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5. Variable Interest Entity | 6 Months Ended
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Jun. 30, 2019
Variable Interest Entity |
5. Variable Interest Entity | GAFI was formed to acquire the partially completed Goodland ethanol plant in Goodland, Kansas. GAFI entered into the GAFI Note Purchase Agreement with Third Eye Capital to acquire the plant. GAFI, the Company and its subsidiary AAPK also entered into separate GAFI Intercompany Notes, pursuant to which GAFI may, from time to time, lend a portion of the proceeds of the GAFI Revolving Loan incurred under the GAFI Note Purchase Agreement to the Company. Aemetis, Inc. and AAPK (in such capacity, the “GAFI Guarantors”) also agreed to enter into a limited guaranty (the “GAFI Limited Guaranty”). Pursuant to the GAFI Limited Guaranty, the Guarantors agreed to guarantee the prompt payment and performance of all unpaid principal and interest on the GAFI Loans and all other obligations and liabilities of GAFI to the GAFI Noteholders in connection with the GAFI Note Purchase Agreement. The obligations of the GAFI Guarantors pursuant to the GAFI Limited Guaranty are secured by a first priority lien over all assets of the GAFI Guarantors pursuant to separate general security agreements entered into by each GAFI Guarantor. The aggregate obligations and liabilities of each GAFI Guarantor is limited to the sum of (i) the aggregate amount advanced by GAFI to such GAFI Guarantor under and in accordance with the GAFI Intercompany Notes and (ii) the obligation of the GAFI Guarantor pursuant to its indemnity and expense obligations under the GAFI Limited Guaranty prior to the date on which the option under the GAFI Option Agreement is exercised. Additionally, on July 10, 2017, the Company entered into the GAFI Option Agreement by and between GAFI and the sole shareholder of GAFI, pursuant to which the Company 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 for a total purchase price of $10.00 (such option, the “GAFI Option”). The GAFI Option provides for automatic triggering in the event of certain default circumstances. After the automatic exercise upon default, the GAFI Limited Guaranty no longer applies and the GAFI Guarantors are responsible for the outstanding balances of the GAFI Term Loan and the GAFI Revolving Loan. Additionally, Third Eye Capital was granted a warrant for the purchase of 250 shares, representing 20% of the outstanding shares of GAFI, for a period of 10 years at an exercise price of $0.01 per share. The sole shareholder of GAFI received 100,000 shares of common stock of the Company as consideration. On July 10, 2017, the Company issued the 100,000 shares and recognized $0.1 million of stock compensation expense during the year ended December 31, 2017. After consideration of the above agreements, we concluded that GAFI did not have sufficient equity to finance its activities without additional subordinated financial support. Additionally, GAFI’s shareholder did not have a controlling financial interest in the entity. Hence, we concluded that GAFI is a VIE. 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 the Company 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 the GAFI Limited Guaranty and signing the GAFI Option Agreement, the Company took the risks related to operations, financing the Goodland Plant, and agreed to meet the financial covenants for GAFI to be in existence. Based upon this assessment, the Company has the power to direct the activities of GAFI and has been determined to be the primary beneficiary of GAFI and accordingly, the assets, liabilities, and operations of GAFI are consolidated into those of the Company. The following are the Balance Sheets and Statements of Operations of GAFI:
|  | Goodland Advanced Fuels, Inc. |
|  | Balance Sheets |
|  | As of |
|  | June 30, 2019 |  |  | December 31, 2018 |
Assets |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1 |  |  | $ | 17 |
Prepaid expenses |  |  | 87 |  |  |  | 215 |
Other assets |  |  | - |  |  |  | 103 |
Total current assets |  |  | 88 |  |  |  | 335 |
Property, plant and equipment |  |  | 15,408 |  |  |  | 15,408 |
Promissory note receivable from Aemetis |  |  | 4,519 |  |  |  | 6,182 |
Total assets |  | $ | 20,015 |  |  | $ | 21,925 |
Liabilities and stockholder deficit |  |  |  |  |  |  |  |
Other accrued liabilities |  | $ | 59 |  |  | $ | 44 |
Secured and revolving notes |  |  | 26,628 |  |  |  | 26,621 |
Total liabilities |  |  | 26,687 |  |  |  | 26,665 |
Accumulated deficit |  |  | (6,672 | ) |  |  | (4,740 | )
Total liabilities and stockholder deficit |  | $ | 20,015 |  |  | $ | 21,925 |
|  | Goodland Advanced Fuels, Inc. |
|  | Statements of Operations |
|  | Three months ended |  |  | For the six months ended |
|  | June 30, 2019 |  |  | June 30, 2018 |  |  | June 30, 2019 |  |  | June 30, 2018 |
Other Expenses |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  | $ | 102 |  |  | $ | 134 |  |  | $ | 212 |  |  | $ | 232 |
Operating loss |  |  | (102 | ) |  |  | (134 | ) |  |  | (212 | ) |  |  | (232 | )
Interest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate expense |  |  | 756 |  |  |  | 689 |  |  |  | 1,504 |  |  |  | 1,367 |
Debt related fees and amortization expense |  |  | 280 |  |  |  | 200 |  |  |  | 527 |  |  |  | 325 |
Other income |  |  | (144 | ) |  |  | (166 | ) |  |  | (311 | ) |  |  | (330 | )
Net loss |  | $ | (994 | ) |  | $ | (857 | ) |  | $ | (1,932 | ) |  | $ | (1,594 | )
As of June 30, 2019, the Company had outstanding balance of $4.5 million under the Intercompany Revolving Notes. In the consolidation process, these intercompany borrowings and interest thereon were eliminated.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 + Details
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