Aemetis, Inc: Form 10-Q for the period ended Jun 30, 2023

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated condensed 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, 2023 and 2022.
• Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition.
• Critical Accounting Policies and Estimates. Accounting policies and 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 condensed 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

Founded in 2006 and headquartered in Cupertino, California, Aemetis, Inc. (collectively with its subsidiaries on a consolidated basis referred to herein as “Aemetis,” the “Company,” “we,” “our” or “us”) is an international renewable natural gas and renewable fuels 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 consisting of “California Ethanol,” “California Dairy Renewable Natural Gas,” and “India Biodiesel.” We have other operating segments determined not to be reportable segments and are collectively represented by the “All Other” category. At Aemetis, our mission is to generate sustainable and innovative renewable fuel solutions that benefit communities and restore our environment. We do this by building a local circular bioeconomy utilizing agricultural waste to produce low-carbon, advanced renewable fuels that reduce greenhouse gas (“GHG”) emissions and improve air quality by replacing traditional petroleum-based products.

Our California Ethanol segment consists of a 65 million gallon per year capacity ethanol production facility located in Keyes, California (the “Keyes Plant”) that we own and operate. In addition to low carbon renewable fuel ethanol, the Keyes Plant produces Wet Distillers Grains (“WDG”), Distillers Corn Oil (“DCO”), Carbon Dioxide (“CO2”) and Condensed Distillers Solubles (“CDS”), all of which are sold as animal feed to more than 80 local dairies and feedlots, with CO₂ sold to food, beverage, and industrial customers. We have several energy efficiency initiatives focused on significantly lowering the carbon intensity of our fuels, primarily by decreasing our use of petroleum-based natural gas. These energy efficiency projects include: high efficiency heat exchangers; the Mitsubishi ZEBREXTM ethanol dehydration system; a two-megawatt solar microgrid with battery storage; the Allen Bradley Decision Control System (DCS) to manage and optimize energy use and other plant operations; and the Mechanical Vapor Recompression (MVR) system to reuse steam. These projects are expected to reduce petroleum natural gas use by converting key Keyes Plant processes to use electricity rather than natural gas and powering systems using low-carbon-intensity hydroelectric electricity or electricity produced onsite from solar panels.

In the third quarter of 2022, we completed the installation and began the operation of the ZEBREXTM ethanol dehydration system at the Keyes Plant, a key first step in the electrification of the Keyes Plant, that is expected to significantly reduce the use of petroleum-based natural gas as process energy at the plant. The electrification, along with the future installation of the two-megawatt zero carbon intensity solar microgrid system and the mechanical vapor recompression (MVR) system, will significantly reduce GHG emissions from the production facility and decrease the carbon intensity (CI) of fuel produced at the Keyes Plant. The lower CI of ethanol produced at the Keyes Plant will allow us to realize a higher price for the ethanol produced and sold at the Keyes Plant.

During the last two weeks of December 2022, we undertook an extended maintenance cycle and accelerated the implementation of several important ethanol plant energy efficiency upgrades noted above. Our decision was partly driven by the high natural gas prices in Northern California during the period. Furthermore, after monitoring natural gas pricing and margin profitability, we decided to extend the maintenance cycle into the second quarter of 2023. With natural gas pricing in a reasonable range and the maintenance turn-around complete, we restarted the plant in the second quarter of 2023.

Our California Dairy Renewable Natural gas segment, which consists of our subsidiary Aemetis Biogas LLC, ("Aemetis Biogas" or "ABGL") constructs and operates bio-methane anaerobic digesters at local dairies near the Keyes Plant (many of whom also purchase WDG produced by the Keyes Plant as animal feed); transports the biogas via pipeline to the Keyes Plant site; converts the biogas to Renewable Natural Gas (“RNG”), which is then delivered to customers through the PG&E natural gas pipeline.

The Aemetis Biogas network includes the Aemetis Biogas Central Dairy Project, which operates 40 miles of completed biogas pipeline; seven operating dairy digesters; five dairy digesters that are under construction; a centralized biogas-to-RNG conversion facility located at the Keyes Plant site; and a renewable natural gas interconnection with the PG&E utility gas pipeline. A total of 34 dairies have signed contracts with Aemetis Biogas in connection with participation in the Aemetis Biogas Central Dairy Project.

The dairy digesters are connected via an underground private pipeline owned by ABGL to a gas cleanup and compression unit at the Keyes Plant to produce dairy RNG. Upon receiving the bio-methane from the dairies, impurities are removed, and the bio-methane is converted to negative carbon intensity RNG that is injected into the statewide PG&E gas utility pipeline for use as transportation fuel or used as renewable process energy at the Keyes Plant.

Our India Biodiesel segment owns and operates a plant in Kakinada, India (“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. Kakinada Plant is capable of processing a variety of vegetable oils and animal fat waste feedstocks into biodiesel that meets international product standards. Our Kakinada Plant can also distill 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.

Our All Other segment consists of: our Carbon Zero biofuels production plants to produce renewable diesel and sustainable aviation fuel; Carbon Capture and Sequestration compression system and injection wells; a research and development facility in Minneapolis, Minnesota; and our corporate offices in Cupertino, California.

Our Carbon Zero biofuels production plants are designed to produce low or negative carbon intensity sustainable aviation fuel (“SAF”) and renewable diesel fuel (“RD”) utilizing low carbon hydroelectric electricity, renewable hydrogen and non-edible renewable oils sourced from existing Aemetis biofuels plants and other sources. The first Carbon Zero plant is scheduled to be built in Riverbank, California at the 125-acre former Riverbank Army ammunition plant. The Riverbank plant is expected to utilize zero carbon hydroelectric and other renewable power available onsite to produce 90 million gallons per year of SAF, RD, 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 high value D3 Renewable Identification Numbers (“RINs”) under the federal Renewable Fuel Standard (“RFS”), generate California Low Carbon Fuel Standard (“LCFS”) credits, and produce Inflation Reduction Act tax credits.

Our Carbon Capture subsidiary was established to build Carbon Capture and Sequestration (“CCS”) projects that generate LCFS and IRS 45Q tax credits by compressing and injecting CO₂ into deep wells which are monitored for emissions to ensure the long-term sequestration of carbon underground. California’s Central Valley has been identified as one of the world’s most favorable regions for large-scale CO₂ injection projects due to the subsurface geologic formation that absorbs and retains CO₂ gas. The two initial Aemetis CCS injection projects are expected to capture and sequester more than two million metric tons per year of CO₂ at the Aemetis biofuels plant sites in Keyes and Riverbank, California. In July 2022, Aemetis purchased 24 acres located on the Riverbank Industrial Complex site in Riverbank, California to develop a CCS injection well with more than 1 million metric tonnes per year of CO₂ sequestration capacity. The Company plans to construct a characterization well at each site to obtain soil information for permitting as required for the EPA Class VI CO₂ injection well permit application.

Our Minneapolis, Minnesota research and development laboratory develops efficient conversion technologies using low carbon intensity and waste feedstocks to produce low or below zero carbon intensity biofuels and biochemicals. We are focused on processes that extract sugar from cellulosic feedstocks and then utilize the remaining biomass to produce low carbon renewable hydrogen for the production of sustainable aviation fuel, renewable diesel and potential sale of renewable hydrogen to third parties as transportation fuel.

California Ethanol Revenue

Revenue generation for our 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 implementing plans that will bring higher value for our fuel ethanol in an effort to improve our overall margins and to add incremental income to the California Ethanol segment, including, the implementation of the Solar Microgrid System, the installation of the Zebrex ethanol dehydration system, the installation of mechanical vapor recompression, and other energy efficiency technologies. The energy efficiency upgrades to the Keyes Plant will result in higher LCFS value through the reduction of the carbon intensity of the fuel ethanol produced at the plant.

We sell all ethanol, WDG, CDO, and CDS produced in this process to J.D. Heiskell. Our ethanol finished goods tank is leased by J.D. Heiskell and legal title to the product is transferred upon transfer of our finished ethanol to this location. The CO₂ produced by the Keyes Plant is sold to Messer Gas.

California Ethanol revenue is dependent on the price of ethanol, WDG, CDS, CO₂, and DCO. Ethanol pricing is influenced by local and national production and inventory levels, 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 company 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. Our revenue is further influenced by the price of natural gas, and our decision to operate the Keyes Plant at various capacity levels, conduct required maintenance, and respond to biological processes affecting output.

California Dairy Renewable Natural Gas Revenue

In December 2018, we utilized our relationships with California’s Central Valley dairy farmers by signing leases and raising funds to construct dairy digesters, a 40-mile pipeline, and a biogas-to-RNG facility to deliver fuels for sale to utility gas pipeline. We are currently producing RNG from seven digesters connected by our pipeline, then flowing this gas to our RNG cleanup and compression hub at the Keyes Plant. The RNG upgrade unit at the Keyes Plant enables the production and delivery of utility-grade RNG for sale as transportation fuel to California customers via the PG&E pipeline delivery interconnection.

In addition to the existing and operating dairy digesters, we currently have four additional dairy digesters that are under construction. We have approximately 34 signed agreements with dairies to construct dairy digesters. Our revenue development strategy for the Dairy Renewable Natural Gas segment relies upon continuing to collect bio-methane gas from the existing dairy digesters, continuing to build out the network of dairy digesters, extending the pipeline to grow the supply of RNG available for sale and utilizing the biogas-to-RNG upgrade unit to distribute utility-grade RNG to customers statewide. We are currently storing the produced RNG until the LCFS CI pathway for each dairy has been established, after which we will sell the stored gas to transportation customers statewide.

Inflation Reduction Act of 2022

For all facilities in the United States, we plan to utilize the provision of the Inflation Reduction Act of 2022 by qualifying for renewable energy credits, whether in the form of an Investment Tax Credit, Producers Tax Credit or other credits and monetize the credits using the provisions of this congressional act.

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. During the first quarter, the government of India updated the national biofuels policy and adopted a new tax on diesel fuel to promote biodiesel blending. As a result, the OMCs are pricing the tenders at economically viable levels, allowing for biodiesel producers in India to begin production.

During the second quarter of 2023, we fulfilled an OMC tender offer for 27,694 kiloliters (approximately 27,151 metric tons) of which 1443 metric tons, of biodiesel revenue was in transit as of June 30, 2023 and would be recognized as revenue during the third quarter. In addition, during the third quarter of 2023, we received an initial OMC tender offer for 18,000 kiloliters (approximately 17,650 metric tons), which we are in process of fulfilling the order.

Results of Operations

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

Revenues

Our revenues are derived primarily from sales of ethanol and WDG for our California Ethanol segment, renewable natural gas for our Dairy Renewable Natural Gas segment, and biodiesel for our India Biodiesel.

California Ethanol. For the three months ended June 30, 2023, the Company sold 2.8 million gallons of ethanol at a price of $3.12 per gallon and 24.3 thousand tons of WDG at a price of $105 per ton. For the three months ended June 30, 2022, the Company sold 15.2 million gallons of ethanol at a price of $3.13 per gallon and 104 thousand tons of WDG at a price of $146 per ton. The decrease in revenues was due to an extended maintenance cycle and the accelerated implementation of several important ethanol plant energy efficiency upgrades to the Keyes Plant.

California Dairy Renewable Natural Gas. During the three months ended June 30, 2023, we produced and sold 54.1 thousand MMBtu of physical molecules to an external party, at an average price of $3.89 per MMBtu, while placing the environmental attributes in storage for sale once the carbon pathways are established. During the three months ended June 30, 2022, we produced and sold to an intercompany party 14.9 thousand MMBtus of dairy biogas.

India Biodiesel. For the three months ended June 30, 2023, we generated 98% of our revenues from the sale of biodiesel, and 2% of our sales from other sales compared to 100% of our sales from other sales for the three months ended June 30, 2022. The increase in revenues was primarily attributable to obtaining the government of India's tender offer making the conversion of biodiesel commercially viable for the Company. Biodiesel sales volume increased to 25.7 thousand metric tons in the three months ended June 30, 2023 compared to none in the three months ended June 30, 2022 while price per ton increased to $1,276.

Cost of Goods Sold

California Ethanol. For the three months ended June 30, 2023, we ground 1.4 million bushels of corn at $6.84 per bushel and incurred $0.6 million in chemicals costs, $0.6 million in natural gas costs, $0.5 million in transportation costs, $0.5 million in depreciation costs, and $0.8 million in other plant services costs. For the three months ended June 30, 2022, we ground 5.3 million bushels of corn at $10.21 per bushel and incurred $0.6 million in chemicals costs, $3.6 million in natural gas costs, and $2.1 million in transportation costs, $1.0 million in depreciation costs, and $0.8 million in denaturant costs.

California Dairy Renewable Natural Gas. Cost of Goods Sold expenses relate to dairy manure payments, maintenance on the dairy digesters, dairy leases bonuses, and depreciation. Cost of Goods Sold increased with seven operating dairies as of June 30, 2023, compared to two in June 30, 2022.

India Biodiesel. The increase in costs of goods sold was attributable to the increase in production of biodiesel due to the governments tender offer. In the three months ended June 30, 2023 we consumed 27.1 thousand metric tons of feedstock, compared to none in the same period as in 2022. During the three months ended June 30, 2023 the average price per biodiesel metric ton was $839 compared to none in the same period as in 2022.

Gross profit (loss)

California Ethanol. The decrease in gross loss was attributable to an extended maintenance cycle and accelerated implementation of several important ethanol plant energy efficiency upgrades at the Keyes Plant during the second quarter of 2023.

California Dairy Renewable Natural Gas. The increase in gross loss in the three months ended June 30, 2023 relates to an increase in manure and maintenance costs associated with having seven dairies online, compared two dairies in the same period ended June 30, 2022.

India Biodiesel. The increase in gross profit was attributable to receiving the tender offer from the Indian government, which made the conversion of biodiesel commercially viable for the Company and our ability to operate the plant at a consistent high capacity during the quarter.

Operating (income)/expense and non-operating (income)/expense

Substantially all of our research and development expenses were related to research and development activities in Minnesota.

Selling, general, and administrative (“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.

Other operating income consists of sublease rental income.

Other expense (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.

The increase in SG&A expenses for the three months ended June 30, 2023 was due to increases in (i) stock compensation, salaries and wages of $0.8 million and (ii) miscellaneous expense of $1.3 million due to reclassifying cost of goods sold depreciation, maintenance costs and plant services to SG&A during the extended maintenance cycle and the accelerated implementation of several important ethanol plant energy efficiency upgrades to the Keyes Plant.

Interest expense increased in the three months ended June 30, 2023 due to the Construction Loan debt, additional borrowings under the Revolving Loans and Revolving Credit Facilities, and the impact of rising interest rates on our variable interest rates facilities compared to the same period in the prior year. The increase in accretion and other expenses of the Series A Preferred Units was due to provisions of the PUPA Amendments.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

Revenues

California Ethanol. For the six months ended June 30, 2023, the Company sold 2.9 million gallons of ethanol at a price of $3.08 per gallon and 24.3 thousand tons of WDG at a price of $105 per ton. The decrease in revenues was due to an extended maintenance cycle and accelerated the implementation of several important ethanol plant energy efficiency upgrades to the Keyes Plant during the first quarter of 2023, and with the Keyes Plant restarting operations at the end of May.

California Dairy Renewable Natural Gas. During the six months ended June 30, 2023, we produced and sold 75.4 thousand MMBtu of physical molecules to an external party, at an average price of $5.52 per MMBtu, while placing the environmental attributes in storage for sale once the LCFS pathway for the carbon credits are established. During the six months ended June 30, 2022, we produced and sold to an intercompany party 28.9 thousand MMBtus of dairy biogas.

India Biodiesel. For the six months ended June 30, 2023, we generated 97% of our revenues from the sale of biodiesel, and 3% of our sales from other sales compared to 100% of our sales from other sales for the six months ended June 30, 2022. The increase in revenues was primarily attributable to receiving the tender offer from the Indian government, which made the conversion of biodiesel commercially viable for the Company. Biodiesel sales volume increased to 28.1 thousand metric tons in the six months ended June 30, 2023 compared to none in the six months ended June 30, 2022, while price per ton increased to $1,210 per metric ton.

Cost of Goods Sold

California Ethanol. For the six months ended June 30, 2023,we ground 1.4 million bushels of corn at $7.17 per bushel. This decreased was due to an extended maintenance cycle and an accelerated implementation of several important ethanol plant energy efficiency upgrades at the Keyes Plant. As a result of the Keyes Plant shutdown, our corn costs decreased by $89.0 million, natural gas costs decreased by $6.2 million, chemical and denaturant costs decreased by $2.7 million, and transportation costs decreased by $3.5 million compared to the same period in 2022.

California Dairy Renewable Natural Gas. Cost of Goods Sold expenses relate to dairy manure payments, maintenance on the dairy digesters, production bonuses, and depreciation. Cost of goods sold will continue to increase as we expand the business.

India Biodiesel. The increase in costs of goods sold was attributable to receiving the tender offer from the Indian government, which made the conversion of biodiesel commercially viable. In the six months ended June 30, 2023 biodiesel feedstock volume was 28.1 thousand metric tons, compared to none in the same period as in 2022. During the six months ended June 30, 2023 the average price of biodiesel feedstock was $839 per metric ton compared to none in the same period as in 2022.

Gross profit (loss)

California Ethanol. The increase in gross loss was attributable to an extended maintenance cycle and accelerated implementation of several important ethanol plant energy efficiency upgrades at the Keyes Plant during the first half of 2023.

California Dairy Renewable Natural Gas. The increase in gross loss in the six months ended June 30, 2023 relates to an increase in manure and maintenance costs associated with having seven dairies online, compared two dairies in the same period ended June 30, 2022.

India Biodiesel. The increase in gross profit was attributable to the increase in sales and production of biodiesel to meet the government of India's tender offer as the tender offer was received at the start of the first quarter.

Operating (income)/expense and non-operating (income)/expense

The increase in SG&A expenses for the six months ended June 30, 2023 was due to increases in (i) stock compensation, salaries and wages of $2.4 million due to issuing a grant of RSAs, (ii) Depreciation and Amortization of $1.7 million due to reclassifying cost of goods sold depreciation to SG&A depreciation, (iii) Taxes, Insurances, Rent and Utilities increase of $1.1 million and (iv) Miscellaneous expense increase of $1.2 million as we reclassified cost of goods sold to SG&A as we were not operating the Keyes Plant until the end of May.

Interest expense increased in the six months ended June 30, 2023 additional Construction Loan debt, additional borrowings under the Revolving Loans and Revolving Credit Facilities, and the impact of rising interest rates on our variable interest rates facilities compared to the same period in the prior year. The increase in accretion and other expenses of the Series A Preferred Units was due to provisions of the recent PUPA Amendments.

Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents were $3.5 million at June 30, 2023, of which $0.6 million was held in North America and the rest was held at our Indian subsidiary. Our current ratio at June 30, 2023 decreased to 0.19 compared to our current ratio of 0.21 at December 31, 2022. 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):

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, 2023, EB-5 Phase II funding in the amount of $4.0 million had been released from escrow to us. 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, negative market conditions, 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 its 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 restarted the plant during the second quarter after completing an extended maintenance cycle and accelerating the implementation of several important ethanol plant energy efficiency upgrades. We plan to operate the plant and continue to improve its financial performance by completing the existing upgrades and adopting new technologies or process changes that allow for energy efficiency, cost reduction or revenue enhancements, as well as, executing upon awarded grants that improve energy and operational efficiencies resulting in lower cost, lower carbon demands and overall margin improvement.

For Aemetis Biogas, 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 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 plant in Riverbank, CA 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 all facilities in the United States, we plan to utilize the provision of the Inflation Reduction Act of 2022 by qualifying for renewable energy credits, whether in the form of an Investment Tax Credit, Producers Tax Credit or other credits and monetize the credits using the provisions of this congressional act.

For the Kakinada Plant, we plan to continue to develop sales channels for domestic products as the costs of feedstock normalize against the price of diesel, as recently announced governmental incentives take effect to promote the blending of biodiesel, and as feedstocks such as refined animal tallow are used domestically and exported. Additionally, we are in the process of obtaining approval to export refined animal tallow and biodiesel produced using animal tallow into international markets as the use of refined animal tallow received approval from the Pollution Control Board of India for production of biodiesel. The repatriation of funds from India to the parent company in the U.S. is reliant on favorable governmental approvals.

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 bonds in the taxable and tax-exempt markets, selling equity through the ATM and otherwise, selling the current EB-5 Phase II offering, or by vendor financing arrangements.

At June 30, 2023, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes equaled $173 million. The maturity dates for the Third Eye Capital financing arrangements are August 31, 2023, for $9.2 million, April 1, 2025, for $118 million, March 1, 2025, for $25.0 million and March 1, 2026, for $24.9 million.

As of the date of this report, the Company has $50.0 million additional borrowing capacity to fund future cash flow requirements under the Reserve Liquidity Notes with a maturity date April 1, 2024.

We also rely on our working capital lines with Gemini, Secunderabad Oils, and Leo Edibles & Fats India Ltd. 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, Secunderabad Oils, and Leo Edibles 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, 2023:

Working capital changes resulted in (i) a $2.8 million increase in inventories due to the Keyes Plant restarting operations and (ii) a $4.9 million increase in accounts receivable due to UBPL fulfilling a government tender in the second quarter of 2023. This was partially offset by (i) a $3.0 million decrease in prepaid expenses mainly due to the use of a J.D. Heiskell pre-payment, (ii) a decrease in other current assets of $1.1 million due to receipt of the restricted cash from the Construction loan, and (iii) a $0.8 million decrease in cash.

Net cash used in operating activities during the six months ended June 30, 2023, was $14.0 million, consisting of non-cash charges of $24.7 million, net cash provided by operating assets and liabilities of $13.0 million, and net loss of $51.7 million. The non-cash charges consisted of: (i) $3.3 million in amortization of debt issuance costs and other intangible assets, (ii) $3.5 million in depreciation expenses, (iii) $4.8 million in stock-based compensation expense and a warrant grant to our working capital partner, (iv) $12.4 million in preferred unit accretion and other expenses of Series A preferred units, and (v) $0.7 million change in deferred tax expense. Net changes in operating assets and liabilities consisted primarily of (i) an increase in accrued interest of $12.1 million, (ii) prepaid expenses decrease of $2.4 million, (iii) an increase in accounts payable of $4.4 million, and (iv) an increase in other liabilities of $1.8 million. This was partially offset by an increase in (i) inventories of $2.9 million and (ii) a decrease in Accounts Receivable of $4.9 million.

Cash used by investing activities was $2.5 million, of which $9.8 million were used by capital projects, partially offset by grant proceeds and other reimbursements of $7.3 million.

Cash provided by financing activities was $15.2 million, consisting of $8.9 million from issuance of common stock and $21.6 million from proceeds from borrowings, partially offset by repayments of borrowings of $13.4 million, payment of debt renewal and waiver fees of $1.7 million and payments on finance leases of $0.3 million.

Critical Accounting Policies and Estimates

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 and estimates, defined as those policies and estimates 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, Series A Preferred unit liability, 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, 2022.

Recently Issued Accounting Pronouncements

None reported beyond those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Off Balance Sheet Arrangements

We had no off-balance sheet arrangements during the three months ended June 30, 2023.

Evaluation of Disclosure Controls and Procedures.

Management (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our CEO and CFO concluded that, although remediation plans were initiated to address the material weaknesses over financial reporting as identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the disclosure controls and procedures along with the related internal controls over financial reporting were not effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is compiled and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As discussed in greater detail under Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the year ended December 31, 2022, we initiated a remediation plan to address the material weakness in our internal control related to information technology general controls and information technology systems.

For a more comprehensive discussion of the material weaknesses in internal control over financial reporting identified by management as of December 31, 2022, and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the year ended December 31, 2022.

No change in risk factors since the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 9, 2023. We urge you to read the risk factors contained therein.