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1. Nature of Activities and Summary of Significant Accounting Policies (Policies)
 9 Months Ended
Sep. 30, 2016
Proceeds from borrowing under secured debt facilities  
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., a Nevada corporation, and its subsidiary AE Biofuels, Inc., a Delaware corporation;
● Biofuels Marketing, Inc., a Delaware corporation;

 

● Aemetis International, 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., a Delaware corporation;

 

● Aemetis Biochemicals, Inc., a Nevada corporation
● Aemetis Biofuels, Inc., a Delaware corporation, and its subsidiary Energy Enzymes, Inc., a Delaware corporation;

 

● AE Advanced Fuels, Inc., a Delaware corporation, and its subsidiaries Aemetis Advanced Fuels Keyes, Inc., a Delaware corporation, and Aemetis Facility Keyes, Inc., a Delaware corporation;
● Aemetis Advanced Fuels, Inc., a Nevada corporation;

 

● Aemetis Advanced Products Keyes, Inc., a Delaware corporation; and,
● Aemetis Advanced Fuels Goodland, Inc., a Delaware corporation.

 

We are an advanced renewable fuels and biochemicals company focused on the acquisition, development and commercialization of innovative technologies that replace traditional petroleum-based products by converting first generation biofuel plants into advanced biorefineries.  Founded in 2006, we own and operate a 60 million gallon per year ethanol production facility (Keyes plant) in California’s Central Valley where we manufacture and produce ethanol, Wet Distiller’s Grain (WDG), Condensed Distillers Solubles (CDS) and distillers’ corn oil and a 50 million gallon per year renewable chemical and advanced fuel production facility on the East Coast of India (Kakinada plant), where we manufacture and produce high quality distilled biodiesel and refined glycerin.  In addition, we operate a research and development laboratory at the Maryland Biotech Center and hold a portfolio of patents and related technology licenses for the production of renewable fuels and biochemicals.
Basis of Presentation and Consolidation

The consolidated condensed financial statements include the accounts of Aemetis, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated condensed balance sheet as of September 30, 2016, the consolidated condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015, and the consolidated condensed statements of cash flows for the nine months ended September 30, 2016 and 2015 are unaudited. The consolidated condensed balance sheet as of December 31, 2015 was derived from the 2015 audited consolidated financial statements and notes thereto. The consolidated condensed financial statements in this report should be read in conjunction with the 2015 audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

 

The accompanying consolidated condensed financial statements 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 nine months ended September 30, 2016 and 2015 have been prepared on the same basis as the audited consolidated statements as of December 31, 2015 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 nine months ended September 30, 2016 are not necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.
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

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. Revenue from nonmonetary transactions, principally in-kind by-products received in exchange for material processing where the by-product is contemplated by contract to provide value, is recognized at the quoted market price of those goods or by-products received.
Cost of Goods Sold

Cost of goods sold includes those costs directly associated with the production of revenues, such as raw material consumed, factory overhead and other direct production costs.  During periods of idle plant capacity, costs otherwise charged to cost of goods sold are reclassified to selling, general and administrative expense.
Accounts Receivable

The Company sells ethanol, WDG, corn syrup and corn oil through third-party marketing arrangements generally without requiring collateral.  The Company sells biodiesel, glycerin and processed natural oils to a variety of customers and may require advanced payment based on the size and creditworthiness of the customer.  Accounts receivable consists of product sales made to large creditworthy 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. There is no balance for allowance for doubtful accounts at September 30, 2016 and December 31, 2015.

 
Inventories

Ethanol inventory, raw materials, and work-in-process are valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value (NRV).  Distillers’ grains and related products are stated at NRV.  In the valuation of inventories, NRV is determined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
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, 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.

 

The Company evaluates the recoverability of long-lived assets with finite lives in accordance with Accounting Standards Codification (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 estimated fair value.
Basic and Diluted Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted net income (loss) per share reflects the dilution of common stock equivalents such as options, convertible preferred stock, debt and warrants to the extent the impact is dilutive.  As the Company incurred net losses for the three and nine months ended September 30, 2016 and 2015, 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 number of potentially dilutive shares excluded from the diluted net loss per share calculation as of September 30, 2016 and 2015:

 

    As of      
    September 30, 2016     September 30, 2015  
             
Series B preferred (1:10 post split basis)     133       141  
Common stock options and warrants     1,965       1,307  
Debt with conversion feature at $30 per share of common stock     861       783  
Total number of potentially dilutive shares excluded from the diluted net loss per share calculation     2,959       2,231  
Comprehensive Loss

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 (loss) and accumulated other comprehensive loss consists solely of cumulative currency translation adjustments resulting from the translation of the financial statements of its foreign subsidiary. 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

Assets and liabilities of the Company’s non-U.S. subsidiary that operates 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 loss. Income and expense accounts are translated at average exchange rates. Gains and losses from other foreign currency transactions are recorded in other income (expense).
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, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company recognizes two reportable geographic segments: “North America” and “India.”

 

The “North America” operating segment includes the Company’s 60 million gallons per year capacity Keyes plant in Keyes, California and its research facilities in College Park, Maryland.

 

The “India” operating segment encompasses the Company’s 50 million gallon per year capacity biodiesel plant in Kakinada, India, its administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius.
Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, current and non-current portion of notes payable and long-term debt and accrued expenses.  Due to the unique terms of our notes payable and long-term debt and the financial condition of the Company, the fair value of the debt is not readily determinable.  Upon the application of extinguishment accounting to our debt instruments, we use outside valuation experts to estimate the applicable discount rate using similar instruments.  The fair value, determined using level 3 inputs, of all other current financial instruments is estimated to approximate carrying value due to the short-term nature of these instruments.
Share-Based Compensation

The Company recognizes share-based compensation expense 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 adjusted to reflect only those shares that are expected to vest.
Commitments and Contingencies

The Company records and/or discloses commitments and contingencies in accordance with ASC 450 Contingencies.  ASC 450 applies to an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur.
Debt Modification Accounting

The Company evaluates amendments to its debt in accordance with ASC 470-50 Debt – Modification and Extinguishments for modification and extinguishment accounting.  This evaluation includes comparing the net present value of cash flows of the new debt to the old debt to determine if changes greater than 10 percent occurred.  In instances where the net present value of future cash flows changed more than 10 percent, the Company applies extinguishment accounting and determines the fair value of its debt based on factors available to the Company.

 
Convertible Instruments

The Company evaluates the impacts of convertible instruments based on the underlying conversion features. Convertible instruments are evaluated for treatment as derivatives that could be bifurcated and recorded separately. Any beneficial conversion feature is recorded based on the intrinsic value difference at the commitment date.

 
Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard will be effective for us on January 1, 2018. We are currently evaluating the potential impact that Topic 606 may have on our financial position and results of operations.