Aemetis, Inc: Form 10-Q for the period ended Sep 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 nine months ended September 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 is an international renewable natural gas and renewable fuels company focused on the acquisition, development and commercialization of innovative low and negative carbon intensity products and technologies that replace traditional petroleum-based products. 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 and waste to produce low and negative carbon, advanced renewable fuels that reduce greenhouse gas (“GHG”) emissions 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 are implementing several energy efficiency initiatives focused on significantly lowering the carbon intensity of our ethanol, primarily by decreasing use of natural gas at the Keyes plant. These energy efficiency projects include high efficiency heat exchangers; a two-megawatt solar microgrid with battery storage; an Allen Bradley Decision Control System (DCS) to manage and optimize energy use and other plant operations; and a Mechanical Vapor Recompression (MVR) system to reuse steam. These projects are expected to reduce natural gas use by converting key processes to use electricity rather than natural gas and by using low-carbon-intensity hydroelectric electricity or electricity produced onsite from solar panels. This will reduce GHG emissions 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 the ethanol plant energy efficiency upgrades noted above. Our decision was partly driven by the high natural gas prices in 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 built, operates, and is actively expanding a network of anaerobic digesters at local dairies near the Keyes Plant (many of whom also purchase WDG produced by the Keyes Plant as animal feed); transports biogas by pipeline to an upgrading up located at the Keyes Plant site; converts the biogas to Renewable Natural Gas (“RNG”); and delivers the RNG to customers through the PG&E natural gas pipeline.

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. The 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: the development of our Carbon Zero biofuels production plant to produce renewable diesel and sustainable aviation fuel; the development of our Carbon Capture and Sequestration compression system and injection wells; operation of the Riverbank Industrial Complex; a research and development facility in Minneapolis, Minnesota; and our corporate offices in Cupertino, California.

Our Carbon Zero biofuels production plant is designed to produce low carbon intensity sustainable aviation fuel (“SAF”) and renewable diesel fuel (“RD”) using low carbon hydroelectric electricity, renewable hydrogen and non-edible renewable oils sourced from existing Aemetis biofuels plants and other sources. Our 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 power to produce 90 million gallons per year of SAF and RD. The plant is expected to supply the aviation and truck markets with low carbon renewable fuels to reduce GHG emissions and other pollutants associated with conventional petroleum-based fuels. By producing low carbon renewable fuels, the Company will generate 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 that are monitored 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 at the Riverbank Industrial Complex site in Riverbank, California to develop a CCS injection well with more than 1 million metric tons per year of CO₂ sequestration capacity. We plan to construct a characterization well at each site to characterize the geology to provide information for permitting and planning the projects.

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 California and supplying feed products to dairy and other animal feed operations in 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 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

Since December 2018, we have 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 upgrading facility that delivers RNG to a utility gas pipeline. We are currently producing RNG from seven digesters connected by our pipeline and have five additional dairy digesters under construction. We have a total of approximately 34 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.

Inflation Reduction Act of 2022

For all facilities in the United States, we plan to continue to use the provisions of the Inflation Reduction Act of 2022 by qualifying for renewable energy credits in the form of an Investment Tax Credits, Production Tax Credit, and other credits, and to 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-owned 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 third quarter of 2023, we fulfilled an OMC tender offer for 17,066 metric tons of which 1596 metric tons of biodiesel revenue was in transit as of September 30, 2023 and would be recognized as revenue during the fourth quarter.

Results of Operations

Three Months Ended September 30, 2023, Compared to Three Months Ended September 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 segment.

California Ethanol. For the three months ended September 30, 2023, the Company sold 13.8 million gallons of ethanol at an average price of $2.64 per gallon and 98 thousand tons of WDG at a price of $96 per ton. For the three months ended September 30, 2022, the Company sold 15.7 gallons of ethanol at an average price of $2.85 per gallon and 102 thousand tons of WDG at a price of $127 per ton. The decrease in revenue was attributable to decrease in sales volume by 12% coupled with decrease in average price by 7%.

California Dairy Renewable Natural Gas. During the three months ended September 30, 2023, we produced and sold 66.6 thousand MMBtu of renewable natural gas to an external party, at an average price of $2.13 per MMBtu and we also sold 271 thousand D3 RINs at average price of $2.97 per RIN. During the three months ended September 30, 2022, we produced 16.8 thousand MMBtus of dairy biogas that we used at the Keyes plant.

India Biodiesel. For the three months ended September 30, 2023, we generated 96% of our revenues from the sale of biodiesel, and 4% of our sales from other sales compared to 99% of our sales from biodiesel, and 1% of our sale from other sales for the three months ended September 30, 2022. The increase in revenues was primarily attributable to obtaining the tender offers from India's Oil Market Companies, making the production of biodiesel commercially viable for the Company. Biodiesel sales volume increased to 15.5 thousand metric tons in the three months ended September 30, 2023 compared to 7.0 thousand metric tons in the three months ended September 30, 2022 while price per ton decreased by 27%.

Cost of Goods Sold

California Ethanol. For the three months ended September 30, 2023, we ground 5.0 million bushels of corn at $7.48 per bushel and incurred $1.9 million in chemicals and denaturant costs, $2.2 million in natural gas costs, and $2.2 million in transportation costs. For the three months ended September 30, 2022, we ground 5.5 million bushels of corn at $9.59 per bushel and incurred $1.7 million in chemicals and denaturant costs, $3.8 million in natural gas costs, and $2.5 million in transportation costs.

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

India Biodiesel. The increase in costs of goods sold was attributable to the increase in production of biodiesel. In the three months ended September 30, 2023 we consumed 15.6 thousand metric tons of feedstock, compared to 9.4 thousand metric tons of feedstock in the same period in 2022. During the three months ended September 30, 2023 the average price of biodiesel feedstock was $752 per metric ton compared to $889 per metric ton in the same period as in 2022.

Gross profit (loss)

California Ethanol. The decrease in gross loss was attributable to lower corn prices and natural gas prices in 2023 compared to higher corn prices and natural gas prices in the 2022.

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

India Biodiesel. The slight decrease in gross profit was attributable to decrease in the average sales price of biodiesel by 27% and refined glycerin by 33% offset by decrease of feedstock price by 15%.

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, insurance, other corporate expenses, and related facilities expenses. Also included was of sublease rental income which was included as an offset to the SG&A expenses.

Other expense (income) expense consists primarily of interest and amortization expense attributable to our debt facilities and accretion of Series A preferred units. The debt facilities sometimes 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 September 30, 2023 was due to increases in (i) stock compensation, salaries and wages of $0.4 million, (ii) professional fees of $1.8 million and (iii) miscellaneous expense of $0.6 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 September 30, 2023 due to Construction Loan debt, additional borrowings under the Revolving Loans and Revolving Credit Facilities, and the impact of rising interest rates on our variable interest rate debt 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.

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

Revenues

California Ethanol. For the nine months ended September 30, 2023, the Company sold 16.7 million gallons of ethanol at a price of $2.72 per gallon and 122 thousand tons of WDG at a price of $98 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 five months of 2023 coupled with decrease in average price of ethanol by 5% and WDG by 24%.

California Dairy Renewable Natural Gas. During the nine months ended September 30, 2023, we produced and sold 142 thousand MMBtu of physical molecules to an external party, at an average price of $5.06 per MMBtu. Also, we started selling D3 RINs during the quarter and we sold 271 thousand D3 RINS at an average price of $2.97 per RIN. During the nine months ended September 30, 2022, we produced and sold dairy biogas of $940 thousand to an intercompany party.

India Biodiesel. For the nine months ended September 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 nine months ended September 30, 2022. The increase in revenues was primarily attributable to receiving the tender offer from the India Oil Marketing Companies, which made the production of biodiesel commercially viable for the Company. Biodiesel sales volume increased to 43.7 thousand metric tons in the nine months ended September 30, 2023 compared to 7.0 thousand metric tons in the nine months ended September 30, 2022, while price per ton decreased to $1,219 per metric ton from $1,550 per metric ton.

Cost of Goods Sold

California Ethanol. For the nine months ended September 30, 2023, we ground 6.4 million bushels of corn at $7.34 per bushel. This decrease from the same period in 2022 was due to an extended maintenance period at the Keyes Plant. As a result of the Keyes Plant shutdown, our corn costs decreased by $105.0 million, natural gas costs decreased by $8.0 million, chemical and denaturant costs decreased by $2.5 million, and transportation costs decreased by $3.9 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, 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 increased production. In the nine months ended September 30, 2023 biodiesel feedstock volume was 43.7 thousand metric tons, compared to 9.4 thousand metric tons in the same period as in 2022. During the nine months ended September 30, 2023 the average price of biodiesel feedstock was $797 per metric ton compared to $889 per metric ton in the same period as in 2022.

Gross profit (loss)

California Ethanol. The decrease in gross loss was attributable to an extended maintenance cycle for first five months of 2023 coupled with decrease in corn price by 23% and natural gas prices by 52%.

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

India Biodiesel. The increase in gross profit was attributable to the increase in production and sales 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 nine months ended September 30, 2023 was due to increases in (i) stock compensation, salaries and wages of $2.8 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, (iv) supplies, other services and professional fees of $2.3 million and (v) Miscellaneous expense increase of $1.8 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 nine months ended September 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 rate debt 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$3.9 million at September 30, 2023, of which $0.8 million was held in North America and the rest was held at our Indian subsidiary. Our current ratio at September 30, 2023 was 0.21 which stayed same as 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:

Our principal sources of liquidity have been cash provided by the sale of equity, operations, and borrowings under various debt arrangements.

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, natural gas federal RINs and LCFS credits. 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 and 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 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 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.

For the Riverbank project, we plan to continue project development and raise the funds necessary to construct and operate the Carbon Zero plant in Riverbank, California to produce renewable diesel and sustainable aviation fuel for transportation use as well as generate federal and state carbon credits available for the production and sale of low carbon fuels.

For all facilities in the United States, we plan to utilize the provision of the Inflation Reduction Act of 2022 by qualifying for tax credits in the form of an Investment Tax Credits, Production Tax Credits, and other credits, and to monetize the credits using the provisions of this congressional act.

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, and by vendor financing arrangements.

At September 30, 2023, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes equaled $182 million. The maturity dates for the Third Eye Capital financing arrangements are August 31, 2023, for $11.5 million which was paid off subsequently, April 1, 2025, for $125.8 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.

Change in Working Capital and Cash Flows

The following table (in thousands) describes the changes in current and long-term debt during the nine months ended September 30, 2023:

Working capital changes resulted in (i) a $3.5 million increase in inventories due to the Keyes Plant restarting operations and built up of inventory for production for winter months in India (ii) a $3.3 million increase in accounts receivable due to UBPL fulfilling a government tender in the third quarter of 2023, and (iii) a slight increase in other current assets of $0.2 million due to receipt of the restricted cash from the Construction loan. This was partially offset by (i) a $1.4 million decrease in prepaid expenses mainly due to the use of a J.D. Heiskell pre-payment, and (iii) a $0.4 million decrease in cash.

Net cash used in operating activities during the nine months ended September 30, 2023, was $19.2 million, consisting of non-cash charges of $36.7 million, net cash used by operating assets and liabilities of $34.8 million, and net loss of $21.0 million. The non-cash charges consisted of: (i) $4.8 million in amortization of debt issuance costs and other intangible assets, (ii) $5.2 million in depreciation expenses, (iii) $6.2 million in stock-based compensation expense and a warrant grant to our working capital partner, (iv) $20.2 million in preferred unit accretion and other expenses of Series A preferred units. Net changes in operating assets and liabilities consisted primarily of (i) an increase in accrued interest of $18.5 million, (ii) an increase in accounts payable of $4.7 million, (iii) an increase in other liabilities of $3.3 million, and (iv) a decrease in prepaid expenses of $2.4 million. This was partially offset by an increase in other assets of $56.8 million, (ii) an increase in inventories of $3.6 million and (iii) an increase in accounts receivable of $3.3 million.

Cash used by investing activities was $10.9 million, of which $18.6 million were used by capital projects, partially offset by grant proceeds and other reimbursements of $7.7 million.

Cash provided by financing activities was $30.6 million, consisting of $14.8 million from issuance of common stock and $41.4 million from proceeds from borrowings, partially offset by repayments of borrowings of $22.6 million, payment of debt renewal and waiver fees of $1.7 million and payments on finance leases of $1.4 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 September 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.

There has been 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.