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5. Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

5. Commitments and Contingencies

Leases

We adopted the ASC 842 Lease accounting standard on January 1, 2019. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. We made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. We will recognize those lease payments in the Consolidated Statements of Operations as we incur the expenses.

After assessment of this standard on our company-wide agreements and arrangements, we have identified assets as the corporate office, warehouse, monitoring equipment and laboratory facilities over which we have control and obtain economic benefits fully. We classified these identified assets as operating leases after assessing the terms under classification guidance. Our leases have remaining lease terms of 1 year to 3 years, of which only one lease has option to extend the lease. We have concluded that it is not reasonably certain that we would exercise such option. Therefore, as of the lease commencement date, our lease terms generally did not include options to extend the lease. We include options to extend the lease when it is reasonably certain that we will exercise that option. We have an equipment lease with extension options which the Company is likely to extend; however, the equipment is billed based on the hours it is used in the period. According to the guidance, the variable payments based on other than index or rate, are to be expensed in the period incurred. As such, the equipment cost is recognized as it is incurred. The corporate office had a sublease agreement for seven months in which we were a sub lessor. We did not have any separate lease components in any of the leases and the property taxes and insurance charges are based on a variable rate in our real estate leases, hence we did not include them in the lease payments as in substance fixed payments.

When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on weighted average baseline rates commensurate with the Company’s secured borrowing rate over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.

Upon adoption of the standard, we recognized additional operating liabilities of $1.2 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum lease payments for existing operating leases.

The components of lease expense and sublease income was as follows:

		Three months ended March 31,
		2020				2019
Operating lease expense		$	177			$	181
Short term lease expense			14				41
Variable lease expense			34				32
Sub lease income			-				(17	)
Total lease cost		$	225			$	237

Supplemental non-cash flow information related to ROU asset and lease liabilities was as follows for the three months ended March 31, 2020 and March 31, 2019:

		Three months ended March 31
		2020				2019
Accretion of the lease liability		$	17			$	40

Amortization of right-of-use assets		$	160			$	141

As of March 31, 2020, our weighted average remaining lease term and discount rate were as follows:

Weighted Average Remaining Lease Term Operating Leases		1.5 years
Weighted Average Discount Rate Operating Leases			14.8%

Supplemental balance sheet information related to leases was as follows:

		As of
		March 31, 2020				December 31, 2019
Operating lease right-of-use assets		$	397			$	557

Operating lease liability:
Short term lease liability		$	257			$	377
Long term lease liability		$	158			$	200

Maturities of operating lease liabilities were as follows:

Twelve months ended March 31,		Operating leases

2021		$	293
2022			167
Total lease payments		$	460

Less imputed interest			(45	)

Total operating lease liability		$	415

Other Commitments

The Company entered into an agreement with Mitsubishi Chemical America, Inc. We purchased certain equipment to save energy used in the Keyes Plant. We also entered into a financing agreement with the seller for $5.7 million for this equipment. Payments pursuant to the financing transaction will commence after the installation date and interest will be charged based on the certain performance metrics after operation of the equipment. The equipment was delivered in March 2020; however the installation has been delayed due to the COVID-19 pandemic. Hence, we recorded the asset in construction in progress fixed assets and related liability in other liabilities of $5.7 million as of March 31, 2020.

Sale Commitments

We entered into several agreements with customers to sell approximately 3.1 million gallons of product through April 2021.

Property taxes

The Company entered into a payment plan with Stanislaus County for unpaid property taxes for the Keyes Plant site on June 28, 2018 by paying $1.5 million as a first payment. Under the annual payment plan, the Company was set to pay 20% of the outstanding redemption amount, in addition to the current year property taxes and any interest incurred on the unpaid balance to date annually, on or before April 10 starting in 2019. After making one payment, Company defaulted on the payment plan and as of March 31, 2020 and December 31, 2019, the balance in property tax accrual was $4.4 million and $4.1 million, respectively. Stanislaus County agreed not to enforce collection actions and we are now in discussions with Stanislaus County regarding a payment plan.

Legal Proceedings

On August 31, 2016, the Company filed a lawsuit in Santa Clara County Superior Court against defendant EdenIQ, Inc. (“EdenIQ”). The lawsuit was based on EdenIQ’s wrongful termination of a merger agreement that would have effectuated the merger of EdenIQ into a new entity that would be primarily owned by Aemetis. The lawsuit asserted that EdenIQ had fraudulently induced the Company into assisting EdenIQ to obtain EPA approval for a new technology that the Company would not have done but for the Company’s belief that the merger would occur. The relief sought included EdenIQ’s specific performance of the merger, monetary damages, as well as punitive damages, attorneys’ fees, and costs. In response to the lawsuit, EdenIQ filed a cross-complaint asserting causes of action relating to the Company’s alleged inability to consummate the merger, the Company’s interactions with EdenIQ’s business partners, and the Company’s use of EdenIQ’s name and trademark in association with publicity surrounding the merger. Further, EdenIQ named Third Eye Capital Corporation (“TEC”) as a defendant in a second amended cross-complaint alleging that TEC had failed to disclose that its financial commitment to fund the merger included terms that were not disclosed. Finally, EdenIQ claimed that TEC and the Company concealed material information surrounding the financing of the merger. By way of its cross-complaint, EdenIQ sought monetary damages, punitive damages, injunctive relief, attorneys’ fees and costs. In November 2018, the claims asserted by the Company were dismissed on summary judgment and the Company filed a motion to amend its claims, which remains pending. In December 2018, EdenIQ dismissed all of its claims prior to trial. In February 2019, the Company and EdenIQ each filed motions seeking reimbursement of attorney fees and costs associated with the litigation. On July 24, 2019, the court awarded EdenIQ a portion of the fees and costs it had sought in the amount of approximately $6.2 million. The Company recorded the $6.2 million as loss contingency on litigation during the year ended December 31, 2019. The Company’s ability to amend its claims and present its claims to the court or a jury could materially affect the court’s decision to award EdenIQ its fees and costs. In addition to further legal motions and a potential appeal of the Court’s summary judgment order, the Company plans to appeal the court’s award of EdenIQ’s fees and costs. The Company intends to continue to vigorously pursue its legal claims and defenses against EdenIQ.