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10. Subsequent Events

6 Months Ended

Jun. 30, 2012

Third Eye Capital Debt Agreements

Subsequent to year-end and prior to the acquisition of Cilion, the debt agreements with Third Eye Capital (“Existing Notes”) were amended to waive covenant violations, extend the terms of the debt and issue additional debt. In connection with these agreements, the Company; (i) incurred fees of $588,000 of which $100,000 was paid in cash and the remainder was added to the principal balance of the notes, (ii) issued 1,340,000 shares of common stock as fees with a fair value on date of issuance of $801,200, and (iii) received additional loans of $2,640,000.

In connection with the acquisition of Cilion, the financing agreement with Third Eye Capital was amended and restated to include three new credit facilities. The new credit agreement provides for (i) a new senior secured term loan in the principal amount of $15 million, used to pay the cash portion of the Cilion acquisition (the “Term Loan”), (ii) a senior secured loan in the aggregate principal amount of $10 million to finance outstanding balance and terminate future liabilities under the Revenue Participation obligations (the “RevPar Loan”); (iii) a senior secured $18 million revolving credit facility (the “Revolving Loan”) used to redeem approximately $7.3 million in remaining outstanding debt with Third Eye Capital at time of acquisition, pay fees related to the transaction and provide working capital. Upon the close of the Cilion acquisition, the amount of $3 million remained available on the Revolving Loan. The Company issued 15,000,000 shares of its common stock in connection with this financing. The notes bear interest at rates ranging from 5% to 17%. The Revolving Notes mature on July 2013 and provide one-year extensions. The Term Loan and RevPar Loan mature on July 6, 2014.

On October 18, 2012, Third Eye Capital agreed to (i) extend the maturity date of the Existing Notes to July 6, 2014; (ii) to increase the amount of the Revolving Loan Facility by $6,000,000, to a total of $24,000,000; (iii) to modify the redemption waterfall so that any payments would be applied first to the increase in the Revolving notes; (iv) granted waivers to the Borrowers’ obligation to pay or comply, and any event of default which has occurred or may occur as a result of such failures of the Borrowers to pay or comply with certain financial covenants and principal payments, including financial covenants for the quarter ended September 30 and December 31, 2012; and (v) agreed to accrue interest until the earlier of certain events described in the Limited Waiver or February 1, 2013. In consideration for the Limited Waiver and Amendment, the Borrowers, among other things, agreed to pay the Lenders a waiver fee in the amount of $4,000,000; and (ii) cash in the amount of $28,377 for certain unreimbursed costs. After paying the $4 million waiver fee, $2 million remained available for draw on the Revolving Loan Facility.

Related Party Revolving Line of Credit Agreement

On October 16, 2012, Aemetis International, Inc. (AII), a subsidiary of Aemetis, Inc. entered into an amendment to the Revolving Line of Credit Agreement with Laird Q. Cagan and co-owners in the financing arrangement, pursuant to which AII extended the maturity date of the loan until July 1, 2014 and placed an average trailing daily closing price minimum of $0.05 per share for conversion of fees and accrued interest. In exchange for the extension, the Company agreed to pay a $262,919 fee reflecting 5% of the outstanding balance of the Revolving Line of Credit, payable in cash or stock, at the same conversion price and terms as the accrued interest conversion terms.

Issuance of Convertible Promissory Notes

On March 4, 2011, and amended January 19, 2012, and July 24, 2012, the Company entered into a Note Purchase Agreement with Advanced BioEnergy, LP, a California limited Partnership for the issuance of up to 72 subordinated convertible promissory notes bearing interest at 3%, each note in the principal amount of $500,000 due and payable four years from the date of the note for a total aggregate principal amount of up to $36,000,000.

Advanced BioEnergy, LP arranges investments with foreign investors, who each make investments in the Keyes plant project in investment increments of $500,000. The Company sold notes in the amount of $1,000,000 to the first two investors. The availability of the remaining $35,000,000 will be determined by the ability of Advanced BioEnergy, LP to attract additional qualified investors.

Acquisition of Cilion

On July 6, 2012, the Company acquired Cilion, Inc. through a merger. The Company has been leasing the property owed by Cilion. Our primary lender supported the financing of the acquisition in anticipation the merger will be accretive to earnings in the long term. Acquiring the real property and assets associated with the ethanol plant provides assets beneficial to the Company in securing additional financing and much needed flexibility not available under the lease in the development, testing, and commercialization of next generation biofuels technologies owed by the Company.

At the effective time of the Merger, each issued and outstanding share of Cilion Preferred Stock was automatically converted into the right to receive an aggregate of (a) $16,500,000 and (b) 20,000,000 shares of Aemetis common stock and (c) the right to receive an additional cash amount of $5,000,000 plus interest at the rate of 3% per annum, which is payable upon the satisfaction by the Company of certain conditions set forth in the merger agreement.

The fair value of the contingent consideration was determined by discounting the anticipated cash flow stream at an estimated market rate of interest based on potential payment timing. The merger agreement is the basis for determining the amount of the payment. The $5,000,000 contingent consideration is payable when the TEC loans have been satisfied. The Company anticipates the contingent consideration will be redeemed after satisfaction of amounts owed under senior secured debt arrangements with TEC. Management projects full satisfaction of the TEC obligations will occur within the next two to three years.

The preliminary acquisition date fair value of consideration for Cilion, Inc. is recapped below based on the trading value of the stock at the time of the acquisition and the expected fair value of the contingent consideration (in thousands):

Cash	$	16,500
Fair value of shares issued		15,600
Contingent Consideration		3,824
	$	35,924

The preliminary acquisition date fair value of consideration was allocated to Cilion’s net tangible and identifiable intangible assets based on their estimated fair values as of July 6, 2012 as set forth below (in thousands):

Tangible Assets:
Accounts receivable	$	3,114
Prepaid assets		5
Equipment held for resale		1,367
Property, plant and equipment		70,464
Other assets		147
Total Tangible Assets Acquired		75,097

Liabilities Assumed
Accounts payable		(6	)

Identified Intangible Assets
Permits		926
Net Assets Acquired	$	76,017

The Company believes the lower market share price is due to the recent lack of information available to the market. Cilion shareholders valued Aemetis common stock at a value higher than the current trading price on the OTC market, which gave rise to the gain on bargain purchase accounting of approximately $40 million dollars.

The pro forma financial information below presents the combined revenue and net income for Cilion and the Company for the years ending December 31, 2010 and 2011, as if the acquisition occurred as of January 1, 2011 (in thousands):

	Historical						Pro Forma
	Aemetis, Inc.			Cilion, Inc.			Adjustments			Combined
For the three months ending June 30, 2011
Revenue	$	27,254		$	900		$	(900	)	$	27,254
Net loss		(6,369	)		(2,625	)		(2,516	)		(11,510	)

For the six months ending June 30, 2011
Revenue		27,992			900			(900	)		27,992
Net income/(loss)		(10,632	)		(3,342	)		37,587			23,613

For the three months ending June 30, 2012
Revenue		44,280			600			(600	)		44,280
Net loss		(9,748	)		(1,822	)		(2,516	)		(14,086	)

For the six months ending June 30, 2012
Revenue		88,476			1,500			(1,500	)		88,476
Net loss	$	(18,112	)	$	(1,229	)	$	(2,183	)	$	(21,524	)

The adjustment columns above include the elimination of the intercompany rental activity received by Cilion from the Company, the recognition of the bargain purchase gain discussed above, adjustments necessary for the revaluation of the assets, and increase in financing costs associated with the acquisition.