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6. Variable Interest Entity

9 Months Ended

Sep. 30, 2017

Goodland Advanced Fuels, Inc., (GAFI) was formed to acquire the Goodland plant in Goodland, Kansas. On July 10, 2017, GAFI entered into the VIE Note Purchase Agreement with Third Eye Capital Corporation. GAFI, the Company and its subsidiary Aemetis AAPK also entered into separate Intercompany Revolving Notes, pursuant to which GAFI may, from time to time, lend a portion of the proceeds of the Revolving Loan incurred under the VIE Note Purchase Agreement. Guarantors also agreed to enter into that certain Limited Guaranty. Pursuant to which the Guarantors guarantee the prompt payment and performance of all unpaid principal and interest on the Loans and all other obligations and liabilities of GAFI to Noteholders in connection with the VIE Note Purchase Agreement. The obligations of the Guarantors pursuant to the Limited Guaranty are secured by a first priority lien over all assets of the Guarantors pursuant to separate general security agreements entered into by each Guarantor. The aggregate obligations and liabilities of each Guarantor is limited to the sum of (i) the aggregate amount advanced by GAFI to such Guarantor under and in accordance with the Intercompany Revolving Notes and (ii) the obligation of the Guarantor pursuant to its indemnity and expense obligations under the Limited Guaranty prior to the date on which the Option is exercised. Additionally, on July 10, 2017, the Company entered into an Option Agreement by and between GAFI and the sole shareholder of GAFI, pursuant to which Aemetis was granted an irrevocable option to purchase all, but not less than all, of the capital stock of GAFI for an aggregate purchase price equal to $0.01 per share (total purchase price of $10.00). This Option provides for automatic triggering in the event of certain default circumstances. After the automatic exercise upon default, the Limited Guaranty no longer applies and the Guarantors are responsible for the outstanding balances of the GAFI term and revolving loan.

After consideration of the above agreements, we concluded that GAFI did not have enough equity to finance its activities without additional subordinated support. Additionally, GAFI’s shareholder did not have a controlling financial interest in the entity. Hence, we concluded that GAFI is VIE. GAFI is also not a business since it also does not have processes or inputs that have the ability to create an output and in turn provide the return to the investor. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly affect the economic performance of the VIE and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. In determining whether Aemetis is the primary beneficiary, a number of factors are considered, including the structure of the entity, contractual provisions that grant any additional rights to influence or control the economic performance of the VIE, and obligation to absorb significant losses. Through providing Limited Guaranty and signing the Option Agreement, the Company took the risks related to operations, financing the Goodland plant, and agreed to meet the financial covenants to GAFI to be in existence. Based upon this assessment, Aemetis has enough power to direct the activities of GAFI and has been determined to be the primary beneficiary of the GAFI and accordingly the assets, liabilities, and operations of GAFI are consolidated into those of the Company. The assets and liabilities were recognized at fair value. In addition, the interest for 18 months was prepaid which can be used to pay the interest on GAFI term loan only and the Goodland plant is collateral for the term loan obligation.

The following are the Balance Sheet and Statement of Operations of GAFI:

	As of
	September 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	482
Prepaid expenses		1,978
Total current assets		2,460

Property, plant and equipment, net		15,408
Promissory note receivable from Aemetis		4,802
Total assets	$	22,670

Liabilities and stockholder's deficit

Accounts Payable	$	4
Secured and Revolving notes		23,373
Total liabilities		23,377

Accumulated deficit		(707	)
Total liabilities and stockholder's deficit	$	22,670

	From July 10, 2017 to
	September 30, 2017
Selling, general and administrative expenses	$	131

Operating loss		(131	)

Interest expense
Interest rate expense		584
Amortization expense		125
Other (income) expense		(133	)

Net loss	$	(707	)

Aemetis, Inc. borrowed $4.8 million under the Intercompany Revolving Notes to pay off agent advances and pay costs associated with the testing of cellulosic ethanol production. Aemetis paid GAFI fees of $1.0 million associated with the entry into the VIE Note Purchase Agreement, and accordingly holds an account receivable from GAFI. In the consolidation process, these intercompany borrowings were eliminated.