of assumed debt. A March 2016 at-the-market sales agreement authorized up to $10 million of common-stock sales, which could dilute shareholders.
  • Customer and supplier concentration is material: J.D. Heiskell accounted for 93% of North American segment revenue, while one India biodiesel customer accounted for 56% of India segment revenue. Commodity-price spreads, regulatory changes, foreign exchange, operating disruptions, and refinancing are important risks.
  • A patent-infringement case involving corn-oil extraction remained pending. Courts had found the asserted patents invalid and not infringed; an appeal remained possible, with potential damages stated as $1 million or more if the invalidity findings were overturned.

Important facts for investors to verify

  • Confirm the status, cost, covenants, and repayment or refinancing plan for Third Eye Capital debt, including the effect of the March 2016 amendment and any subsequent amendments.
  • Verify whether escrowed EB-5 funds were released, whether additional EB-5 financing received required approvals, and whether the financing conditions were met.
  • Track operating cash flow and liquidity against near-term obligations, including the State Bank of India settlement payments and working-capital availability.
  • Assess whether North American margins recovered from 2015 levels and whether India’s higher volumes translated into sustainable positive margins.
  • Review progress and financing for milo use, the California grant, Kakinada upgrades, the Goodland transaction, and any ATM share issuance.
  • Check the outcome of the remaining patent litigation claim and any appeal, and monitor customer concentration and exposure to feedstock, product-price, and currency changes.