Aemetis, Inc: Form 10-Q for the period ended Mar 31, 2024

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 months ended March 31, 2024 and 2023.
• 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 operation, acquisition, development, and commercialization of innovative technologies to produce low and negative carbon intensity renewable fuels that replace fossil-based products. We do this by building a local circular bioeconomy using agricultural products and waste to produce low carbon, advanced renewable fuels that reduce greenhouse gas ("GHG") emissions and improve air quality.

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”), and Condensed Distillers Solubles (“CDS”), all of which are sold as animal feed to more than 80 local dairies and feedlots. We also capture the Carbon Dioxide (“CO2”) emissions from our fermenters and sell it to Messer Gas for use to produce liquid CO₂ that it sells to food, beverage, and industrial customers. We are implementing several energy efficiency initiatives focused on lowering the carbon intensity of our fuels, primarily by decreasing the use of fossil natural gas. 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 produce steam using low carbon electricity instead of natural gas. We believe these changes will lower the carbon intensity (CI) of the ethanol we produce and allow us to sell it for a correspondingly higher price.

Our California Dairy Renewable Natural Gas segment, Aemetis Biogas or “ABGL,” operates anaerobic digesters at local dairies near the Keyes Plant (many of whom also purchase WDG produced by the Keyes Plant as animal feed) to produce biogas from dairy waste; transports the biogas by pipeline to the Keyes Plant site; and converts the biogas to Renewable Natural Gas (“RNG”) that is delivered to customers through the PG&E regional natural gas pipeline. As of March 31, 2024, we had eight operating digesters that receive dairy waste from nine dairies, and we are actively growing with an additional planned six digesters under construction that are expected to receive dairy waste from nine dairies. We have constructed 36 miles of collection pipeline and have received environmental approval to construct an additional 24 miles. We currently have agreements with a total of 43 dairies and are seeking to increase that number.

Our India Biodiesel segment includes a biodiesel production plant in Kakinada, India (“Kakinada Plant”) with a nameplate production capacity of about 60 million gallons per year. It produces high quality distilled biodiesel and refined glycerin for customers in India. 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 applicable 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 projects that are under development, including the planned sustainable aviation fuel and renewable diesel plant in Riverbank, California and our planned Carbon Capture and Underground Sequestration (CCUS) operations. It also includes our research and development facility in Minneapolis, Minnesota and our corporate offices in Cupertino, California.

Our planned sustainable aviation fuel (SAF) and renewable diesel (RD) production plant is currently designed to produce 90 million gallons per year of combined SAF and RD from feedstocks consisting of renewable waste oils and fats. Our planned facility will be located at the Riverbank Industrial Complex in Riverbank, California. We signed a lease with purchase to option for the Riverbank Industrial Complex in 2021 and took possession of the site in 2022. In 2023, we received a Use Permit and CEQA approval for the SAF/RD plant, and in March 2024, we received Authority to Construct air permits for the plant. We are continuing with development activities, including permitting, engineering, and financing. The site has access to low carbon hydroelectric power, and our plant is designed to use renewable hydrogen that will be produced from byproducts of the SAF/RD production process.

Our planned CCUS projects will compress and inject 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 CCUS injection projects are being designed 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 at the Riverbank Industrial Complex in Riverbank, California to develop a CCUS injection well with more than 1 million metric ton per year of CO₂ sequestration capacity. In 2023, we obtained a permit to construct a geologic characterization well at the Riverbank site to obtain information to support an EPA Class VI CO₂ injection well permit application. Once operational, we expect that these projects will generate revenue by selling California LCFS credits and federal Internal Revenue Code Section 45Q tax credits.

Our Minneapolis, Minnesota research and development laboratory evaluates and develops technologies that would use 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 use the remaining biomass to produce low carbon ethanol, renewable hydrogen, sustainable aviation fuel, and renewable diesel.

Results of Operations

Three Months Ended March 31, 2024, Compared to Three Months Ended March 31, 2023

Revenues

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

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California Ethanol. For the three months ended March 31, 2024, the Company sold 14.1 million gallons of ethanol at an average price of $1.79 per gallon and 94 thousand tons of WDG at a price of $98 per ton. For the three months ended March 31, 2023, the Company sold 147 thousand gallons of ethanol at an average price of $2.50 per gallon. The increase in revenue was attributable to operating the Keyes plant for three full months during the first quarter of 2024 compared to first quarter of 2023 when the Keys plant was not operating during an extended maintenance period.

California Dairy Renewable Natural Gas. During the three months ended March 31, 2024, we produced 60.3 thousand MMBtu and sold 60.8 thousand MMBtu of renewable natural gas at an average price of $4.02 per MMBtu. In the first quarter of 2024, we also sold 766 thousand D3 RINs at an average price of $3.08 per RIN and 18 thousand metric tons of California LCFS credits at an average price of $66 per metric ton. As of March 31, 2024, we had 46.8 thousand MMBtu of RNG available for dispensing. During the three months ended March 31, 2023, we produced and sold 21.3 thousand MMBtu of RNG at an average price of $9.67 per MMBtu and did not sell any D3 RINs or LCFS credits.

India Biodiesel. For the three months ended March 31, 2024, we generated 95% of our revenues from the sale of biodiesel, and 5% of our revenue from other sales compared to 81% of our revenue from biodiesel, and 19% of our revenue from other sales for the three months ended March 31, 2023. 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 27.5 thousand metric tons in the three months ended March 31, 2024 compared to 1.0 thousand metric tons in the three months ended March 31, 2023 while price per metric ton decreased by 10%.

Cost of Goods Sold

California Ethanol. For the three months ended March 31, 2024, we purchased 4.9 million bushels of corn at $6.33 per bushel and incurred $1.5 million in chemicals and denaturant costs, $2.7 million in natural gas costs, and $2.1 million in transportation costs. For the three months ended March 31, 2023, we did not incur corn or other chemical costs due to the extended maintenance at the Keyes Plant.

California Dairy Renewable Natural Gas. The Cost of Goods Sold includes dairy manure payments, equipment maintenance, and depreciation. The increase from the first quarter of 2023 to the first quarter of 2024 was primarily due to the increase in the number of operating digesters.

India Biodiesel. The increase in costs of goods sold was attributable to the increase in production of biodiesel. In the three months ended March 31, 2024 we consumed 27.3 thousand metric tons of feedstock, compared to 1.0 thousand metric tons of feedstock in the same period in 2023. During the three months ended March 31, 2024 the average price of biodiesel feedstock was $626 per metric ton compared to $876 per metric ton in the same period as in 2023.

Gross profit (loss)

California Ethanol. The increase gross loss during the period ended March 31, 2024, was attributable low ethanol prices and high corn prices. The Keyes Plant was in maintenance mode during the period ended March 31, 2023, so many expenses that would have normally been accounted for in gross profit/(loss) in that period were recharacterized to SG&A.

California Dairy Renewable Natural Gas. The increase in gross profit in the three months ended March 31, 2024 relates to an increase in sales of RNG, D3 RINs, and LCFS credits, compared to sales of RNG only in the same period ended March 31, 2023.

India Biodiesel. The increase in gross profit was attributable to an increase in the sales volume of biodiesel by 2,789% and refined glycerin by 513%, and by a 28% decrease of feedstock price.

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

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 and biodiesel and other products in India, as well as professional fees, insurance, other corporate expenses, and related facilities expenses. Total SG&A also includes receipts of lease payments as an offset to expenses. The research and development expenses are also included in the SG&A expenses.

Other expense (income) 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 expenses, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment expense.

The decrease in SG&A expenses for the three months ended March 31, 2024 was due to (i) decreases in expenses of $1.1 million that had been reclassified from Cost of Goods Sold due to extended maintenance at the Keyes Plant during the first quarter of 2023, (ii) decreases in professional fees of $0.2 million, and (iii) decreases in utilities, penalties, and insurance of $0.6 million.

Interest expense increased in the three months ended March 31, 2024 due to the new Construction and Term Loan debt, increases in principal 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 lower accretion and other expenses of the Series A Preferred Units was due to a decrease in the effective interest rate on the PUPA redemption obligation in the recent PUPA amendments.

Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents were$1.6 million at March 31, 2024, of which $1.1 million was held in North America and the rest was held at our India subsidiary. Our current ratio at March 31, 2024 was 0.28 compared to 0.43 at December 31, 2023. We expect that our future available liquidity resources will consist primarily of cash generated from operations, remaining cash balances, borrowings under debt arrangements, and sales of equity.

Liquidity

Cash and cash equivalents, current assets, current liabilities and debt at the end of each period were as follows:

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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.

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, LCFS credits, and D3 RINs. 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 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, we have been reliant on our senior secured lender to extend the maturity dates of our debt and loan facilities. In order to meet obligations during the next twelve months, we will need to either refinance our debt or receive the continued cooperation of its senior lender. We plan 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 its financial performance by adopting new technologies or process changes that increase energy efficiency, reduce costs, and enhance revenue, as well as execute upon awarded grants that improve energy and operational efficiencies resulting in lower cost, lower carbon intensity, and overall margin improvement.

For our dairy RNG production, we plan to continue to operate our existing digesters as well as continue to build new dairy digesters and extend the existing pipeline. Funding for continued construction has been based on government guaranteed debt financing and grant programs. We are seeking multiple sources of additional project funding to allow us to accelerate the addition of new digesters. We began generating revenue from D3 RIN sales in 2023 and first generated revenue from the sale of LCFS credits in January 2024. We expect to have a full year of revenue from both sources in 2024, which will provide significantly increased liquidity.

For the Kakinada Plant, we plan to continue to enter into cost-plus contracts with the OMCs as our primary customer. We also plan to continue to upgrade our plant to increase capacity and expand feedstock flexibility. We are also evaluating the production of additional products and developing channels for the export of allow. The Kakinada plant has had positive gross income during the last two years and we expect this to continue. 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.

For the Riverbank SAF/RD production plan, we are continuing with permitting, engineering and other development activities and seeking both debt and equity funds needed for development and construction.

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 March 31, 2024, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes equaled $186 million. The maturity dates for the Third Eye Capital financing arrangements are April 1, 2025, for $127.4 million, March 1, 2025, for $35.1 million and March 1, 2026, for $23.7 million. As of the date of this report, the Company has $85.0 million additional borrowing capacity to fund future cash flow requirements under the Reserve Liquidity Notes with a maturity date April 1, 2025.

Change in Working Capital and Cash Flows

The following table (in thousands) describes the changes in current and long-term debt during the three months ended March 31, 2024:

Working capital changes resulted from (i) a $2.3 million decrease in inventories due to the Keyes Plant restarting operations and buildup of inventory for production for winter months in India (ii) a $0.2 million increase in accounts receivable due to UBPL increase in sales, and (iii) a slight increase in other current assets of $0.6 million due to India paying several payments for vendors and taxes in advance. This was partially offset by (i) a $0.9 million decrease in prepaid expenses mainly due to the use of reserves to make interest payments on the biogas construction and term loans and other general amortizations, and (iii) a $1.0 million decrease in cash.

Net cash used in operating activities during the three months ended March 31, 2024, was $10.3 million, which was calculated based on non-cash charges of $9.5 million, net cash used by operating assets and liabilities of $4.4 million, and net loss of $24.2 million. The non-cash charges consisted of: (i) $1.4 million in amortization of debt issuance costs and other intangible assets, (ii) $1.8 million in depreciation expenses, (iii) $3.0 million in stock-based compensation expense, (iv) $3.3 million in accretion expense of Series A preferred units. Net changes in operating assets and liabilities consisted primarily of (i) an increase in accrued interest of $5.5 million, (ii) a decrease in accounts payable of $3.2 million, (iii) a decrease in other liabilities of $0.2 million, (iv) a decrease in inventories of $2.3 million and (v) a decrease in prepaid expenses of $0.9 million. This was partially offset by an increase in other assets of $0.5 million and an increase in accounts receivable of $0.2 million.

Cash used in investing activities was $3.6 million used in capital projects, partially offset by grant proceeds and other reimbursements of $1.9 million.

Cash provided by financing activities was $10.6 million, consisting of $5.5 million from issuance of common stock and $6.2 million from proceeds from borrowings, partially offset by repayments of borrowings of $0.4 million and payment of debt renewal and waiver fees of $0.8 million.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on 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, 2023.

Recently Issued Accounting Pronouncements

None reported beyond those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Off Balance Sheet Arrangements

We had no off-balance sheet arrangements during the three months ended March 31, 2024.

We are exposed to various market risks, including changes in interest rates, commodity prices and currency translation. Market risk is the potential loss arising from adverse changes in market rates and prices. In the ordinary course of business, we enter into various types of transactions involving financial instruments to manage and reduce the impact of changes in commodity prices and interest rates. We enter into no market risk sensitive instruments for trading purposes. Even though our commodity outputs and input are sensitive to changes in market prices, we only opportunistically pursue fixed contract arrangements on a limited basis with regard to the various commodities used in our business.

At times in our business, we reduce our exposure to fluctuations in product sales and margin, principally by entering into fixed price contracts for the purchase of feedstock and energy. At the time we enter into a purchase commitment for feedstock or energy, our goal is to also enter into an off-take arrangement with our customer to purchase the product, primarily biodiesel produced by our India plant, at a set price. For the three months ended March 31, 2024 we did not have any open firm-price sales commitments that extended beyond one month for product sales or any open firm price purchase commitments with our feedstock suppliers. We had one open firm price purchase commitment with our energy supplier where we entered into a fixed price, forward purchase contract for delivery of natural gas through October 2024 to protect against price fluctuations in the natural gas market.

Commodity Price Risk

The tables below provide a sensitivity analysis to help assess our exposure to market fluctuations in the prices of the listed commodities that we purchase or sell. The tables show the potential change in net income resulting from a hypothetical 10% change in prices of the listed commodity for the three months ended March 31, 2024. This analysis is not a forecast but is a means to determine what commodity markets may have an impact on our business. The description of the commodity risk for each operating segment along with the numerical results of this analysis, which may differ from actual results, are as follows (in millions):

California Ethanol Production

Our Keyes Ethanol plant produces ethanol, distiller’s grains, and corn oil from corn and energy, principally natural gas. Ethanol prices are sensitive to world crude-oil supply and demand; crude oil refining capacity and utilization; government regulation; and consumer demand for alternative fuels. Distiller’s grains prices are sensitive to various demand factors such as population of livestock, prices for feed alternatives, and supply factors, primarily wet distillers grains production by California ethanol plants and dry distiller’s grains production from Midwest ethanol plants.

The price of corn is subject to fluctuations due to unpredictable factors such as weather; corn planted and harvested acreage; changes in national and global supply and demand; and government programs and policies. We use natural gas to provide energy for the ethanol production process and, as a result, our business is also sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons.

(1) Estimated quantity is based on Q1 results.

(2) Natural gas purchased on a fixed-price, forward purchase commitment for this period.

India Biodiesel Production

Our India Biodiesel plant produces biodiesel from feedstocks that include refined palm oil, palm stearin, animal fats, waste oils, crude glycerin, and chemicals. In addition to pricing factors for biodiesel, we are subject to market risk with respect to the price and availability of the main raw materials we use to produce our products including refined palm oil, palm stearin, animal fats, crude glycerin, and chemicals.

Biodiesel prices are sensitive to world crude-oil supply and demand, crude oil refining capacity and utilization, governmental regulations and consumer demand for alternative fuels, principally diesel. Locally, biodiesel prices are sensitive to the pricing models set by the Oil Marketing Companies, which now reprices monthly using a cost-based based formula. Glycerin pricing is sensitive to various supply and demand factors including world-wide production and availability, demand from consumer purchases of personal care, and demand for industrial chemicals such as paints.

The availability and pricing of feedstock for our biodiesel plant fluctuate with unpredictable factors such as global demand and supply of raw materials, weather conditions, and governmental policies toward agriculture and biofuels and international trade agreements.

(1) Estimated quantity is based on Q1 results.

Renewable Natural Gas Production

Our Renewable Natural Gas operations produce pipeline quality natural gas from dairy manure.

Dairy renewable natural gas prices are sensitive to weather factors, such as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons. Additionally, our RNG business is affected by the price of environmental attributes, specifically the price of Renewable Fuel Standard D3 RINs and California LCFS credits.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from issuing term, construction and revolving loans that accrue interest at variable interest rates. Specifically, we had $217.2 million, before unamortized debt issuance costs, in U.S. Dollar denominated outstanding variable interest-rate debt as of March 31, 2024. Interest rates on our variable-rate debt are determined based on the market interest rate of either Prime Rate or five-year Treasury Constant Maturity Rate. A 1% increase in Prime Rate would increase our annual interest cost by approximately $1.7 million. A 1% increase in the five-year Treasury Constant Maturity Rate would increase our annual interest cost by approximately $0.4 million. Other details of our outstanding debt are discussed in Note 7. Debt in the Notes to the consolidated financial statements included as a part of this report.

Foreign Currency Exchange Rate Risk

We do expect to have exposure to foreign currency risk as we conduct most of our India business in Indian Rupees. Our India subsidiaries use the Indian Rupee local currency as their functional currency. Our primary exposure with respect to foreign currency exchange rate risk is the change in the Indian Rupee (INR) to US Dollar (USD) exchange rate. For consolidation purposes, assets and liabilities are translated at month-end exchange rates. Items of income and expense are translated at average exchange rates. Translation gains and losses are not included in determining year-to-date net income (loss) on the Balance Sheet but are accumulated as a separate component of shareholders’ equity. Gains (losses) arising from foreign currency transactions are included in determining net income (loss) on the Statement of Operations. For the three months ended March 31, 2024 and 2023, we recognized a loss of $44 thousand and a gain of $117 thousand, respectively, associated with foreign currency translation adjustments to other comprehensive income (loss). Using the three months ended March 31, 2024 Indian subsidiary financials and applying the appropriate actual weighted average or end exchange rate and then incrementing by 10 points each respective INR to USD exchange rate resulted in a $141 thousand impact to Net income (loss), a $1.2 million change in Total Liabilities, a $2.4 million change in Stockholders’ equity (deficit), and a $3.7 million change in Total Assets in our Indian subsidiary. These calculations are solely to demonstrate the sensitivity of our financial reports to assumed change in foreign currency exchange and are not intended as a forecast.

Derivatives and Other Instruments

As of March 31, 2024, we did not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions, or foreign currency contracts.

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, 2023, 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

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, 2023, we initiated a remediation plan to address the material weakness in our internal control related to information technology general controls and information technology systems.

There has been no change in risk factors since the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024. We urge you to read the risk factors contained therein.