AEMETIS, INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows: · Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A. · Results of Operations. An analysis of our financial results comparing the three and six months ended June 30, 2021 and 2020. · Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition. · Critical Accounting Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, particularly under “Part II, Item 1A. Risk Factors,” and in other reports we file with the SEC. All references to years relate to the calendar year ended December 31 of the particular year. Overview Headquartered in Cupertino, California, Aemetis is an international renewable natural gas, renewable fuels and byproducts company focused on the acquisition, development and commercialization of innovative negative carbon intensity products and technologies that replace traditional petroleum-based products. We operate in two reportable geographic segments: “North America” and “India.” Founded in 2006, we own and operate a 65 million gallon per year ethanol facility in the California Central Valley in Keyes, California where we manufacture and produce low carbon renewable fuel ethanol, WDG, CDS, and DCO, all of which are sold to local dairies and feedlots as animal feed. We operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and biochemicals. We also own and operate a 50 million gallon per year renewable chemical and advanced fuel production facility on the East Coast of India producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. We entered into an agreement to purchase Zebrex dehydration equipment from Mitsubishi on August 24, 2018, to improve process efficiency and reduce greenhouse gas emissions (“GHG”) at the Keyes Plant. We began initial equipment installation in the first quarter of 2020. The agreement allowed for deferred payments of the equipment until the unit begins operations. Due to COVID-19 shelter in place restrictions, construction of the project was halted late in the first quarter of 2020. Ongoing restrictions and contractor availability further delayed work toward completion until the third quarter of 2021. The Mitsubishi Zebrex ethanol dehydration system is a key part of increasing the electrification of the Keyes Plant and decreasing natural gas usage at the facility. This project decreases the carbon intensity of fuel produced at the Keyes Plant, allowing Aemetis to realize a higher price for the ethanol sold. 35 Table of Contents We also own and operate the Kakinada Plant with a nameplate capacity of 150 thousand metric tons per year, or about 50 million gallons per year. We believe the Kakinada Plant is one of the largest biodiesel production facilities in India on a nameplate capacity basis. The Kakinada Plant is capable of processing a variety of vegetable oils and animal fat waste feedstocks into biodiesel that meet international product standards. The Kakinada Plant also distills the crude glycerin byproduct from the biodiesel refining process into refined glycerin, which is sold to the pharmaceutical, personal care, paint, adhesive and other industries. During 2018, Aemetis Biogas, LLC (“ABGL”) was formed to construct bio-methane anaerobic digesters at local dairies near the Keyes Plant, many of whom also purchase WDG produced at the Keyes Plant. The digesters are connected via a pipeline owned by ABGL to a gas cleanup and compression unit being built at the Keyes Plant to produce Renewable Natural Gas (“RNG”). During 2020, ABGL completed construction on the first two dairy digesters and the pipeline that carries bio-methane from these dairies to the Keyes Plant. The next phase of the project involves the construction of 15 additional dairies, for a total of 17 dairies. With plans to build digesters at more than 30 dairies, ABGL continues to negotiate and sign participation agreements with local dairies and convert those agreements into fully executed leases to capture dairy bio-methane from manure wastewater lagoons where the bio-methane would otherwise be released into the atmosphere. Upon receiving the bio-methane from the dairies, impurities will be removed and converted to RNG where it will be either injected into the local gas utility pipeline, supplied to a renewable compressed natural gas. During the first quarter of 2021, Aemetis announced its “Carbon Zero” biofuels production plants designed to produce biofuels, including renewable jet and diesel fuel utilizing cellulosic hydrogen and non-edible renewable oils sourced from existing Aemetis biofuels plants and other sources. The first plant, in Riverbank, California, “Carbon Zero 1”, is expected to utilize hydroelectric and other renewable power available onsite to produce 45 million gallons per year of jet fuel, renewable diesel, and other byproducts. The plant is expected to supply the aviation and truck markets with ultra-low carbon renewable fuels to reduce greenhouse gas (“GHG”) emissions and other pollutants associated with conventional petroleum-based fuels. The Company is continuing to develop a biomass-to-fuel technology to build a carbon zero production facility. By producing ultra-low carbon renewable fuels, the Company expects to capture higher value D3 RINs and California’s LCFS credits. D3 RINs have a higher value in the marketplace than D6 RINs due to D3 RINs’ relative scarcity and mandated pricing formula from the United States EPA. On April 1, 2021, Aemetis established a new subsidiary named Aemetis Carbon Capture, Inc. to build carbon sequestration projects to generate LCFS and IRS 45Q credits by injecting CO₂ into wells which are monitored for emissions to ensure the long-term sequestration of carbon underground. California’s Central Valley is well established as a major region for large-scale natural gas production and CO₂ injection projects due to the subsurface geologic formation that retains gases. During the second quarter of 2021, Aemetis has opened negotiations for the supply of 1.6 million metric tonnes (“MT”) per year of CO₂ for Carbon Capture and Sequestration (“CCS”) to be located at or near the two Aemetis renewable fuels plant sites in Central California near Modesto. It is anticipated that the capacity of each injection well site will be approximately one million MT per year, for a combined total of two million MT of CO₂ sequestration per year. North America Revenue Our revenue development strategy in North America has historically relied on supplying ethanol into the transportation fuel market in Northern California and supplying feed products to dairy and other animal feed operations in Northern California. We are actively seeking higher value markets for our ethanol in an effort to improve our overall margins and to add incremental income to the North America segment, including the development of the Riverbank project, the expansion of bio-methane digesters at local dairies near the Keyes Plant, and the implementation of the Aemetis Integrated Microgrid System, the Food Emission and Energy Efficiency Delivery Initiative, the Mitsubishi dehydration system and other technologies. We are also actively working with local dairy and feed potential customers to promote the value of our WDG product in an effort to strengthen demand for this product. 36 Table of Contents During the first quarter of 2021, we produced five products at the Keyes Plant: denatured fuel ethanol, WDG, DCO, CO₂, and CDS. During the first quarter of 2020, we started transitioning from selling 100% of the ethanol we produce, pursuant to the J.D. Heiskell Purchase Agreement, to a model where 100% of the ethanol is sold directly to our fuel marketing customers. The ethanol stored in our finished goods tank is 100% owned by Aemetis. WDG continues to be sold to A.L. Gilbert and DCO is sold to other customer under the J.D. Heiskell Purchase Agreement. Smaller amounts of CDS were sold to various local third parties. We began selling CO₂ to Messer in the second quarter of 2020. We began selling high-grade alcohol in March 2020 directly to various customers throughout the West Coast and we also produced and sold Aemetis hand sanitizer under the Aemetis Health Products, Inc. subsidiary in the fourth quarter of 2020. North American revenue is dependent on the price of ethanol, high-grade alcohol, WDG, and DCO. Ethanol pricing is determined pursuant to a marketing agreement with a single fuel marketing customer and is generally based on daily and monthly pricing for ethanol delivered to the San Francisco Bay Area, California, as published by Oil Price Information Service, as well as quarterly contracts negotiated by our marketing customer with local fuel blenders. The price for WDG is determined monthly pursuant to a marketing agreement with A.L. Gilbert and is generally determined in reference to the local price of dried distillers’ grains and other comparable feed products. North American revenue is dependent on the price of ethanol, high-grade alcohol, WDG, and DCO. Ethanol pricing is influenced by local and national inventory levels, local and national ethanol production, corn prices and gasoline demand. WDG is influenced by the price of corn, the supply and price of distillers dried grains, and demand from the local dairy and feed markets. High-grade alcohol pricing is based on the supply and demand restrictions in the current market. Our revenue is further influenced by our decision to operate the Keyes Plant at various capacity levels, conduct required maintenance, and respond to biological processes affecting output. India Revenue Our revenue strategy in India is based on continuing to sell biodiesel to our bulk fuel customers, fuel station customers, mining customers, industrial customers and tender offers placed by Government Oil Marketing Companies for bulk purchases of fuels. In 2020, the tenders were delayed due to COVID-19, and ultimately changed in format to allow for monthly bidding on volumes at a price set by the OMC on an annual basis. The Company plans to participate in these tenders during 2021 when the price of feedstock allows for profitable operation at the OMC set bid price. During the first quarter of 2021, the Company was approved by the Andhra Pradesh State Road Transport Corp. (“APSRTC”), of India, to supply approximately 800,000 gallons per month of biodiesel to fuel public transport buses in the region. The arrangement is expected to be ongoing to meet the needs of APSRTC, however it has been delayed due to COVID-19. Results of Operations Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Revenues 37 Table of Contents Our revenues are derived primarily from sales of ethanol and WDG in North America and biodiesel and refined glycerin in India. Three Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 54,730 $ 45,223 $ 9,507 21 % India 154 2,601 (2,447 ) -94 % Total $ 54,884 $ 47,824 $ 7,060 15 % North America. The increase in revenues during the three months ended June 30, 2021 was due to an 88% increase in average price of ethanol to $2.78 per gallon, compared to $1.48 per gallon in the three months ended June 30, 2020, while the gallons of ethanol sold increased to 15.2 million gallons from 9.8 million gallons. In the three months ended June 30, 2020, ethanol revenues included revenues from high grade alcohol. WDG sales volume increased to 101 thousand tons during the three months ended June 30, 2021, compared to 91 thousand tons in the three months ended June 30, 2020, and the average price of WDG increased by 28% to $105 per ton in the three months ended June 30, 2021, compared to $82 per ton in the three months ended June 30, 2020. During the three months ended June 30, 2021, plant production averaged 110% of the 55 million gallon per year nameplate capacity, compared to 100% for the three months ended June 30, 2020. For the three months ended June 30, 2021, we generated 77% of our North America revenues from sales of ethanol, 19% from sales of WDG, and 4% from sales of DCO, CO₂, and CDS, compared to 48% of our North America revenues from sales of high grade alcohol, 32% from sales of ethanol, 17% from sales of WDG, and 3% from sales of DCO, CO₂, and CDS for the three months ended June 30, 2020. India. The decrease in revenues was primarily attributable to the COVID-19 shutdown, higher costs of stearin in India causing lower production, and higher feedstock costs making conversion to biodiesel unviable. Biodiesel sales volume decreased by 96% to 105 metric tons in the three months ended June 30, 2021 compared to 2.6 thousand metric tons in the three months ended June 30, 2020, partially offset by a 22% increase in average price of biodiesel to $1,017 per metric ton in the three months ended June 30, 2021, compared to $835 per metric ton in the three months ended June 30, 2020. In addition, refined glycerin sales volume decreased by 98% to 9 metric tons in the three months ended June 30, 2021, compared to 411 metric tons in the three months ended June 30, 2020, partially offset by an average price per metric ton increase of 7% to $967 in the three months ended June 30, 2021, compared to $901 per metric ton in the three months ended June 30, 2020. For the three months ended June 30, 2021, we generated 70% of our revenues from the sale of biodiesel, 5% of our revenues from the sale of refined glycerin, and 25% of our sales from other sales compared to 83% of our revenues from the sale of biodiesel, 14% of our revenues from the sale of refined glycerin and 3% of our revenues from other sales, for the three months ended June 30, 2020. Cost of Goods Sold Three Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 51,069 $ 31,284 $ 19,785 63 % India 169 2,481 (2,312 ) -93 % Total $ 51,238 $ 33,765 $ 17,473 52 % North America. We ground 5.2 million and 4.9 million bushels of corn in the three months ended June 30, 2021 and 2020, respectively. Our average cost of feedstock per bushel increased to $8.04 per bushel during the three months ended June 30, 2021 compared to $4.55 per bushel for the three months ended June 30, 2020. 38 Table of Contents India. The decrease in costs of goods sold was attributable to the decrease in biodiesel feedstock volume by 96% to 105 metric tons in the three months ended June 30, 2021, compared to 2.5 thousand metric tons in the three months ended June 30, 2020, coupled with a decrease in the average price of biodiesel feedstock to $565 per metric ton in the three months ended June 30, 2021, compared to $659 per metric ton in the three months ended June 30, 2020. Refined glycerin feedstock volumes remained decreased to 8 metric tons in the three months ended June 30, 2021, compared to 406 metric tons in the three months ended June 30, 2020, while the average price of refined glycerin feedstock increased to $608 per metric ton in the three months ended June 30, 2021 compared to $643 per metric ton in the corresponding period in 2020. Gross profit (loss) Three Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 3,661 $ 13,939 $ (10,278 ) 74 % India (15 ) 120 (135 ) -113 % Total $ 3,646 $ 14,059 $ (10,413 ) -74 % North America. Gross profit decreased due to decrease in demand for high-grade alcohol, which had a higher gross margin per gallon sold than traditional ethanol. This was partially offset by an increase in volume of ethanol sold to 15.2 million gallons for the three months ended June 30, 2021, compared to 9.8 million gallons for the corresponding period in 2020 coupled with an increase in the price of ethanol and WDG. In addition, our average cost of feedstock per bushel increased by 77% for the three months ended June 30, 2021. India. The decrease in gross profit was attributable to the decrease of biodiesel metric tons sold by 96% coupled with a 98% decrease of refined glycerin metric tons sold. Operating Expenses R&D Three Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 21 $ 21 $ - 0 % India - - - 0 % Total $ 21 $ 21 $ - 0 % R&D expense remained consistent for the three months ended June 30, 2021 and 2020. Selling, General and Administrative Expenses (SG&A) Three Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 5,358 $ 3,746 $ 1,612 43 % India 395 303 92 30 % Total $ 5,753 $ 4,049 $ 1,704 42 % 39 Table of Contents SG&A expenses consist primarily of salaries and related expenses for employees, marketing expenses related to sales of ethanol and WDG in North America and biodiesel and other products in India, as well as professional fees, other corporate expenses, and related facilities expenses. North America . The increase in SG&A expenses for the three months ended June 30, 2021 was due to increases in lease signing bonuses of $0.2 million, marketing expenses of $0.3 million, professional fees of $0.7 million, insurance of $0.3 million, and salaries of $0.1 million. SG&A expenses as a percentage of revenue in the three months ended June 30, 2021 increased to 10% as compared to 8% in the corresponding period of 2020. India . SG&A expenses as a percentage of revenue in the three months ended June 30, 2021 increased to 256% as compared to 12% in the corresponding period of 2020 due to the decrease in revenue in the three months ended June 30, 2020. Other (Income) and Expense Three Months Ended June 30 (in thousands) 2021 2020 Inc/dec % change North America Interest rate expense $ 4,529 $ 5,558 $ (1,029 ) -19 % Debt related fees and amortization expense 690 614 76 12 % Accretion and other expenses of Series A preferred units 3,800 1,362 2,438 179 % Gain on debt extinguishment (1,134 ) - (1,134 ) -100 % Other expense 572 314 258 -82 % India Interest rate expense - 16 (16 ) -100 % Other income (28 ) (11 ) (17 ) -155 % Total $ 8,429 $ 7,853 $ 576 7 % Other (Income)/Expense. Other (income) expense consists primarily of interest and amortization expense attributable to debt facilities acquired by our parent company and our subsidiaries. When the debt facilities include stock or warrants issued as fees, the fair value of stock and warrants is amortized as amortization expense, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment expense. North America . Interest expense decreased in the three months ended June 30, 2021 due to principal debt payments made to Third Eye Capital. The increase in accretion and other expenses of the Series A Preferred Units was due to the issuance of additional units from June 30, 2020 to June 30, 2021, coupled with accrued preference payments. Other income from the gain on debt extinguishment was due to the PPP loan being forgiven. Other expense increased due to project termination charges. India . Interest expense decreased as working capital lines have been repaid. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Revenues Our revenues are derived primarily from sales of ethanol, high grade alcohol, and WDG in North America and biodiesel and glycerin in India. 40 Table of Contents Six Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 97,058 $ 81,095 $ 15,963 20 % India 633 6,209 (5,576 ) -90 % Total $ 97,691 $ 87,304 $ 10,387 12 % North America. For the six months ended June 30, 2021, the Company generated 74% of revenue from sales of ethanol, 22% from sales of WDG, and 4% from sales of corn oil, CDS, and CO₂. During the six months ended June 30, 2021, plant production averaged 112% of the 55 million gallon per year nameplate capacity. The increase in revenues for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to the increase in volume of ethanol sold to 30.8 million gallons for the six months ended June 30, 2021 compared to 25.5 million gallons sold for the six months ended June 30, 2020 coupled with an increase in the price of ethanol per gallon to $2.34 for the six months ended June 30, 2021, compared to $1.53 for the six months ended June 30, 2020. In the six months ended June 30, 2020, 28% of revenue was from sales of high grade alcohol which was included in ethanol revenues. The average price of WDG increased by 32% to $106 per ton while WDG sales volume also increased by 4% to 205 thousand tons in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. India. For the six months ended June 30, 2021, the Company generated 74% of revenue from sales of biodiesel, 20% of sales from refined glycerin, and 6% from other sales compared to 80% of sales from biodiesel, 7% from sales of refined glycerin, and 13% from other sales during the six months ended June 30, 2020. The decrease in revenues for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to a 93% decrease in the sales volume of biodiesel to 455 metric tons. The decrease in biodiesel volumes was due to the COVID-19 pandemic and unfavorable feedstock pricing. The average sales price of biodiesel increased to $1,024 per metric ton during the six months ended June 30, 2021 compared to $786 per metric ton in the same period in 2020. The sales volume of refined glycerin decreased by 78% to 130 metric tons while the average price of glycerin increased by 24% to $956 per metric ton in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Cost of Goods Sold Six Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 96,950 $ 67,697 $ 29,253 43 % India 703 5,981 (5,278 ) -88 % Total $ 97,653 $ 73,678 $ 23,975 33 % North America. We grounded 10.7 million bushels of corn during the six months ended June 30, 2021 compared to 10.6 million bushels in the same period in 2020. Our average cost of corn per bushel increased by 52% to $7.44 per bushel in the six months ended June 30, 2021 compared to the same period in 2020. India. The decrease in cost of goods sold during the six months ended June 30, 2021 compared to June 30, 2020 was attributable to a decrease in the volume of biodiesel feedstock by 92% to 455 metric tons compared to 5,692 metric tons during the six months ended June 30, 2020 coupled with a decrease in the average price of biodiesel feedstock by 4% to $634 compared to $658 in the same period in 2020. In addition, the volume of refined glycerin feedstock decreased by 77% to 117 metric tons, partially offset by an increase in the average price of the refined glycerin feedstock by 23% to $619 per metric ton in the six months ended June 30, 2021 compared to the same period in 2020. 41 Table of Contents Gross Profit (loss) Six Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 108 $ 13,398 $ (13,290 ) -99 % India (70 ) 228 (298 ) -131 % Total $ 38 $ 13,626 $ (13,588 ) -100 % North America. Gross profit for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 decreased due to the decrease in demand for high-grade alcohol as a result of COVID-19 coupled with the increased price of corn. India. The decrease in gross profit was attributable to decrease in the sales volume of all products of 91% to 585 metric tons. Operating Expenses R&D Six Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 44 $ 138 $ (94 ) -68 % India - - - 0 % Total $ 44 $ 138 $ (94 ) -68 % R&D expenses decreased in the six months ended June 30, 2021 due to decreases in expenses related to research subcontract work of $80 thousand and lab supplies of $10 thousand. Selling, General and Administrative Expenses (SG&A) Six Months Ended June 30 (in thousands) 2021 2020 Inc/(dec) % change North America $ 10,379 $ 6,866 $ 3,513 51 % India 756 1,119 (363 ) -32 % Total $ 11,135 $ 7,985 $ 3,150 39 % SG&A expenses consist primarily of salaries and related expenses for employees, marketing expenses related to sales of ethanol and WDG in North America and biodiesel and other products in India, as well as professional fees, other corporate expenses and related facilities expenses. North America. SG&A expenses as a percentage of revenue in the six months ended June 30, 2021 increased to 11% from 8% in the six months ended June 30, 2020. The increase in SG&A expenses was primarily due to an increase in salaries and wages of $0.8 million, supplies and services of $0.1 million, insurance of $0.5 million, professional fees of $1.2 million, lease signing bonuses of $0.2 million, bad debt expense of $0.1 million, and marketing fees of $0.3 million compared to the six months ended June 30, 2020. India. SG&A expenses as a percentage of revenue in the six months ended June 30, 2021 increased to 119% as compared to 18% in the corresponding period of 2020. The decrease in SG&A was due to a decrease in salaries and office maintenance of $213 thousand, in rent and other utilities of $102 thousand, and professional fees of $257 thousand, partially offset by an increase of miscellaneous expenses and change in operational support services of $210 thousand during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. 42 Table of Contents Other (Income) and Expense Six Months Ended June 30 (in thousands) 2021 2020 Inc/dec % change North America Interest rate expense $ 10,494 $ 11,125 $ (631 ) -6 % Debt related fees and amortization expense 1,905 1,904 1 0 % Accretion and other expenses of Series A preferred units 5,743 2,322 3,421 147 % Gain on debt extinguishment (1,134 ) - (1,134 ) -100 % Other expense 562 261 301 115 % India Interest rate expense - 35 (35 ) -100 % Other income (49 ) (21 ) (28 ) 133 % Total $ 17,521 $ 15,626 $ 1,895 12 % Other (Income)/Expense. Other (income) expense consists primarily of interest rate and amortization expenses attributable to our debt facilities and those of our subsidiaries, and interest accrued on the judgments obtained by Cordillera Fund and The Industrial Company. The debt facilities include stock or warrants issued as fees. The fair value of stock and warrants are amortized as amortization expense, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment loss or gain. North America. Interest expense decreased in the six months ended June 30, 2021 due to principal debt payments made to Third Eye Capital. The increase in accretion and other expenses of the Series A Preferred Units was due to the issuance of additional units from June 30, 2020 to June 30, 2021, coupled with accrued preference payments. Other income related to gain on debt extinguishment was due to the PPP loan being forgiven. Other expense increased due to termination charges. India . Interest expense decreased as working capital lines have been repaid and other income increased because of interest income. Liquidity and Capital Resources Cash and Cash Equivalents Cash and cash equivalents were $7.2 million at June 30, 2021, of which $5.1 million was held in North America and the rest was held at our Indian subsidiary. Our current ratio at June 30, 2021 was 0.30, compared to a current ratio of 0.08 at December 31, 2020. We expect that our future available liquidity resources will consist primarily of cash generated from operations, remaining cash balances, borrowings available, if any, under our senior debt facilities and our subordinated debt facilities, and any additional funds raised through sales of equity. The use of proceeds from all equity raises and debt financings are subject to approval by our senior lender. Liquidity Cash and cash equivalents, current assets, current liabilities and debt at the end of each period were as follows (in thousands): As of June 30, 2021 December 31, 2020 Cash and cash equivalents $ 7,175 $ 592 Current assets (including cash, cash equivalents, and deposits) 18,958 8,683 Current and long term liabilities (excluding all debt) 86,363 80,264 Current & long term debt 180,948 229,619 43 Table of Contents Our principal sources of liquidity have been cash provided by the sale of equity, operations, and borrowings under various debt arrangements. We launched an EB-5 Phase II funding in 2016, under which we expect to issue $50.8 million in additional EB-5 Notes on substantially similar terms and conditions as those issued under our EB-5 Phase I funding. On November 21, 2019, the minimum investment amount was raised from $0.5 million per investor to $0.9 million per investor. As of June 30, 2021, EB-5 Phase II funding in the amount of $4.0 million had been released from escrow to the Company. Our principal uses of cash have been to refinance indebtedness, fund operations, and for capital expenditures. We anticipate these uses will continue to be our principal uses of cash in the future. Global financial and credit markets have been volatile in recent years, and future adverse conditions of these markets could negatively affect our ability to secure funds or raise capital at a reasonable cost, or at all. We operate in a volatile market in which we have limited control over the major components of input costs and product revenues and are making investments in future facilities and facility upgrades that improve the overall margin while lessening the impact of these volatile markets. As such, we expect cash provided by operating activities to fluctuate in future periods primarily because of changes in the prices for corn, ethanol, WDG, DCO, CDS, biodiesel, waste fats and oils, glycerin, non-refined palm oil and natural gas. To the extent that we experience periods in which the spread between ethanol prices, and corn and energy costs narrow or the spread between biodiesel prices and waste fats and oils or palm oil and energy costs narrow, we may require additional working capital to fund operations. As a result of negative capital and negative operating results, and collateralization of substantially all of the company assets, the Company has been reliant on its senior secured lender to provide additional funding and has been required to remit substantially all excess cash from operations to the senior secured lender. In order to meet its obligations during the next twelve months, the Company will need to either refinance the Company’s debt or receive the continued cooperation of senior lender. This dependence on the senior lender raises substantial doubt about the Company’s ability to continue as a going concern. The Company plans to pursue the following strategies to improve the course of the business. For the Keyes plant, we plan to operate the plant and continue to improve financial performance by adopting new technologies or process changes that allow for energy efficiency, cost reduction or revenue enhancements, execute upon awarded grants that improve energy and operational efficiencies resulting in lower cost, lower carbon demands and overall margin improvement. For the ABGL biogas project, we plan to operate the biogas digesters to capture and monetize biogas as well as continue to build new dairy digesters and extend the existing pipeline in order to capture the higher carbon credits available in California. Funding for continued construction is based upon extending the existing Preferred Unit Purchase Agreement, obtaining government guaranteed loans and executing on existing and new state grant programs. For the Riverbank project, we plan to raise the funds necessary to construct and operate the Carbon Zero 1 plant and the Riverbank Cellulosic Ethanol Facility using loan guarantees and public financings based upon the licensed technology that generate federal and state carbon credits available for ultra-low carbon fuels utilizing lower cost, non-food advanced feedstocks to significantly increase margins. 44 Table of Contents For the India plant, we plan to secure higher volumes of shipments of fuels at the India plant by developing the sales channels and expanding the existing domestic markets. In addition to the above we plan to continue to locate funding for existing and new business opportunities through a combination of working with our senior lender, restructuring existing loan agreements, selling equity through the ATM and otherwise, selling the current EB-5 Phase II offering, or by vendor financing arrangements. At June 30, 2021, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes equaled $113.0 million. The current maturity date for all of the Third Eye Capital financing arrangements is April 1, 2022, however, the Company has the right to extend the maturity date of the Third Eye Capital Notes to April 1, 2023 upon notice and payment of a 1% extension fee, pursuant to Amendment No. 20. The GAFI notes were fully repaid in the first quarter of 2021. As of the date of this report, the Company has $40.0 million additional borrowing capacity to fund future cash flow requirements under the Reserve Liquidity Notes due on April 1, 2022. We also rely on our working capital lines with Gemini and Secunderabad Oils in India to fund our commercial arrangements for the acquisitions of feedstock. We currently provide our own working capital for the Keyes Plant; Gemini and Secunderabad Oils currently provide us with working capital for the Kakinada Plant. The ability of Gemini, and Secunderabad Oils to continue to provide us with working capital depends in part on both of their respective financial strength and banking relationships. Change in Working Capital and Cash Flows The below table (in thousands) describes the changes in current and long-term debt during the six months ended June 30, 2021: Increases to debt: Accrued interest $ 10,510 Maturity date extension fee added to senior debt and waiver fees 1,315 Sub debt extension fees 340 Financing for equipment term loan 55 Total increases to debt $ 12,220 Decreases to debt: Principal, fees, and interest payments to senior lender $ (23,559 ) Principal and interest payments to EB-5 investors (1,252 ) GAFI interest and principal payments (34,846 ) PPP loan forgiveness (1,134 ) Change in debt issuance costs, net of amortization (100 ) Total decreases to debt $ (60,891 ) Change in total debt $ (48,671 ) Working capital changes resulted in (i) a $0.6 million increase in inventories due to a $1.1 million increase in North America inventory, partially offset by a decrease of $0.5 million in India, (ii) a $0.1 million decrease in accounts receivable due a $0.7 million decrease in India’s accounts receivable, partially offset by a $0.6 million increase in Norther America’s accounts receivable, (iii) a $4.4 million increase in prepaid expenses mainly due to $4.0 million dollar prepayment to J.D. Heiskell coupled with a $0.5 million prepayment for natural gas, offset by $0.1 million dollar decrease in prepaid insurance , (iv) a decrease in other current assets in India operations of $0.6 million coupled with a decrease of $0.6 million in North America operations, and (v) a $6.6 million increase in cash due to funds raised through the at-the-market offering program. 45 Table of Contents Net cash used in operating activities during the six months ended June 30, 2021 was $18.2 million, consisting of non-cash charges of $10.6 million, net cash used in in operating assets and liabilities of $0.1 million, and net loss of $28.7 million. The non-cash charges consisted of: (i) $1.9 million in amortization of debt issuance costs and other intangible assets, (ii) $2.8 million in depreciation expenses, (iii) $1.1 million in stock-based compensation expense, (iv) $5.7 million in preferred unit accretion and other expenses of Series A preferred units, (v) a gain on debt extinguishment of $1.1 million and (vi) an increase in the provision for bad debts of $0.1 million. Net changes in operating assets and liabilities consisted primarily of an increase in (i) inventories of $0.6 million, (ii) prepaid expenses of $4.4 million, (iii) accounts receivable of $0.1 million, and (iv) a decrease in accounts payable of $2.7 million, partially offset by and (v) an increase in other liabilities of $0.7 million, (vi) a decrease in other assets of $2.6 million, and (vii) an increase in accrued interest of $4.4 million. Cash used by investing activities was $11.7 million, of which $13.0 million were used by capital projects. This was partially offset by North America grant proceeds received of $1.2 million. Cash provided by financing activities was $36.5 million, consisting primarily of $86.3 million raised from issuance of common stock in equity offerings, $3.1 million received for issuing Series A Preferred Units, $1.0 million from exercises of stock options, and $0.1 million received for grant matching program partially offset by repayments of borrowing on TEC debt of $53.5 million, $0.3 million for Series A Preferred Units redemption, and $0.2 million related to payments on finance leases. Critical Accounting Policies Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. We believe that of our most significant accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain are: revenue recognition; recoverability of long-lived assets, and debt modification and extinguishment accounting. These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2020. Recently Issued Accounting Pronouncements None reported beyond those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. Off Balance Sheet Arrangements We had no off-balance sheet arrangements during the three months ended June 30, 2021. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not Applicable. 46 Table of Contents