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4. Notes Payable
 6 Months Ended
Jun. 30, 2012
Debt Disclosure [Abstract]  
4. Notes Payable

 

 

    June 30, 2012     December 31, 2011  
Third Eye Capital senior secured term notes, including accrued interest of $2,703,251 and revenue participation of $8,635,516 less unamortized issuance discount of $456,750 for June 30, 2012 and accrued interest of $1,593,378 and revenue participation of $5,277,753 less unamortized issuance discount of $513,943 for December 31, 2011. For the six months ending June 30, 2012, the Company issued 2,699,173 of debt discount.   $ 24,013,036     $ 18,126,611  
State Bank of India secured term loan, including accrued interest of $1,772,806 and $1,485,614 less unamortized issuance discount of $9,934 and $14,902, respectively.     5,281,752       5,161,191  
Revolving line of credit (related party) and sub debt note, including accrued interest of $1,521,569 and $1,428,403 less unamortized issuance discount of $0 and $873,292, respectively.     5,361,371       4,291,913  
Sub-debt notes, including accrued interest of $75,226 and $0 less unamortized issuance discount of $543,930 and $0, respectively.     3,131,294       -  
Unsecured working capital loans and short-term notes, including accrued interest of $120,031 and $103,382, respectively.     1,274,510       2,066,720  
Total debt     39,061,963       29,646,435  
Less current portion of debt     12,797,556       9,653,499  
Total long term debt   $ 26,264,407     $ 19,992,936  

 

Third Eye Capital Senior Secured Note.  The note originally issued to AE Biofuels, now named Aemetis, Inc., had  $7,320,331 and $7,092,514 in principal and accrued interest outstanding on the senior secured note as of June 31, 2012 and December 31, 2011, respectively.  The Note bears interest at 10% with an additional default interest of 8% for a total of 18% per annum.  The Note matured in June 2011, but allowed for monthly extensions upon the payment of a $75,000 fee settled in stock or cash.  For the three months ended June 30, 2012, the Company paid $1,075,588 in cash from the sale of our Sutton, Nebraska land to make payments on the Note. In addition, for the three months ended June 30, 2012, the Company paid waivers and fees by issuing 265,247 shares of Aemetis common stock for this Note with a fair value on date of issuance of $166,667.

 

The Note was secured by first-lien deeds of trust on real property located in Nebraska and Illinois (Danville, IL property was sold in May 2011, Sutton, NE property was sold in May, 2012), by a first priority security interest in the cellulosic demonstration plant equipment, pledge and assignment of 50% of all cash dividends, cash royalties and all other proceeds received from Aemetis Advanced Fuels Keyes, Inc. and a guarantee of $1 million by McAfee Capital LLC (solely owned by Eric McAfee), and later amended as part of the Cilion merger subsequent event occurring on July 6, 2012, to a $10 million guarantee by McAfee Capital LLC (solely owned by Eric McAfee), plus all interest accrued and expenses to enforce Guaranty.  The note restricts the payment of dividends by the Company and any of its subsidiaries.

 

Third Eye Capital Term Notes.  As of June 30, 2012 and December 31, 2011, the Aemetis Advanced Fuels Keyes subsidiary had $8,057,189 and $5,756,344, respectively, in principal and accrued interest outstanding net of $456,750 and $513,943 in debt discounts on its senior secured note.  The term notes accrue interest at 14% per annum on the unpaid principal balance.  A default interest of 6% per annum is added to the 14% per annum rate when timely payments are note made according to the terms of the agreement. The Term Notes and the Senior Secured Notes contain cross-collateral and cross-default provisions. As of June 30, 2012 the payment requirements on the notes included $50,000 per week plus the greater of $0.05 per gallon of ethanol produced or 50% of free cash flows, as defined in the agreement.  In addition, a $300,000 principal payment shall be paid on the final business day of each fiscal quarter until maturity.

 

The notes provide for the payment of 4% of the total revenue from the Keyes ethanol plant until Note repayment and 2% over the lesser of 7 years or the term of the lease.  As of June 30, 2012 and December 31, 2011, the 4% of revenue participation fee accumulated to $8,635,516 and $5,277,753, respectively. On July 6, 2012, the revenue participation fees accrued to date and all future revenue participation obligations were converted to a $10 million note.  See Note 10: Subsequent Events.

 

The Term notes contain various covenants, including but not limited to, minimum free cash flow and production requirements and restrictions on capital expenditures.  Throughout the three months ending June 30, 2012, the Company was unable to comply with all covenants, but secured waivers from note holders through the payment of fees.  As a result during the three months ending June 30, 2012, the Company issued 1,340,000 shares of common stock to pay waiver or extension fees at a fair market value on the dates of issuance of $801,200 for this Note.

 

As disclosed in the subsequent events footnote, the maturity of the Third Eye Capital Senior secured note and the Term notes were refinanced subsequent to year-end to extend the maturities of these agreements.  The Company has revised the maturities of the related debt agreements based on these subsequent events.

 

State Bank of India Secured term loan.  On July 17, 2008, Universal Biofuels Private Limited (“UBPL”), the Company’s India operating subsidiary, entered into a six year secured term loan with the State Bank of India in the amount of approximately $6 million.  The term loan matures in March 2014 and is secured by UBPL’s assets, consisting of the biodiesel plant and land in Kakinada.

 

In July 2008 the Company drew approximately $4.6 million against the secured term loan.  The loan principal amount is repayable in 20 quarterly installments of approximately $270,000, using exchange rates corresponding to the date of payment, with the first installment due in June 2009 and the last installment payment due in March 2014.  The interest rate under this facility is subject to adjustment every two years, based on 0.25% above the Reserve Bank of India advance rate.

 

The principal payments scheduled for June 2009 through June 2012 were not made. The term loan provides for liquidating damages at a rate of 2% per annum for the period of default. For the three months ending June 30, 2012 and 2011, UBPL recognized interest expense of $186,259 and $199,910, respectively on the State Bank of India secured term loan. For the six months ending June 30, 2012 and 2011, UBPL recognized interest expense of $383,072 and $388,853, respectively on the State Bank of India secured term loan.

 

On October 7, 2009, UBPL received a demand notice from the State Bank of India.  The notice informs UBPL that an event of default has occurred for failure to make an installment payment on the loan due in June, 2009 and demands repayment of the entire outstanding indebtedness of 19.60 Crores (approximately $4 million) together with all accrued interest thereon and any applicable fees and expenses by October 10, 2009.  As of June 30, 2012, UBPL was in default on thirty-four months of interest, twelve principal repayments, and all covenants, including asset coverage and debt service coverage ratios.  Additional provisions of default include the bank having the unqualified right to disclose or publish the Company’s name and its director’s names as defaulter in any medium or media.  At the bank’s option, it may also demand payment of the balance of the loan, since the principal payments have been in default since June 2009.  As a result the Company has classified the entire loan amount as current.  The State Bank of India has filed a legal case before the Debt Recovery Tribunal (DRT), Hyderabad, for recovery of approximately $5 million against the company and also impleaded Andhra Pradesh Industrial Infrastructure Corporation (APIIC) to expedite the process of registration of Factory land for which counter reply is yet to be filed by APIIC.  In the case that the Company is unable to prevail with its legal case, DRT may pass a Decree for recovery of due amount, which will impact operations of the company including action up to seizing company property for recovery of their dues.

  

Revolving line of credit – related party.  The Company has a Revolving Line of Credit Agreement with Mr. Laird Cagan, a significant shareholder and ex-board member, for $5,000,000 secured by certain accounts, investments, intellectual property, securities and other collateral of Aemetis, Inc., excluding the collateral securing the Company’s obligations with Third Eye Capital and the collateral securing the Company’s obligations with the State Bank of India.  The Revolving Line of Credit bears interest at the rate of 10% per annum and matured on July 1, 2012. For the three and six months ended June 30, 2012 cash interest payments of $93,163 and $93,163, respectively, were made against the outstanding loan balance. For the three and six months ended June 30, 2011 no cash interest payments were made against the outstanding loan balance.   As of June 30, 2012, no additional borrowings were available on the line. On September 30, 2011, Mr. Cagan transferred a portion of his ownership to McAfee Capital, LLC (62.35%), Clyde Berg (6.18%), and Mougins Capital, LLC (5.11%).

 

As disclosed in the subsequent events footnote, the maturity of the Revolving line of credit was extended and, as a result, the Company has revised the maturities schedule related to the line.

 

Working Capital Operating Agreement.  In November 2008, the Company entered into an operating agreement with Secunderabad Oils Limited (“Secunderabad”).  Under this agreement Secunderabad agreed to provide the Company with working capital, on an as needed basis, to fund the purchase of feedstock and other raw materials for its Kakinada biodiesel facility.  Working capital advances bear interest at the actual bank borrowing rate of Secunderabad of fifteen percent (15%).  In return, the Company agreed to pay Secunderabad an amount equal to 30% of the plant’s monthly net operating profit. In the event that the Company’s biodiesel facility operates at a loss, Secunderabad owes the Company 30% of the losses. Either party can terminate the agreement at any time without penalty.

 

During the three and six months ended June 30, 2012, the Company made principal payments to Secunderabad of approximately $1,201,964 and $2,131,703, respectively, under the agreement and interest payments of $34,686 and $116,150 respectively, for working capital funding.  During the three and six months ended June 30, 2011, the Company made principal payments to Secunderabad of approximately $514,251 and $1,044,574, respectively, under the agreement and interest payments of $0 and $10,885 respectively, for working capital funding.  At June 30, 2012 and December 31, 2011 the Company had $842,368 and $2,139,519 outstanding under this agreement, respectively, and included as current short-term borrowings on the balance sheet.

 

Subordinated Notes and Warrant Purchase Agreements. On January 6 and January 9, 2012, Aemetis Advanced Fuels Keyes, Inc. (AAFK) entered into Note and Warrant Purchase Agreements with two accredited investors pursuant to which AAFK sold 5% Subordinated Promissory Notes in the aggregate principal amount of $3,000,000 and 5-year warrants exercisable at $0.001 per share for 1,000,000 shares of Aemetis common stock. Interest is due at maturity. The Promissory Notes are guaranteed by Aemetis and are due and payable upon the earlier of (i) December 31, 2013; (ii) completion of an equity financing by AAFK or Aemetis in an amount of not less than $25,000,000; (iii) the completion of an Initial Public Offering by AAFK or Aemetis; or (iv) after the occurrence of an Event of Default, including failure to pay interest or principal when due and breaches of note covenants. Neither AAFK nor Aemetis may make any principal payments under the Promissory Notes until all loans made by Third Eye Capital to AAFK are paid in full.

 

On May 31, 2012, Aemetis Advanced Fuels Keyes, Inc. (AAFK) entered into additional Notes and Warrant Purchase Agreements with an accredited investors and a related party. AAFK sold 5% Subordinated Promissory Notes in the aggregate principal amount of $600,000 to the accredited investor and $110,000 to the related party, Laird Cagan. The accredited investor received 5-year warrants exercisable at $0.001 per share for 200,000 shares of Aemetis common stock.  Laird Cagan received one warrant for every three dollars of principal loaned or 36,667 warrants with 5-year exercise rights. Both the accredited investor Note and Laird Cagan Subordinated Promissory Note agreements had similar terms to the January 2012 Notes and mature on December 31, 2012.

 

At June 30, 2012 the Company had $3,785,226 in principal and interest outstanding and $543,930 in debt discount issuance costs under these agreements.

 

Subsequent to December 31, 2011, the Third Eye Capital notes were amended to extend the maturities.  See Note 10, Subsequent Events.  Scheduled debt repayments as of June 30, 2012, including the amended maturity dates, are:

 

 

     Debt Repayments  
2012   $ 12,797,556  
2013     11,520,331  
2014     14,744,076  
Total   $ 39,061,963