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5. Variable Interest Entity

6 Months Ended

Jun. 30, 2019

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.