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1. Notes of Activities and Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2012
Notes Of Activities And Summary Of Significant Accounting Policies Policies  
Nature of Activities

Nature of Activities. These consolidated financial statements include the accounts of Aemetis, Inc. (formerly AE Biofuels, Inc.), a Nevada corporation, and its wholly owned subsidiaries (collectively, “Aemetis” or the “Company”):

 

·   Aemetis Americas, Inc. (formerly “American Ethanol, Inc.”), a Nevada corporation and its subsidiaries Sutton Ethanol, LLC, a Nebraska limited liability company, Illinois Valley Ethanol, LLC, an IL limited liability company, and AE Biofuels, Inc., a Delaware corporation;

 

·   Biofuels Marketing, a Delaware corporation;

 

·   Aemetis International, Inc. (formerly International Biodiesel, Inc.), a Nevada corporation and its subsidiary International Biofuels, Ltd., a Mauritius corporation and its subsidiary Universal Biofuels Private, Ltd., an India company;

 

·   Aemetis Technologies, Inc. (formerly AE Zymetis, Inc.), a Delaware corporation;

 

·   Aemetis Biochemicals, Inc., a Nevada corporation;

 

·   Aemetis Biofuels, Inc. (formerly AE Biofuels Technologies, Inc.), a Delaware corporation and its subsidiary Energy Enzymes, Inc., a Delaware corporation;

 

·   AE Advanced Fuels, Inc., a Delaware corporation;

 

·   Aemetis Advanced Fuels, Inc., a Nevada corporation and

 

·   Aemetis Advanced Fuels Keyes, Inc. (formerly AE Advanced Fuels Keyes, Inc.), a Delaware corporation.

 

Aemetis, Inc. is an international advanced fuels and specialty chemical company focused on the production of renewable fuels and chemicals and the acquisition, development and commercialization of innovative technologies that are substitutes for traditional petroleum-based products.  In 2010, the Company began retrofitting an ethanol production facility in Keyes, CA and in April 2011 began high volume production of ethanol and wet distiller’s grain (WDG).
Basis of Presentation and Consolidation

 

Basis of Presentation and Consolidation. The consolidated condensed financial statements include the accounts of Aemetis, Inc. and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated condensed balance sheet as of June 30, 2012, the consolidated condensed statements of operations for the three and six months ended June 30, 2012 and 2011, and the consolidated condensed statements of cash flows for the three and six months ended June 30, 2012 and 2011 are unaudited. The consolidated condensed balance sheet as of December 31, 2011 was derived from the 2011 audited consolidated financial statements and notes thereto. The consolidated condensed financial statements in this report should be read in conjunction with the 2011 audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011.

 

The accompanying unaudited interim consolidated condensed financial statements as of June 30, 2012 and 2011 and for the three and six months ended June 30, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

 

In the opinion of management, the unaudited interim consolidated condensed financial statements for the three and six months ended June 30, 2012 and 2011 have been prepared on the same basis as the audited consolidated statements as of December 31, 2011 and reflect all adjustments, consisting primarily of normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the operating results for any subsequent quarter or the full fiscal year or any future periods. 
Use of Estimates

Use of Estimates.  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period.  To the extent there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected.
Revenue recognition

Revenue recognition. The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed or determinable and collection is reasonably assured. The Company records revenues based upon the gross amounts billed to its customers.
Accounts Receivable, net

Accounts Receivable, net.  The Company sells ethanol and wet distillers grains through third-party marketing arrangements generally without requiring collateral.  The Company sells biodiesel and glycerin to a variety of customers and may require advanced payment based on the size and credit worthiness of the customer.  Accounts receivables consist of product sales made to large credit worthy customers. Trade accounts receivable are presented at original invoice amount, net of the allowance for doubtful accounts.

 

The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate additional allowances may be required.
Inventories

Inventories. Inventories are stated at the lower of cost, using the first-in and first-out (FIFO) method, or market.
Property, Plant and Equipment

Property, Plant and Equipment. Property, plant and equipment are carried at cost less accumulated depreciation after assets are placed in service and are comprised primarily of buildings, furniture, machinery, equipment, land acquired for development of production facilities, and the biodiesel plant in India. It is the Company’s policy to depreciate capital assets over their estimated useful lives using the straight-line method.

 
Intangible Assets

Intangible Assets. Intangible assets consist of intellectual property in the form of patents pending, in-process research and development and goodwill. Once the patents pending or in-process R&D have secured a definite life in the form of a patent or product, they will be carried at initial fair value less accumulated amortization over the estimated useful life. Amortization commences upon granting of the patent and is amortized over the patent protection period or shorter period upon abandonment of the patent.

 

Company intangible assets such as goodwill have indefinite lives and as a result need to be evaluated at least annually, or more frequently, if impairment indicators arise. In the Company’s review, we determined the fair value of segment reporting assets using market indicators and discounted cash flow modeling and compared it to the net book value of the acquired assets. If the fair value is less than the carrying value of the asset, the Company then determined the fair value of the asset. An impairment loss would be recognized when the fair value is less than the related net book value, and an impairment expense would be recorded in the amount of the difference. Forecasts of future cash flows are judgments based on the Company’s experience and knowledge of the Company’s operations and the industries in which the Company operates. These forecasts could be significantly affected by future changes in market conditions, the economic environment, including inflation, and the purchasing decisions of the Company’s customers.

 
Long-Lived Assets

Long - Lived Assets. The Company evaluates the recoverability of long-lived assets with finite lives in accordance with ASC Subtopic 360-10-35 Property Plant and Equipment –Subsequent Measurements, which requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, based on estimated undiscounted cash flows, the impairment loss would be measured as the difference between the carrying amount of the assets and its fair value based on the present value of estimated future cash flows.
Assets held for sale

Assets held for sale. The Company analyzes land holdings, buildings and equipment for their strategic importance to the future of the Company, and if determined asset is disposable, the asset will be sold opportunistically in the open market for the highest bidder.
Basic and Diluted Net Loss per Share

Basic and Diluted Net Loss per Share.  Basic loss per share is computed by dividing loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted loss per share reflects the dilution of common stock equivalents such as options, convertible preferred stock and warrants to the extent the impact is dilutive.  As the Company incurred net losses for the three and six months ended June 30, 2012 and 2011, potentially dilutive securities have been excluded from the diluted net loss per share computations as their effect would be anti-dilutive.

 

The following table shows the weighted-average number of potentially dilutive shares excluded from the diluted net loss per share calculation for the three and six months ended June 30, 2012 and 2011:

 

    For the three months ended     For the six months ended  
    June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011  
Aemetis Series B preferred     3,097,725       3,383,174       3,103,206       3,564,857  
Aemetis Series B warrants     28,690       443,853       190,046       443,853  
Aemetis Common stock options and warrants     9,026,873       7,187,734       8,987,972       7,190,870  
Convertible interest & fees on note  – related party     572,294       25,411,787       493,096       24,214,666  
Convertible promissory note     173,404       -       172,311       -  
Total weighted average number of potentially dilutive shares excluded from the diluted net loss per share calculation     12,898,986       36,426,548       12,946,631       35,414,246  
Comprehensive Income

Comprehensive Income. ASC 220 Comprehensive Income requires that an enterprise report, by major components and as a single total, the change in its net assets from non-owner sources. The Company’s other comprehensive income and accumulated other comprehensive income consists solely of cumulative currency translation adjustments resulting from the translation of the financial statements of its foreign subsidiaries. The investment in this subsidiary is considered indefinitely invested overseas, and as a result, deferred income taxes are not recorded related to the currency translation adjustments.
Foreign Currency Translation/Transactions

Foreign Currency Translation/Transactions. Assets and liabilities of the Company’s non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated into U.S. dollars at exchange rates in effect at the balance sheet date; with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income. Income and expense accounts are translated at average exchange rates during the year. Gains and losses from foreign currency transactions are recorded in other income (loss), net.

 
Operating Segments

Operating Segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The operations in India as well as the retrofit of the Keyes, California ethanol plant resulted in the Company’s reevaluation of its management structure and reporting around business segments.

 

Aemetis recognized three reportable geographic segments: “India”, “North America” and “Other.”

 

·   The “India” operating segment encompasses the Company’s 50 MGY nameplate capacity biodiesel plant in Kakinada, India, the administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius.
·   The “North America” operating segment includes the Company’s leased 55 MGY nameplate capacity ethanol plant in Keyes, CA and the assets (principally land) held for sale in Sutton, NE and in Danville, IL.

 

·   The “Other” segment encompasses the Company’s costs associated with new market development, company-wide fund raising, formation, executive compensation and other corporate expenses.
Fair Value of Financial Instruments

Fair Value of Financial Instruments. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, other current liabilities, mandatorily redeemable Series B preferred stock and debt.  The fair value of the Company’s debt was unable to be determined based on the operating structure of the cross-collateralized debt and the short-term maturity of these instruments, which absent an amendment to the existing loan agreements, matures in October 2012. The Company’s long-term debt carrying value approximates fair value based upon the borrowing rates currently available to the Company for bank loans in India with similar terms and maturities. The Company is also unable to estimate the fair value of the long-term debt (related party) due to the lack of comparable available credit facilities.  The fair value of all other financial instruments are estimated to be approximately the carrying value due to the short-term nature of these instruments.

 
Share-Based Compensation

Share-Based Compensation. The Company recognizes share based compensation in accordance with ASC 718 Stock Compensation requiring the Company to recognize expense related to the estimated fair value of the Company’s share-based compensation awards at the time the awards are granted and adjusted to reflect only those shares that are expected to vest.