AEMETIS, INC 10-K

Item 7. 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. · Key Performance Indicators. Discussion of our key performance indicators, to provide context for company operations. · Results of Operations. An analysis of our financial results comparing the twelve months ended December 31, 2021, 2020, and 2019. · 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. 32 Table of Contents 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 I, 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. This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Overview Founded in 2006 and headquartered in Cupertino, California, we are 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 three reportable segments “California Ethanol”, “Dairy Renewable Natural Gas”, and “India Biodiesel”. We have other operating segments and they were determined not to be reportable segments, collectively represented by the "All Other" category. We own and operate a 65 million gallon per year ethanol production facility located in Keyes, California (the “Keyes Plant”). In addition to low carbon renewable fuel ethanol, the Keyes Plant produces Wet Distillers Grains (“WDG”), Distillers Corn Oil (“DCO”), and Condensed Distillers Solubles (“CDS”), all of which are sold as animal feed to local dairies and feedlots. In the fourth quarter of 2021, we installed an ethanol zeolite membrane dehydration system and is in process of being commissioned at the Keyes Plant. The installation is a key first step in the electrification of the Keyes Plant, which will significantly reduce the use of petroleum based natural gas as process energy. The electrification, along with the future installation of a two-megawatt zero carbon intensity solar microgrid system and a mechanical vapor recompression (MVR) system will greatly reduce GHG emissions and decreases the carbon intensity of fuel produced at the Keyes Plant, allowing us to realize a higher price for the ethanol produced and sold. 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. Our Dairy Renewable Natural Gas segment, ABGL, has completed Phase 1 of our California biogas digester network and pipeline system that converts waste dairy methane gas into Dairy Renewable Natural Gas (“RNG”) and is now executing Phase 2 construction projects. The digesters are connected via an underground private pipeline owned by ABGL to a gas cleanup and compression unit being built at the Keyes Plant to produce RNG. During the third quarter of 2020, ABGL completed construction of the first two dairy digesters along with four miles of pipeline that carries bio-methane from the dairies to the Keyes Plant. Upon receiving the bio-methane from the dairies, impurities are removed, and the bio-methane is converted to negative carbon intensity RNG where it will be either injected into the statewide PG&E gas utility pipeline, supplied as compressed RNG that will service local trucking fleets, or used as renewable process energy at the Keyes Plant. During the first quarter of 2021, we announced our “Carbon Zero” biofuels production plants designed to produce biofuels, including sustainable aviation fuel (“SAF”) and diesel fuel utilizing renewable hydrogen and non-edible renewable oils sourced from existing Aemetis biofuels plants and other sources. The first plant to be built, in Riverbank, California, “Carbon Zero 1”, is expected to utilize hydroelectric and other renewable power available onsite to produce 90 million gallons per year of SAF, renewable diesel, and other byproducts. The plant is expected to supply the aviation and truck markets with ultra-low carbon renewable fuels to reduce GHG emissions and other pollutants associated with conventional petroleum-based fuels. By producing ultra-low carbon renewable fuels, the Company expects to capture higher value D3 Renewable Identification Numbers (“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 Environmental Protection Agency (“EPA”). 33 Table of Contents On April 1, 2021, we established Aemetis Carbon Capture, Inc. to build Carbon Capture and Sequestration (CCS) 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 has been identified as the state’s most favorable region for large-scale CO₂ injection projects due to the subsurface geologic formation that absorbs and retains gases. 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, producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. 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. California Ethanol Revenue Our revenue development strategy for California Ethanol segment relies upon 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 California Ethanol segment, including the development of the Carbon Zero Plants, the expansion of the Biogas Project, and the implementation of the Solar Microgrid System, the installation of the membrane 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. During 2021, we produced five products at the Keyes Plant: denatured fuel ethanol, WDG, DCO, CO₂, and CDS. During the first quarter of 2020, we transitioned from selling the ethanol we produce to J.D. Heiskell pursuant to the J.D. Heiskell Purchase Agreement, to a model where the ethanol is sold directly to our fuel marketing customers. We own the ethanol stored in our finished goods tank. WDG continues to be sold to A.L. Gilbert and DCO is sold to other customers under the J.D. Heiskell Purchase Agreement. Smaller amounts of CDS were sold to various local third parties. We began selling CO₂ to Messer Gas 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 through our Aemetis Health Products, Inc. subsidiary in the fourth quarter of 2020. California Ethanol revenue is dependent on the price of ethanol, WDG, high-grade alcohol, and DCO. Ethanol pricing is influenced by local and national inventory levels, local and national ethanol production, imported ethanol, corn prices and gasoline demand, and 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 (“OPIS”), as well as quarterly contracts negotiated by our marketing customer with local fuel blenders. The price for 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 and 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. High-grade alcohol pricing is based on the supply and demand restrictions in the current market. Our revenue is further influenced by the price of natural gas, our decision to operate the Keyes Plant at various capacity levels, conduct required maintenance, and respond to biological processes affecting output. Dairy Renewable Natural Gas Revenue In December 2018, we leveraged our relationship with California’s Central Valley dairy farmers by signing leases and raising funds to construct dairy digesters that collect bio-methane and pipelines that convey bio-methane to our Keyes Plant. We have constructed our first two digesters, four miles of pipeline, and commenced operations in the third quarter of 2020. In addition, we have signed agreements with over 25 additional dairies to construct additional dairy digesters. Our revenue development strategy for the Dairy Renewable Natural Gas segment relies upon continuing to build out the network of dairy digesters and pipeline in Northern California. India Biodiesel 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 (“OMCs”) for bulk purchases of fuels. In 2020, the tenders were delayed due to COVID-19, and in 2021 ultimately changed in format to allow for monthly bidding on volumes at a price set by the OMCs on an bi-annual basis. The Company did not participate in tenders during 2021 due to low OMC offer price, coupled with very high feedstock prices as a result of COVID-19. The Company plans to participate in these tenders offers made by the OMCs on economically reasonable terms. 34 Table of Contents Key Performance Indicators (KPI): Aemetis measures performance primarily on the utilization of its plants and the production of products. For traditional ethanol, the products are ethanol and WDG, measured in millions of gallons sold and tons sold, respectively. For biodiesel production, the products are biodiesel and refined glycerin, both measured in metric tons sold. Since our Keyes Plant uses a single feedstock, the delivered quantity and cost of corn is also used as a key performance indicator for this facility, as it indicates high-level profitability of the plant. Utilization is measured as the production of transportation fuel produced as a percentage of the nameplate capacity, the engineering specification of the plant. Management utilizes these metrics to assess cash generated by each facility on a daily or weekly basis and to make decisions on the appropriate level of operation to balance market demand with plant capabilities and efficiency and allow the investor to understand the major components that comprise revenues within each segment. The following table summarized our KPIs: Production and Price Performance (Unaudited) Years ended December 31, 2021 vs 2020 % 2021 2020 2019 Change Ethanol and High-Grade Alcohol Gallons Sold (in millions) 59.8 60.3 64.7 -0.8 % Average Sales Price/Gallon $ 2.72 $ 1.84 $ 1.77 47.8 % Percent of nameplate capacity 109 % 112 % 118 % -2.7 % WDG Tons Sold (in thousands) 404 393 428 2.8 % Average Sales Price/Ton $ 103 $ 81 $ 81 27.2 % Delivered Cost of Corn Bushels ground (in millions) 20.9 21.1 22.7 -0.9 % Average delivered cost / bushel $ 7.53 $ 5.05 $ 5.28 49.1 % Dairy Renewable Natural Gas MMBtu intercompany sales 53,041 9,388 - 465.0 % Biodiesel Metric tons sold (in thousands) 1 16 47 -93.8 % Average Sales Price/Metric ton $ 1,024 $ 863 $ 904 18.7 % Percent of Nameplate Capacity 0 % 9 % 31 % Refined Glycerin Metric tons sold (in thousands) 0.1 1.4 5.2 -92.9 % Average Sales Price/Metric ton $ 956 $ 814 $ 543 17.4 % Results of Operations Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Revenues Our revenues are derived primarily from sales of ethanol, high-grade alcohol, and WDG for California Ethanol, renewable natural gas for Dairy Renewable Natural Gas, and biodiesel and refined glycerin for India Biodiesel. In 2010, we entered into an exclusive marketing agreement with Kinergy to market and sell our ethanol. We terminated the Ethanol Marketing Agreement with Kinergy as of September 30, 2021. Effective October 1, 2021, we entered into the Fuel Ethanol Purchase and Sale Agreement with Murex LLC. Under the terms of the agreement, the initial term matures on October 31, 2023 with automatic one-year renewals thereafter. We entered into an agreement with A.L. Gilbert in 2011 to market and sell our WDG that will expire on December 31, 2022 with automatic renewals for additional one-year terms. Pursuant to these agreements, our marketing costs for ethanol and WDG are less than 2% of sales. Substantially all of our India segment revenues during the years ended December 31, 2021 and 2020 were from sales of biodiesel and refined glycerin. 35 Table of Contents Substantially all of our Dairy Renewable Natural Gas segment revenues during the year ended December 31, 2021 were from sales of biogas to the Keyes Plant for use in boilers, which allowed qualification of carbon credits for the ethanol produced in the Keyes Plant. Revenue Fiscal Year Ended December 31 (in thousands) 2021 vs 2020 2021 2020 2019 Inc/(dec) % change California Ethanol $ 211,251 $ 149,302 $ 154,148 $ 61,949 41.5 % Dairy Renewable Natural Gas* 1,445 40 - 1,405 3512.5 % India Biodiesel 696 15,795 47,850 (15,099 ) -95.6 % All Other 2 548 - (546 ) -99.6 % Eliminations (1,445 ) (128 ) - (1,317 ) 1028.9 % Total $ 211,949 $ 165,557 $ 201,998 $ 46,392 28 % *All Dairy Renewable Natural Gas revenue is intercompany. California Ethanol . For the year ended December 31, 2021, the Company generated 77% of revenue from sales of ethanol, 20% from sales of WDG, and 3% from sales of corn oil, CDS, CO₂, and other sales. During the year ended December 31, 2021, plant production averaged 109% of the 55 million gallon per year nameplate capacity. The increase in revenues was due to the increase in price of ethanol per gallon sold to $2.72 for the year ended December 31, 2021, compared to $1.84 for the year ended December 31, 2020, which was partially offset by the decrease in volume of ethanol gallons sold from 60.3 million gallons for the year ended December 31, 2020 to 59.8 million gallons for the year ended December 31, 2021. In the year ended December 31, 2020, 15% of revenue was from sales of high-grade alcohol which was included in ethanol revenues. The average price of WDG increased by 27% to $103 per ton for the year ended December 31, 2021 while WDG sales volume also increased by 3% to 404 thousand tons in the year ended December 31, 2021 compared to 393 thousand tons in the year ended December 31, 2020. Dairy Natural Gas. During the years ended December 31, 2021, 2020, 2019, we produced and sold 53.0 thousand, 9.4 thousand, and no British thermal units of biogas, respectively to an intercompany party. India Biodiesel. For the year ended December 31, 2021, the Company generated 67% of revenue from sales of biodiesel, 18% of sales from refined glycerin, and 15% from other sales, compared to 87% of sales from biodiesel, 8% from sales of refined glycerin, and 5% from other sales during the year ended December 31, 2020. The decrease in revenues for the year ended December 31, 2021 compared to the year ended December 30, 2020 was due to a 97% 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 for the year ended December 31, 2021 compared to $863 per metric ton in the same period in 2020. Compared to the year ended December 31,2020, the sales volume of refined glycerin decreased by 91% to 130 metric tons while the average price of glycerin increased by 17% to $956 per metric ton for the year ended December 31, 2021. All Other: For the years ended December 31, 2021 and 2020, revenue generated from All Other segment consisted of revenue from sales of hand sanitizer. Cost of Goods Sold Cost of goods sold consists primarily of feedstock, chemicals, direct costs (principally labor and labor related costs) and factory overhead. Depending upon the costs of these inputs in comparison to the sales price of our end products, our gross margins at any given time can vary from positive to negative. Factory overhead includes direct and indirect costs associated with the plant operations, including the cost of repairs and maintenance, consumables, maintenance, on-site security, insurance, depreciation and inbound freight. Substantially all of our feedstock for California Ethanol is procured by J.D. Heiskell pursuant to the Heiskell Supply Agreement. Title to the corn passes to us when the corn is deposited into our weigh bin and entered into the production process. Our cost of feedstock is established by J.D Heiskell based on the Chicago Board of Trade pricing and includes rail, truck or ship transportation, local basis costs and a handling fee paid to J.D. Heiskell. The credit term of the corn purchased from J.D. Heiskell is one day. Cost of goods sold also includes chemicals, plant overhead and out-bound transportation. Plant overhead includes direct and indirect costs associated with the operation of the Keyes Plant, including the cost of electricity and natural gas, maintenance, insurance, direct labor, depreciation and freight. Transportation includes the costs of in-bound delivery of corn by rail, inbound delivery of grain by ship, rail, and truck, and out-bound shipments of ethanol and WDG by truck. 36 Table of Contents Substantially all of our feedstock for Dairy Renewable Natural Gas is supplied from dairy operations who lease us land and contract for supply of their dairy flush. Our cost of feedstock is established by lease agreement based upon the value of the environmental attributes and the size of the dairy. Substantially all of our feedstock is for India Biodiesel is procured as crude palm stearin, a non-edible feedstock, from neighboring natural oil processing plants at a discount to refined palm oil or import from international market when prices are viable. Raw material is received by truck and title passes when the goods are loaded at our vendors’ facilities. Credit terms vary by vendor. However, we generally receive 15 days of credit on the purchases. We purchase crude glycerin in the international market on letters of credit or advance payment terms. Cost of Goods Sold Fiscal Year Ended December 31 (in thousands) 2021 vs 2020 2021 2020 2019 Inc/(dec) % change California Ethanol $ 201,686 $ 139,568 $ 150,197 $ 62,118 44.5 % Dairy Renewable Natural Gas 1,933 343 - 1,590 463.6 % India Biodiesel 719 14,193 39,103 (13,474 ) -94.9 % All other 1,117 556 - 561 100.9 % Elminations (1,445 ) (128 ) - (1,317 ) 1028.9 % Total $ 204,010 $ 154,532 $ 189,300 $ 49,478 32 % California Ethanol. We ground 20.9 million bushels of corn at an average price of $7.53 per bushel during the year ended December 31, 2021 compared to 21.1 million bushels of corn at an average price of $5.05 per bushel during the year ended December 31, 2020. In addition, for the year ended December 31, 2021, we incurred $3.3 million more in natural gas costs, $5.0 million related to the California Carbon Allowance accrued and paid in October 2021 for triennial obligation on GHG emissions along with $0.7 million accrued for 2021, and $0.9 million more in chemical costs. Dairy Natural Gas . Cost of Goods Sold expenses relate to dairy manure payments, maintenance on the dairy digesters, production bonuses, and depreciation. India Biodiesel . The decrease in cost of goods sold during the year ended December 31, 2021, compared to December 30, 2020, was attributable to a decrease in the volume of biodiesel feedstock by 97% to 465 metric tons during the year ended December 31, 2021, compared to 16 thousand tons during the year ended December 31, 2020, coupled with a decrease in the average price of biodiesel feedstock by 2% to $619 compared to $630 in the same period in 2020. In addition, the volume of refined glycerin feedstock decreased by 93% to 117 metric tons in the year ended December 31, 2021, partially offset by an increase in the average price of the refined glycerin feedstock by 20% to $619 per metric ton in the same period in 2020. All Other. All other Cost of Goods Sold relates to the write-down of Aemetis Health Products inventory during the year ended December 31, 2021. Gross Profit (loss) Fiscal Year Ended December 31 (in thousands) 2021 vs 2020 2021 2020 2019 Inc/(dec) % change California Ethanol $ 9,565 $ 9,734 $ 3,951 $ (169 ) -1.7 % Dairy Renewable Natural Gas (488 ) (303 ) - (185 ) 61.1 % India Biodiesel (23 ) 1,602 8,747 (1,625 ) -101.4 % All other (1,115 ) (8 ) - (1,107 ) 13837.5 % Total $ 7,939 $ 11,025 $ 12,698 $ (3,086 ) -28 % California Ethanol . Gross profit decreased by 2% in the year ended December 31, 2021 primarily due to the stronger margin associated with high-grade alcohol sales coupled with the lower corn price during the year ended December 31, 2020. Dairy Natural Ga s. Gross loss relates to incurring more expenses as we begin to ramp up our Dairy Renewable Natural Gas business. India Biodiesel. The decrease in gross profit was attributable to decrease in the sales volume of biodiesel of 97% to 455 metric tons and refined glycerin of 91% to 130 metric tons. Operating Expenses In 2020, substantially all of our R&D expenses were related to research and development activities in Minnesota. 37 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 California Ethanol and biodiesel and other products in India Biodiesel, as well as professional fees, other corporate expenses, and related facilities expenses. SG&A expenses consist of employee compensation, professional services, travel, depreciation, taxes, insurance, rent and utilities, licenses and permits, penalties, and sales and marketing fees. Pursuant to an operating agreement with Gemini, we receive operational support and working capital for our Kakinada Plant. We compensate Gemini with a percentage of the profits generated from operations. Payments of interest are identified as interest expense while payments of profits are identified as compensation for the operational support component of this agreement. We therefore include the portion of profits paid to Gemini as a component of SG&A, which will vary based on the profits earned by operations. In addition, we market our biodiesel and glycerin through our internal sales staff, commissioned agents and brokers. Commissions paid to agents are included as a component of SG&A. Other (income) expense consists primarily of interest and amortization expense attributable to our debt facilities and those of our subsidiaries and accretion of our Series A preferred units. 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 expense. 2021 vs 2020 2021 2020 2019 Inc/(dec) % change Research and development expenses $ 88 $ 213 $ 205 $ (125 ) -59 % R&D expenses decreased in the year ended December 31, 2021 due to decreases in expenses related to research subcontract work of $84 thousand and lab supplies of $19 thousand. 2021 vs 2020 2021 2020 2019 Inc/(dec) % change Selling, general and administrative expenses $ 23,676 $ 16,882 $ 17,424 $ 6,794 40 % SG&A expenses as a percentage of revenue in the year ended December 31, 2021 increased to 11% in the year ended December 31, 2021 compared to 10% in the year ended December 31, 2020. The increase in SG&A expenses in the year ended December 31, 2021 was primarily due to an increase in salaries and stock compensation of $3.9, insurance of $1.0 million, professional fees of $1.5 million, dues and subscriptions of $0.1 million, termination charges of $0.6 million and marketing fees of $0.5 million, lease expense of $0.3 million, which were partially offset by a decrease in bad debt expense of $1.1 million as compared to the SG&A expenses during the year ended December 31, 2020. 2021 vs 2020 Other expense (income): 2021 2020 2019 Inc/(dec) % change Interest expense Interest rate expense $ 20,136 $ 22,943 $ 21,089 $ (2,807 ) -12 % Debt related fees and amortization expense 3,921 3,401 4,666 520 15 % Accretion and other expenses of Series A preferred units 7,718 4,673 2,257 3,045 65 % Loss contingency on litigation - - 6,200 - 0 % Gain on debt extinguishment (1,134 ) - - (1,134 ) 0 % Other expense (income) 809 548 (797 ) 261 48 % Interest expense decreased in the year ended December 31, 2021 due to principal debt payments made to Third Eye Capital in the second quarter of 2021. Debt related fees and amortization increased due to debt and extension fees being incurred in 2021. The increase in accretion and other expenses of the Series A Preferred Units was due to the issuance of additional units during the year ended December 31, 2021, coupled with accrued preference payments. Other income related to gain on debt extinguishment was due to the PPP Loans being forgiven. Other expense increased due to termination charges recognized during the year, coupled with a guarantee fee of $0.4 million during the year ended December 2021, while guarantee fees of $0.6 million were added during the same period in 2020. 38 Table of Contents Liquidity and Capital Resources Cash and Cash Equivalents Cash and cash equivalents were $7.8 million at December 31, 2021, of which $6.6 million was held in our North American entities and $1.2 million was held in our Indian entity. Our current ratio was 0.32 and 0.08, respectively, at December 31, 2021 and 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 December 31, 2021 December 31, 2020 Cash and cash equivalents $ 7,751 $ 592 Current assets (including cash, cash equivalents, and deposits) 20,693 8,683 Current and long term liabilities (excluding all debt) 92,302 80,264 Current & long term debt 188,767 229,619 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 $500,000 per investor to $900,000 per investor. As of December 31, 2020, 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. 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 Biogas Project, we plan to operate the biogas digesters to capture and monetize biogas while building new dairy digesters and extending the existing pipeline in order to capture the higher carbon credits available in California. We plan on funding the construction from 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 Riverbank Carbon Zero 1 plant 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. 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 or exporting to North America markets. 39 Table of Contents 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 other means, selling the current EB-5 Phase II offering, or by vendor financing arrangements. As of December 31, 2021, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes equaled $121.5 million. The current maturity date for all of the Third Eye Capital financing arrangements is April 1, 2023 as the Company exercised the right to extend the maturity date upon notice and payment of a 1% extension fee, pursuant to Amendment No. 20, subsequent to year end. 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, 2023. Our senior lender has provided a series of accommodating amendments to the existing and previous loan facilities as described in further detail in Note 4. Debt of the Notes to Consolidated Financial Statements of this Form 10-K. However, there can be no assurance that our senior lender will continue to provide further amendments or accommodations or will fund additional amounts in the future. 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 year ended December 31, 2021: Increases to debt: Accrued interest $ 20,239 Maturity date extension fee added to senior debt and waiver fees 1,715 Sub debt extension fees 680 Financing for equipment term loan 55 Total Increases to debt $ 22,689 Decreases to debt: Principal, fees, and interest payments to senior lender $ (23,959 ) Principal and interest payments to EB-5 investors (3,508 ) GAFI interest and principal payments (34,846 ) PPP loan forgiveness (1,134 ) Change in debt issuance costs, net of amortization (89 ) Term loan payments (5 ) Total Decreases to debt $ (63,541 ) Change in total debt $ (40,852 ) Working capital changes resulted in (i) a $1.2 million increase in inventories, (ii) a $0.2 million decrease in accounts receivable, (iii) a $4.8 million increase in prepaid expenses mainly due to $4.0 million dollar prepayment to J.D. Heiskell coupled with a $0.8 million prepayment for natural gas, (iv) a decrease in other current assets of $0.9 million, and (v) a $7.2 million increase in cash due to an increase in ethanol sales and funds raised through the at-the-market offering program. Cash used in operating activities was $20.6 million, derived from a net loss of $47.1 million, reduced by non-cash charges of $21.1 million, and changes in operating assets and liabilities of $8.8 million. The non-cash charges consisted of: (i) $4.0 million in amortization of debt issuance costs and other intangible assets, (ii) $5.4 million in depreciation expenses, (iii) $3.9 million in stock-based compensation expense, (iv) $7.7 million in preferred unit accretion and other expenses of Series A preferred units, (v) a gain on debt extinguishment of $1.1 million, (vi) an increase in the provision for excess and obsolete inventory of $1.0 million and (vii) 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 $2.2 million, (ii) prepaid expenses of $4.8 million, and (iii) a decrease in accounts payable of $5.2 million, offset by (iv) an increase in other liabilities of $0.7 million, (v) a decrease in other assets of $2.4 million, (vi) a decrease in accounts receivable of $0.1 million, and (vii) an increase in accrued interest of $14.5 million. 40 Table of Contents Cash used by investing activities was $22.9 million, of which $2.8 million was used for capital projects in the Keyes Plant, $17.7 million was used for capital projects related to Dairy Renewable Natural Gas, $0.1 million for capital projects at the India Plant, and $6.0 million related to all other capital projects. This was partially offset by grant proceeds of $3.8 million. Cash provided by financing activities was $50.7 million, consisting primarily of $103.6 million raised from issuance of common stock in equity offerings, $3.1 million received for issuing Series A Preferred Units, $1.3 million from exercises of stock options, and $0.1 million received for grant matching program partially offset by repayments of borrowings of $55.5 million, Series A Preferred Units redemption of $0.3 million, debt renewal and waiver fee payments of $1.1 million, and payments on finance leases of $0.5 million. In October 2020, we commenced an at-the-market offering program, which allows us to sell and issue shares of our common stock from time-to-time. During the year ended December 31, 2021, we issued 7,680 thousand shares of common stock under the at-the-market offering program for net proceeds of $103.6 million net of commissions and offering related expenses. As of December 31, 2021, we had capacity to issue up to $288.2 million of common stock under the at-the-market offering program. Off-Balance Sheet Arrangements We had no outstanding off-balance sheet arrangements as of December 31, 2021. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the 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 revenues and expenses for each period. The following represents a summary of our critical 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. Revenue Recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition of revenue. The guidance stated that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard was effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. In March and April 2016, the FASB issued further revenue recognition guidance amending principal versus agent considerations regarding whether an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Company adopted this guidance on January 1, 2019 using the modified retrospective approach. There was no cumulative impact to retained earnings. We assessed all of our revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. Revenue Recognition. We derive revenue primarily from sales of ethanol, high-grade alcohol and related co-products in California Ethanol, and biodiesel and refined glycerin in India Biodiesel pursuant to supply agreements and purchase order contracts. We assessed the following criteria under the ASC 606 guidance: (i) identify the contracts with customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when the entity satisfies the performance obligations. We have elected to adopt the practical expedient that allows for ignoring the significant financing component of a contract when estimating the transaction price when the transfer of promised goods to the customer and customer payment for such goods are expected to be within one year of contract inception. Further, we have elected to adopt the practical expedient in which incremental costs of obtaining a contract are expensed when the amortization period would otherwise be less than one year. 41 Table of Contents California Ethanol: Until May 13, 2020, we sold all our ethanol to J.D. Heiskell & Co. (“J.D. Heiskell”) under the Working Capital and Purchasing Agreement (the “J.D. Heiskell Purchasing Agreement”). On May 13, 2020, we entered into an amendment to the Corn Procurement and Working Capital Agreement with J.D. Heiskell (the “Corn Procurement and Working Capital”), under the terms of which we buy all corn from J.D. Heiskell and sell all WDG and corn oil we produce to J.D. Heiskell. Following May 13, 2020, we sold the majority of our fuel ethanol production to one customer, Kinergy Marketing, LLC (“Kinergy”), through individual sales transactions. We terminated the Ethanol Marketing Agreement with Kinergy as of September 30, 2021. Effective October 1, 2021, we entered into Fuel Ethanol Purchase and Sale Agreement with Murex LLC. Given the similarity of the individual sales transactions with Kinergy and Murex, we have assessed them as a portfolio of similar contracts. The performance obligation is satisfied by delivery of the physical product to one of our customer’s contracted trucking companies. Upon delivery, the customer has the ability to direct the use of the product and receive substantially all of its benefits. The transaction price is determined based on daily market prices negotiated by Kinergy for ethanol and by our marketing partner A.L. Gilbert Company (“A.L. Gilbert”) for WDG. There is no transaction price allocation needed. During the first quarter of 2020, Aemetis began selling high-grade alcohol for consumer applications directly to customers on the West Coast and Midwest using a variety of payment terms. These agreements and terms were evaluated according to ASC 606 guidance and such revenue is recognized upon satisfaction of the performance obligation by delivery of the product based on the terms of the agreement. Sales of high-grade alcohol represented 15% revenue for the year ended December 31, 2020. The below table shows our sales in California Ethanol by product category: California Ethanol For the twelve months ended December 31, 2021 2020 2019 Ethanol and high-grade alcohol sales $ 162,428 $ 111,219 $ 114,593 Wet distiller's grains sales 41,476 32,048 34,510 Other sales 7,347 6,035 5,045 $ 211,251 $ 149,302 $ 154,148 We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those customers in some contractual agreements. In California Ethanol, we assessed principal versus agent criteria as we buy corn as feedstock in producing ethanol from our working capital partner J.D. Heiskell and sell all WDG and corn oil produced in this process to J.D. Heiskell through A.L. Gilbert. We sold all ethanol we produced to J.D.Heiskell until May 13, 2020. We consider the purchase of corn as a cost of goods sold and the sale of ethanol, upon transfer to the common carrier, as revenue on the basis that (i) we control and bear the risk of gain or loss on the processing of corn which is purchased at market prices into ethanol and (ii) we have legal title to the goods during the processing time. The pricing for both corn and ethanol is set independently. Revenues from sales of ethanol and its co-products are billed net of the related transportation and marketing charges. The transportation component is accounted for in cost of goods sold and the marketing component is accounted for in sales, general and administrative expense. Transportation and marketing charges are known within days of the transaction and are recorded at the actual amounts. The Company has elected an accounting policy under which these charges have been treated as fulfillment activities provided after control has transferred. As a result, these charges are recognized in cost of goods sold and selling, general and administrative expenses, respectively, when revenue is recognized. Revenues are recorded at the gross invoiced amount. Hence, we are the principal in sales scenarios where our customer and vendor may be the same. India Biodiesel: We sell products pursuant to purchase orders (written or verbal) or by contract with governmental or international parties, in which performance is satisfied by delivery and acceptance of the physical product. Given that the contracts are sufficiently similar in nature, we have assessed these contracts as a portfolio of similar contracts as allowed under the practical expedient. Doing so does not result in a materially different outcome compared to individually accounting for each contract. All domestic and international deliveries are subject to certain specifications as identified in contracts. The transaction price is determined daily based on reference market prices for biodiesel, refined glycerin, and Palm Fatty Acid Distillers (“PFAD”) net of taxes. There is no transaction price allocation needed. The below table shows our sales in India Biodiesel by product category: India Biodiesel For the twelve months ended December 31, 2021 2020 2019 Biodiesel sales $ 465 $ 13,796 $ 42,464 Refined glycerin sales 125 1,172 2,809 PFAD sales - 774 2,557 Other sales 106 53 20 $ 696 $ 15,795 $ 47,850 We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those same customers in certain contractual agreements. In those cases, we receive the legal title to feedstock from our customers once it is on our premises. We control the processing and production of biodiesel based on contract terms and specifications. The pricing for both feedstock and biodiesel is set independently. We hold the title and risk to biodiesel according to agreements when we enter into in these situations. Hence, we are the principal in sales scenarios where our customer and vendor may be the same. Recoverability of Our Long-Lived Assets Property and Equipment Property, plant and equipment are carried at cost less accumulated depreciation after assets are placed in service and are comprised primarily of buildings, furniture, machinery, equipment, land, and plants in North America and India. When property, plant and equipment are acquired as part of an acquisition, the items are recorded at fair value on the purchase date. It is our policy to depreciate capital assets over their estimated useful lives using the straight-line method. Impairment of Long-Lived Assets Our long-lived assets consist of property, plant and equipment. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. We measure recoverability of assets to be held and used by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, we record an impairment charge in the amount by which the carrying amount of the asset exceeds the fair value of the asset. 42 Table of Contents The impairment test for long-lived assets requires us to make estimates regarding amount and timing of projected cash flows to be generated by an asset or asset group over an extended period of time. Management judgment regarding the existence of circumstances that indicate impairment is based on numerous potential factors including, but not limited to, a decline in our future projected cash flows, a decision to suspend operations at a plant for an extended period of time, adoption of our product by the market, a sustained decline in our market capitalization, a sustained decline in market prices for similar assets or businesses, or a significant adverse change in legal or regulatory factors or the business climate. Significant management judgment is required in determining the fair value of our long-lived assets to measure impairment, including projections of future cash flows. Fair value is determined through various valuation techniques including discounted cash flow models, market values and third-party independent appraisals, as considered necessary. Changes in estimates of fair value could result in a write-down of the asset in a future period. Long-term assets are analyzed below based on their line items on the consolidated balance sheet and the lowest level where the assets are expected to generate cash flow or work as a functional unit. We consider the lowest level Asset Group as one where the value of the asset becomes independent from the other assets and has the ability to operate on an independent basis, and results in a functional unit. We therefore group the reporting units into the following: the Keyes, California ethanol plant, the Kakinada, India biodiesel plant, the Central California Dairy Digester Network, the Riverbank, California Carbon Zero 1 plant under development, the Goodland Energy Center LLC, which consists of a partially completed dry-mill, and the Carbon Capture Sequestration asset group under development. These asset groups represent our significant long-lived assets. Both plants were operated efficiently and no asset groups showed indicators of impairment, therefore no impairment test was needed for our Company’s long-lived assets. Testing for Debt Modification or Extinguishment Accounting During 2021 and 2020, we evaluated amendments to our debt under the ASC 470-50 guidance for modification and extinguishment accounting and under ASC 470-60 for Troubled Debt Restructuring. This evaluation for modification and extinguishment included comparing the net present value of cash flows of the new debt to the old debt to determine if changes greater than 10 percent occurred. In instances where our future cash flows changed more than 10 percent, we recorded our debt at fair value based on factors available to us for similar borrowings and used the extinguishment accounting method to account for the debt extinguishment. The evaluation for troubled debt restructuring included assessing whether the creditor granted a concession. To determine this, we calculate the post-restructuring effective interest rate by projecting cash flows on the new terms and calculating a discount rate equal to the carrying amount of pre-restructuring debt, and comparing this calculation to the terms of prior amendments. If the post restructuring effective interest rate is less than the prior terms effective interest rate, we assess this as having been granted a concession. We then apply troubled debt restructuring accounting to any debt in which the creditor granted a concession. Recently Issued Accounting Pronouncements Refer to Note 1 of the Financial Statements for a description of new accounting pronouncements.