UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, ~~2018~~2019

OrOR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from to

Commission File Number: 001-36475

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AEMETIS, INC.

(Exact name of registrant as specified in its charter)

———————

Nevada	26-1407544
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

20400 Stevens Creek Blvd., Suite 700

Cupertino, CA 95014

(Address of Principal Executive Offices, including zip code)

(408) 213-0940

(Registrant’s telephone number, including area code)

~~———————~~

Title of each class of registered securities		Trading Symbol		Name of each exchange on which registered
Common Stock, $0.001 par value		AMTX		NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of the registrant’s Common Stock on July 31, ~~2018~~2019 was ~~20,222,890~~20,570,187 shares.

AEMETIS, INC.

FORM 10-Q

Quarterly Period Ended June 30, ~~2018~~2019

INDEX

~~PART I--FINANCIAL INFORMATION~~

~~Item 1.~~			~~Financial Statements.~~	4 PART I--FINANCIAL INFORMATION
Item 1.	Financial Statements.	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	28 40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	38 53
Item 4.	Controls and Procedures.	38

~~PART II--OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	39
~~Item 1A.~~			~~Risk Factors.~~	40 PART II--OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors.	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40 55
Item 3.	Defaults Upon Senior Securities.	40 55
Item 4.	Mine Safety Disclosures.	40 55
Item 5.	Other Information.	40 55
Item 6.	Exhibits.	40 56
Signatures		57
		41

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q, including statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events or other statements that are not historical facts. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding management’s plans; ~~trends in demand for renewable fuels;~~ trends in market conditions with respect to prices for inputs for our products versus prices for our products; our ability to leverage approved feedstock pathways; our ability to leverage our location and infrastructure; our ability to incorporate lower-cost, non-food advanced biofuels feedstock at the Keyes plant; our ability to adopt value-add by-product processing systems; our ability to expand into alternative markets for biodiesel and its by-products, including continuing to expand our sales into international markets; ~~the impact of changes in regulatory policies on~~ our ~~performance, including the Indian government’s recent changes~~ability to ~~tax policies, diesel prices~~maintain and ~~related subsidies;~~expand strategic relationships with suppliers; our ability to continue to develop new, and to maintain and protect new and existing, intellectual property rights; our ability to adopt, develop and commercialize new technologies; our ability to refinance our senior debt on more commercial terms or at all; our ability to continue to fund operations and our future sources of liquidity and capital resources; our ability to sell additional notes under our EB-5 note program and our expectations regarding the release of funds from escrow under our EB-5 note program; our ability to improve margins; and our ability to raise additional capital. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on current assumptions and predictions and are subject to numerous risks and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference as well as those business risks and factors described elsewhere in this report and in our other filings with the Securities and Exchange Commission (the “SEC”), including without limitation, our most recent Annual Report on Form 10-K.

~~iii~~

PART I - FINANCIAL INFORMATION

Item 1 - ~~Financial~~Financial Statements.

AEMETIS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands except for par value)

	June 30, 2018	December 31, 2017	June 30, 2019	December 31, 2018
Assets	(unaudited)		(unaudited)
Current assets:
Cash and cash equivalents	$1,069	$428	$350	$1,188
Accounts receivable	1,601	2,219	3,838	1,096
Inventories	6,697	5,737	4,093	6,129
Prepaid expenses	1,381	2,435	591	942
Other current assets	540	643	1,355	956
Total current assets	11,288	11,462	10,227	10,311

Property, plant and equipment, net	77,703	78,837	78,507	78,492
Operating lease right-of-use assets			894	-
Other assets	4,137	4,032	2,707	3,018
Total assets	$93,128	$94,331	$92,335	$91,821

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$12,521	$10,457	$17,193	$13,500
Current portion of lease liability			596	-
Current portion of long term debt	3,234	2,039	4,805	2,396
Short term borrowings	16,184	13,586	16,551	14,902
Mandatorily redeemable Series B convertible preferred stock	2,996	2,946	3,098	3,048
Accrued property taxes	2,757	3,677	3,909	3,337
Accrued contingent litigation fees			6,200	-
Other current liabilities	3,567	3,311	5,203	5,396
Total current liabilities	41,259	36,016	57,555	42,579
Long term liabilities:
Senior secured notes	83,431	73,986	97,998	89,884
EB-5 notes	35,000	34,000	35,500	36,500
GAFI secured and revolving notes	24,604	24,351	26,222	25,461
Long term subordinated debt	5,898	5,824	6,048	5,974
Other long term liabilities	-	15
Series A preferred units			8,175	7,005
Long term lease liability			348	-
Total long term liabilities	148,933	138,176	174,291	164,824


Stockholders' deficit:
Series B convertible preferred stock, $0.001 par value; 7,235 authorized; 1,323 shares issued and outstanding each period, respectively (aggregate liquidation preference of $3,969 for each period respectively)	1		1
Common stock, $0.001 par value; 40,000 authorized; 20,223 and 20,088 shares issued and outstanding, respectively	20
Common stock, $0.001 par value; 40,000 authorized; 20,375 and 20,345 shares issued and outstanding each period, respectively			20
Additional paid-in capital	85,347	84,679	86,470	85,917
Accumulated deficit	(175,921)	(160,188)	(215,869)	(193,204)
Accumulated other comprehensive loss	(3,448)	(2,904)	(3,461)	(3,576)
Total stockholders' deficit attributable to Aemetis, Inc.	(94,001)	(78,392)	(132,839)	(110,842)
Non-controlling interest - GAFI	(3,063)	(1,469)	(6,672)	(4,740)
Total stockholders' deficit	(97,064)	(79,861)	(139,511)	(115,582)
Total liabilities and stockholders' deficit	$93,128	$94,331	$92,335	$91,821

The accompanying notes are an integral part of the financial statements.

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

LOSS

(Unaudited, in thousands except for earnings per share)

	For the three months ended June 30,		For the six months ended June 30,		For the three months ended June 30,		For the six months ended June 30,
	2018	2017	2018	2017	2019	2018	2019	2018
Revenues	$45,028	$40,764	$88,046	$72,338	$50,619	$45,028	$92,507	$88,046

Cost of goods sold	42,260	39,059	83,412	71,220	47,346	42,260	89,585	83,412

Gross profit	2,768	1,705	4,634	1,118	3,273	2,768	2,922	4,634

Research and development expenses	55	110	117	196	90	55	123	117
Selling, general and administrative expenses	3,589	3,262	7,396	6,557	3,945	3,589	8,186	7,396

Operating loss	(876)	(1,667)	(2,879)	(5,635)	(762)	(876)	(5,387)	(2,879)

Other (income) expense:

Interest expense
Interest rate expense	4,432	3,164	8,703	6,006	5,190	4,432	10,176	8,703
Debt related fees and amortization expense	919	1,164	5,676	2,847	1,396	919	2,619	5,676
Accretion of Series A preferred units					471	-	920	-
Loss contingency on litigation					6,200	-	6,200	-
Other (income) expense	(5)	(8)	63	20	(89)	(5)	(712)	63

Loss before income taxes	(6,222)	(5,987)	(17,321)	(14,508)	(13,930)	(6,222)	(24,590)	(17,321)

Income tax expense	-		6		-		7	6

Net loss	(6,222)	(5,987)	$(17,327)	$(14,514)	$(13,930)	$(6,222)	$(24,597)	$(17,327)

Less: Net loss attributable to non-controlling interest	(857)	-	(1,594)	-	(994)	(857)	(1,932)	(1,594)

Net loss attributable to Aemetis, Inc.	$(5,365)	$(5,987)	$(15,733)	$(14,514)	$(12,936)	$(5,365)	$(22,665)	$(15,733)

Other comprehensive income (loss)
Foreign currency translation gain (loss)	(394)	29	(544)	398	57	(394)	115	(544)
Comprehensive loss	$(6,616)	$(5,958)	$(17,871)	$(14,116)	$(13,873)	$(6,616)	$(24,482)	$(17,871)

Net loss per common share attributable to Aemetis, Inc.	Net loss per common share attributable to Aemetis, Inc.				Net loss per common share attributable to Aemetis, Inc.
Basic	$(0.27)	$(0.30)	$(0.78)	$(0.74)	$(0.63)	$(0.27)	$(1.11)	$(0.78)
Diluted	$(0.27)	$(0.30)	$(0.78)	$(0.74)	$(0.63)	$(0.27)	$(1.11)	$(0.78)

Weighted average shares outstanding
Basic	20,223	19,669	20,203	19,737	20,375	20,223	20,371	20,203
Diluted	20,223	19,669	20,203	19,737	20,375	20,223	20,371	20,203

The accompanying notes are an integral part of the financial statements.

AEMETIS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	For the six months ended June 30,		For the six months ended June 30,
	2018	2017	2019	2018
Operating activities:
Net loss	$(17,327)	$(14,514)	$(24,597)	$(17,327)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation	581	604	486	581
Stock issued for services	22	-	-	22
Depreciation	2,299	2,298	2,234	2,299
Debt related fees and amortization expense	5,676	2,847	2,619	5,676
Intangibles and other amortization expense	70	64	24	70
Change in fair value of warrant liability	-	3
Accretion of Sereis A preferred units			920	-
Change in fair value of SARs			60	-
Changes in operating assets and liabilities:
Accounts receivable	579	338	(2,708)	579
Inventories	(1,264)	(2,705)	2,042	(1,264)
Prepaid expenses	1,053	(321)	351	1,053
Other current and long-term assets	(134)	(99)
Other assets			561	(134)
Accounts payable	2,128	1,140	2,704	2,128
Accrued interest expense and fees, net of payments	5,457	4,826
Accrued interest expense and fees			8,301	5,457
Other liabilities	(745)	675	5,772	(745)
Net cash used in operating activities	(1,605)	(4,844)	(1,231)	(1,605)

Investing activities:
Capital expenditures	(1,771)	(511)	(1,038)	(1,771)

Net cash used in investing activities	(1,771)	(511)	(1,038)	(1,771)

Financing activities:
Proceeds from borrowings	12,415	10,833	15,716	12,415
Repayments of borrowings	(8,381)	(6,589)	(13,901)	(8,381)
GAFI proceeds from borrowings			24	-
GAFI repayments of borrowings			(164)	-
GAFI renewal fee payment			(500)	-
Proceeds from Series A preferred units financing			250	-
Net cash provided by financing activities	4,034	4,244	1,425	4,034

Effect of exchange rate changes on cash and cash equivalents	(17)	292	6	(17)
Net cash and cash equivalents increase (decrease) for period	641	(819)
Net change in cash and cash equivalents for period			(838)	641
Cash and cash equivalents at beginning of period	428	1,486	1,188	428
Cash and cash equivalents at end of period	$1,069	$667	$350	$1,069

Supplemental disclosures of cash flow information, cash paid:
Interest paid	$3,213	$1,273
Cash paid for interest, net of capitalized interest of $147 and $0 for the six months ended June 30, 2019 and 2018, respectively			$1,699	$3,213
Income taxes paid	6		-	6
Supplemental disclosures of cash flow information, non-cash transactions:	Supplemental disclosures of cash flow information, non-cash transactions:
Subordinated debt extension fees added to debt	340		340
Fair value of warrants issued to subordinated debt holders	65	174	67	65
Repurchase of common stock added to TEC promissory note	-	451
TEC promissory notes fees added to notes	204	1,169
Senior debt extension and waiver fees added to debt	3,801	3,846
TEC debt extension, waiver fees, promissory notes fees added to debt			1,102	4,005
Capital expenditures in accounts payable			1,882	-
Operating lease laibilities arising from obtaining right-of-use assets			1,181	-

The accompanying notes are an integral part of the financial statements.

AEMETIS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited, in thousands)

For the three and six months ended June 30, 2019

	Series B Preferred Stock		Common Stock
Description	Shares	Dollars	Shares	Dollars	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income/(Loss)	Noncontrolling Interest	Total Stockholders' deficit
Balance at December 31, 2018	1,323	$1	20,345	$20	$85,917	$(193,204)	$(3,576)	$(4,740)	(115,582)

Stock-based compensation	-	-	-	-	290	-	-	-	290
Issuance and exercise of warrants	-	-	30	-	67	-	-	-	67
Foreign currency translation gain	-	-	-	-	-	-	58	-	58
Net loss	-	-	-	-	-	(9,729)	-	(938)	(10,667)

Balance at March 31, 2019	1,323	$1	20,375	$20	$86,274	$(202,933)	$(3,518)	$(5,678)	$(125,834)

Stock-based compensation	-	-	-	-	196	-	-	-	196
Foreign currency translation gain	-	-	-	-	-	-	57	-	57
Net loss	-	-	-	-	-	(12,936)	-	(994)	(13,930)

Balance at June 30, 2019	1,323	$1	20,375	$20	$86,470	$(215,869)	$(3,461)	$(6,672)	$(139,511)

For the three and six months ended June 30, 2018

	Series B Preferred Stock		Common Stock
Description	Shares	Dollars	Shares	Dollars	Additional Paid-in Capital	Accumulated Deficit	Comprehensive Income/(Loss)	Noncontrolling Interest	Total Stockholders' deficit
Balance at December 31, 2017	1,323	$1	20,088	$20	$84,679	$(160,188)	$(2,904)	$(1,469)	(79,861)
Options exercised	-	-	2	-	-	-	-	-	-
Stock-based compensation	-	-	-	-	264	-	-	-	264
Issuance and exercise of warrants	-	-	113	-	65	-	-	-	65
Shares issued to consultants and other services	-	-	20	-	22	-	-	-	22
Foreign currency translation loss	-	-	-	-	-	-	(150)	-	(150)
Net loss	-	-	-	-	-	(10,368)	-	(737)	(11,105)

Balance at March 31, 2018	1,323	$1	20,223	$20	$85,030	$(170,556)	$(3,054)	$(2,206)	$(90,765)
	-
Stock-based compensation	-	-	-	-	317	-	-	-	317
Foreign currency translation loss	-	-	-	-	-	-	(394)	-	(394)
Net loss	-	-	-	-	-	(5,365)	-	(857)	(6,222)

Balance at June 30, 2018	1,323	$1	20,223	$20	$85,347	$(175,921)	$(3,448)	$(3,063)	$(97,064)

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Nature of Activities and Summary of Significant Accounting Policies

Nature of Activities. Headquartered in Cupertino, California, Aemetis is an advanced renewable fuels and biochemicals company focused on the acquisition, development and commercialization of innovative technologies that replace traditional petroleum-based products through the conversion of ~~first-generation~~second-generation ethanol and biodiesel plants into advanced biorefineries. Founded in 2006, we own and operate a 60 million gallon per year ethanol ~~plant~~facility (“Keyes Plant”) in the California Central Valley near Modesto where we manufacture and produce ethanol, wet distillers’ grains ~~(WDG)~~(“WDG”), condensed distillers solubles ~~(CDS)~~(“CDS”), and distillers’ corn oil ~~(DCO)~~(“DCO”). We also own and operate a 50 million gallon per year renewable chemical and advanced fuel production facility (“Kakinada Plant”) on the East Coast of India producing high quality distilled biodiesel and refined glycerin for customers in India and Europe. We operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and ~~hold~~biochemicals. Additionally, we have the option to own a ~~portfolio~~partially completed plant in Goodland, Kansas (the “Goodland Plant”) through a variable interest entity (VIE) Goodland Advanced Fuels, Inc., (GAFI), which was formed to acquire the Goodland Plant. Upon exercise of ~~patents~~the option, we plan to deploy a cellulosic ethanol technology to the Goodland Plant.

We also lease a site in Riverbank, California, near the Keyes Plant, where we plan to utilize biomass-to-fuel technology that we have licensed from LanzaTech Technology (“LanzaTech”) and ~~related technology licenses~~InEnTec Technology (“InEnTec”) to build a cellulosic ethanol production facility (the “Riverbank Cellulosic Ethanol Facility”) capable of converting local California surplus biomass – principally agricultural waste – into ultra-low carbon renewable cellulosic ethanol. By producing ultra-low carbon renewable cellulosic ethanol, we expect to capture higher value D3 cellulosic renewable identification numbers (RINs) and California’s Low Carbon Fuel Standard (“LCFS”) credits.

In December 2018, we acquired a 5.2-acre parcel of land for the ~~production~~construction of ~~renewable fuels~~a facility by Linde LLC industrial gas company to sell CO2produced at the Keyes Plant, which will add incremental income for the North America segment.

During 2018, Aemetis Biogas LLC (“ABGL”) was formed to construct bio methane digesters at local dairies near the Keyes Plant, many of whom are already customers of the distillers’ grain produced by the Keyes Plant. The digesters are connected by pipeline to a gas cleanup and ~~biochemicals.~~compression facility to produce Renewable Natural Gas (“RNG”). ABGL currently has 13 signed participation agreements and three fully executed leases with nearby dairies at the Keyes Plant in order to capture their methane, which would otherwise be released into the atmosphere, primarily from their wastewater lagoons. We plan to capture biogas from multiple dairies and pipe the gas to a centralized location at our Keyes Plant where we will clean the biogas into bio-methane. The bio-methane can be used in our Keyes Plant to displace petroleum natural gas, or can be sold at retail to trucking companies or injected into the utility natural gas pipeline to be utilized in the transportation sector to displace diesel in trucks.

Basis of Presentation and Consolidation. These consolidated financial statements include the accounts of Aemetis, Inc., a Nevada corporation, and its wholly owned subsidiaries (collectively, Aemetis or the Company). Additionally, we consolidate all entities in which we have a controlling financial interest either directly or by option to acquire the interest. A controlling financial interest is usually obtained through ownership of a majority of the voting interests. An enterprise must consolidate a variable interest entity (VIE) if the enterprise is the primary beneficiary of the VIE, even if the enterprise does not own a majority of the voting interests. The primary beneficiary is the party that has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

~~In July 2017, Goodland Advanced Fuels, Inc. (GAFI) acquired a partially completed ethanol plant~~

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in ~~Goodland, Kansas,~~thousands except par value and as part of the transaction, GAFI entered into a note purchase agreement (GAFI Note Purchase Agreement) for a revolving loan (GAFI Revolving Loan) and term loan (GAFI Term Loan, and together with the GAFI Revolving Loan, the GAFI Loans) with Third Eye Capital Corporation (Third Eye Capital). The arrangement provided Aemetis with both an option agreement (GAFI Option Agreement) to acquire all of the outstanding stock from GAFI at $0.01 per share as well as the ability for Aemetis, and its subsidiary Aemetis Advanced Products Keyes, Inc. (AAPK), to borrow portions of the GAFI Revolving Loan. In exchange, Aemetis and AAPK each provided a limited guaranty (GAFI Limited Guaranty). GAFI is thinly capitalized by its sole shareholders, and dependent on the terms of the agreements with Third Eye Capital and Aemetis to support its own activities. Additionally, the combination of the GAFI Limited Guaranty and the GAFI Option Agreement provide sufficient basis for Aemetis to direct the activities of GAFI. Upon application of the consolidation guidance in ASC 810~~Consolidation~~, we determined that GAFI is a variable interest entity with Aemetis as the primary beneficiary. Accordingly, the consolidated financial statements include the account of GAFI. See “Part I, Item 1. Financial Statements – Note 5. Variable Interest Entity.” All intercompany balances and transactions have been eliminated in consolidation, including transactions between GAFI and Aemetis, Inc.data)

The accompanying consolidated condensed balance sheet as of June 30, ~~2018,~~2019, the consolidated condensed statements of operations and comprehensive loss for the three and six months ended June 30, ~~2018~~2019 and ~~2017, and~~2018, the consolidated condensed statements of cash flows for the six months ended June 30, 2019 and 2018, and ~~2017~~the consolidated condensed statements of stockholders’ deficit for the three and six months ended June 30, 2019 and 2018 are unaudited. The consolidated condensed balance sheet as of December 31, ~~2017~~2018 was derived from the ~~2017~~2018 audited consolidated financial statements and notes thereto. The consolidated condensed financial statements in this report should be read in conjunction with the ~~2017~~2018 audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2017.~~2018. 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, footnotes, 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.

~~AEMETIS, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(Unaudited, tabular data in thousands except par value and per share data)~~

In the opinion of management, the unaudited interim consolidated condensed financial statements for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 have been prepared on the same basis as the audited consolidated statements as of December 31, ~~2017~~2018 and reflect all adjustments, consisting primarily of normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations, statement of cash flows, and ~~cash flows.~~statement of stockholders’ deficit. The results of operations for the three and six months ended June 30, ~~2018~~2019 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, 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. In May 2014, the FASB issued new guidance on the recognition of revenue. The guidance stated that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March and April 2016, the FASB issued further revenue recognition guidance amending principal vs. agent considerations regarding whether an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Company adopted this guidance on January 1, 2018 using the modified retrospective approach. There was no cumulative impact to retained earnings. We assessed all of our revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition.

We derive revenue primarily from sales of ethanol and related co-products in North America, and biodiesel and refined glycerin in India based on the supply agreements and POpurchase order contracts. We assessed the following criteria under the ASC 606 guidance: i)(i) identify the contracts with customer, ~~ii)~~(ii) identify the performance obligations in the contract, ~~iii)~~(iii) determine the transaction price, ~~iv)~~(iv) allocate the transaction price to the performance obligations, and v)(v) recognize revenue when the entity satisfies the performance obligations.

We have elected to adopt the practical expedient that allows for ignoring the significant financing component of a contract when estimating the transaction price when the transfer of promised goods to the customer and customer payment for such goods are expected to be within one year of contract inception. Further, we have elected to adopt the practical expedient in which incremental costs of obtaining a contract are expensed when the amortization period would otherwise be less than one year.

North America

In North America, we sell the majority of our production to one customer under a supply contract, with individual sales transactions occurring under this contract. Given the similarity of these transactions, we have assessed them as a portfolio of similar contracts. The performance obligation is satisfied by delivery of the physical product to the tank of J.D. Heiskell ~~& Co. (J.D. Heiskell)~~ or to one of their contracted trucking companies. At this point in time, the customer has the ability to direct the use of the product and receive substantially all of its benefits. The transaction price is determined based on daily market prices negotiated by Kinergy ~~Marketing~~ for ethanol and by A.L. Gilbert on WDG and DCO. There is no transaction price allocation needed.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

The below table shows our sales in North America by product category:

North America (in thousands)

For the three months
ended June 30,

For the six months
ended June 30,

2018

2017

2018

2017

Ethanol sales
$30,129
$28,130
$58,341
$51,675
Wet distiller's grains sales
  8,499
  6,457
  16,327
  12,038
Other sales
  1,000
  878
  2,136
  1,705






$39,628
$35,465
$76,804
$65,418

In India where we sell product on purchase orders (written or verbal) or by contract with governmental or international parties, the performance obligation is satisfied by delivery and acceptance of the physical product. When the contracts are sufficiently similar in nature, we have assessed these contracts as a portfolio of similar contracts as allowed under the practical expedient. Doing so does not result in a materially different outcome compared to individually accounting for each contract. All domestic and international deliveries are subject to certain specifications as identified in contracts. The transaction price is determined based on reference market prices for biodiesel and refined glycerin every day net of taxes. There is no transaction price allocation needed.

~~The below table shows our sales in India by product category:~~

India (in thousands)

For the three months
ended June 30,

For the six months
ended June 30,

2018

2017

2018

2017

Biodiesel sales
$3,841
$4,100
$8,342
$4,933
Refined Glycerin sales
  1,559
  1,199
  2,900
  1,987

$5,400
$5,299
$11,242
$6,920


	For the three months ended June 30,		For the six months ended June 30,
	2019	2018	2019	2018
Ethanol sales	$29,808	$30,129	$56,997	$58,341
Wet distiller's grains sales	8,733	8,499	17,336	16,327
Other sales	945	1,000	1,789	2,136
	$39,486	$39,628	$76,122	$76,804

We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those customers in some contractual agreements.

In North America, we buy corn as feedstock in producing ethanol from our working capital partner J.D. Heiskell and we sell all ethanol, WDG, and corn oil produced in this process to J.D. Heiskell. Our finished goods tank is leased by J.D. Heiskell and they require us to transfer legal title to the product upon transfer of our finished ethanol to this location. We consider the purchase of corn as a cost of goods sold and the sale of ethanol upon transfer to the finished goods tank as revenue on the basis that (i) we control and bear the risk of gain or loss on the processing of corn which is purchased at market prices into ethanol and (ii) we have a legal title to the goods during the processing time. The pricing for both corn and ethanol is set independently. Revenues from sales of ethanol and its co-products are billed net of the related transportation and marketing charges. The transportation component is accounted for in cost of goods sold and the marketing component is accounted for in sales, general and administrative expense. Transportation and marketing charges are known within days of the transaction and are recorded at the actual amounts. The Company has elected an accounting policy under which these charges have been treated as fulfillment activities provided after control has transferred. As a result, these charges are recognized asin cost of goods sold and selling, general and administrative expenses, respectively, when revenue is recognized. Revenues are recorded at the gross invoiced amount. Hence, we are the principal in North America sales scenarios where our customer and vendor may be the same.

We have a contract liability of $0.6 million as of June 30, 2019, in connection with a contract with a customer to sell LCFS credits produced from January 1, 2019 to March 31, 2019. However, the credits were not transferred to the customer until July 2, 2019 while we received cash in advance.

910

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

India

In India where we sell products on purchase orders (written or verbal) or by contract with governmental or international parties, the performance obligation is satisfied by delivery and acceptance of the physical product. Given that the contracts are sufficiently similar in nature, we have assessed these contracts as a portfolio of similar contracts as allowed under the practical expedient. Doing so does not result in a materially different outcome compared to individually accounting for each contract. All domestic and international deliveries are subject to certain specifications as identified in contracts. The transaction price is determined based on reference market prices for biodiesel and refined glycerin every day net of taxes. There is no transaction price allocation needed.

The below table shows our sales in India by product category:

	For the three months ended June 30,		For the six months ended June 30,
	2019	2018	2019	2018
Biodiesel sales	$10,797	$3,841	$15,144	$8,342
Refined Glycerin sales	336	1,559	1,235	2,900
Other sales	-	-	6	-
	$11,133	$5,400	$16,385	$11,242

We also assessed principal versus agent criteria as we buy our feedstock from our customers and process and sell finished goods to those customers in some contractual agreements.

In India, we occasionally enter into contracts where awe purchase feedstock from the customer, ~~provides feedstock and we~~ process the feedstock into biodiesel, and sell to the same customer. In those cases, we receive the legal title to feedstock from our customers once it is on our premises. We control the processing and production of biodiesel based on contract terms and specifications. The pricing for both feedstock and biodiesel is set independently. We hold the title and risk to biodiesel ~~as long as it resides on premises.~~according to agreements we enter into in these situations. Hence, we are the principal in ~~both North America and~~ India sales scenarios where our customer and vendor ~~are~~may be the same.

~~Based upon the timing of the transfer of control of our products to our customers, there are no contract assets or liabilities as of June 30, 2018.~~

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, CDS, and DCO 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. Usually, invoices are due within 30 days on net terms. Accounts receivables consist of product sales made to large creditworthy customers. Trade accounts receivable are presented at original invoice amount, net of any allowance for doubtful accounts.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

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 it 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 un-collectability 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. We did not reserve any balance for allowances for doubtful accounts as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Inventories. ~~Ethanol inventory,~~Finished goods, raw materials, and work-in-process inventories are valued ~~using methods which approximate~~at 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 ~~plants in~~ Keyes ~~California (Keyes plant),~~Plant, Goodland ~~Kansas (GAFI plant)~~Plant and Kakinada ~~India (Kakinada plant).~~Plant. The ~~GAFI plant~~Goodland Plant is partially completed and is not ready for operation; hence, we are not depreciating these assets yet. Otherwise, it is the Company’s policy to depreciate capital assets over their estimated useful lives using the straight-line method.

~~AEMETIS, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(Unaudited, tabular data in thousands except par value and per share data)~~

The Company evaluates the recoverability of long-lived assets with finite lives in accordance with 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 group may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an asset group 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.

California Energy Commission Technology Demonstration Grant. The Company has been awarded an $825 thousand matching grant from the California Energy Commission (“CEC”) Natural Resources Agency to optimize and demonstrate the effectiveness of technologies to break down biomass to produce cellulosic ethanol. The Company will receive the grant proceeds as a subcontractor to the Lawrence Berkeley National Laboratory. The project will focus on the deconstruction and conversion of sugars liberated from California-relevant feedstocks and then converting the sugars to ethanol. The Company receives these funds as reimbursement for actual expenses incurred. Due to the uncertainty associated with the expense approval process under the grant program, the Company recognizes the grant as a reduction of the expenses in the period when approval is received.

California Department of Food and Agriculture Dairy Digester Research and Development Grant. The Company has been awarded $3.2 million in matching grants from the California Department of Food and Agriculture (“CDFA”) Dairy Digester Research and Development program. The CDFA grant reimburses the Company for expenses required to permit and construct two of the Company’s biogas capture systems under contract with central California dairies. The Company receives these funds as reimbursement for actual expenses incurred. Due to the uncertainty associated with the expense approval process under the grant program, the Company recognizes the grant as a reduction of the expenses in the period when approval is received.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Basic and Diluted Net Loss per Share. Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net 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 six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, 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 June 30, ~~2018~~2019 and ~~2017:~~2018:

	As of		As of
	June 30, 2018	June 30, 2017	June 30, 2019	June 30, 2018

Series B preferred (post split basis)	132	133	132
Common stock options and warrants	3,206	2,589	3,994	3,206
Debt with conversion feature at $30 per share of common stock	1,222	1,188	1,247	1,222
SARs conversion if stock issued at $1.02 per share to cover $2.1 million			2,062	-
Total number of potentially dilutive shares excluded from the diluted net loss per share calculation	4,560	3,910	7,435	4,560

Comprehensive Loss. ASC 220 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.

Foreign Currency Translation/Transactions. Assets and liabilities of the Company’s non-U.S. subsidiary ~~that operates~~operate in a local currency environment, where that local currency is the functional currency, ~~are~~and is 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. Aemetis recognized 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 California, the cellulosic ethanol facility in Riverbank, the cluster of biogas digesters on dairies near the Keyes Plant, the Goodland Plant in Kansas and the research and development facility in Minnesota.

1113

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

The “North America” operating segment includes the Company’s 60 million gallons per year capacity Keyes plant in Keyes, California, the GAFI plant in Goodland, Kansas and the research and development facility in St. Paul, Minnesota`.

The “India” operating segment encompasses the Company’s 50 million gallon per year capacity Kakinada ~~plant~~Plant in ~~Kakinada,~~ India, the administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius.

Fair Value of Financial Instruments. Financial instruments include accounts receivable, accounts payable, accrued liabilities, current and non-current portion of subordinated debt, SARs liability, notes payable, and long term debt. 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. The fair value of all other current financial instruments is estimated using level 3 inputs 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~~expenses of the estimated fair value of the Company’s share-based compensation awards calculated at the ~~time~~grant date over the ~~awards are granted~~vesting period, adjusted to reflect only those shares that are expected to vest.

Leases. In February 2016, the FASB issued guidance that amended the existing accounting standards for leases. Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee is required to recognize right-of-use assets and lease liabilities on the balance sheet. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new guidance was effective for us beginning January 1, 2019, and for interim periods within that year. We were required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available. On July 30, 2018, the FASB issued ASU 2018-11 amendments to ASC 842, which included the optional transition relief approach in which entities may elect not to recast the comparative periods presented when transitioning to ASC 842 and lessors may not select to separate lease and non-lease components when certain conditions are met.

We assessed all leases, equipment rentals, and supply agreements under this guidance. We adopted the standard as of January 1, 2019 using the optional transition relief approach. We elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification. We made an accounting policy election to keep leases with a term of 12 months or less off of the balance sheet. We recognized those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. Please refer to Note 7 for additional information regarding the Company’s adoption of ASC 842 and outstanding leases.

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.

The Company entered into a payment plan with Stanislaus County for unpaid property taxes on June 28, 2018 by paying $1.5 million as a first payment. Under the annual payment plan, the Company is 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. This payment was not made on April 10, 2019. The full tax amount is now due and the property is subject to a process that ranges from the collection of all past due taxes to the potential sale of the asset. As of June 30, 2019, the balance in property tax accrual was $3.9 million.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

The Company has pending litigation with EdenIQ, Inc. (“EdenIQ”) related to wrongful termination of a merger agreement, filed in Santa Clara County Superior Court. The Company and EdenIQ filed motions for attorney’s fees and costs. On July 24, 2019, the court granted $6.2 million of attorney’s fees and costs to EdenIQ. The Company has assessed this matter in accordance with ASC 855 as subsequent event type 1. As a result, a $6.2 million loss on contingency was recorded within the Company’s consolidated financial statements as of June 30, 2019.

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 June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, with certain exceptions. ASU 2018-07 supersedes the guidance in ASC 505-50, Equity-Based Payments to Non-Employees, which previously included the accounting for non-employee awards. The standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company does not intend to early adopt and is in the process of determining the impact of adoption of this standard on its financial statements.

For a complete summary of the Company’s significant accounting policies, please refer to ~~Note 1, “Nature of Activities and Summary of Significant Accounting Policies,” included with~~ the Company’s audited financial statements and notes thereto for the years ended December 31, ~~2017~~2018 and ~~2016,~~2017, filed with the Securities and Exchange Commission on March ~~29, 2018.~~15, 2019. There were no new accounting pronouncements issued applicable to the Company during the six months ended June 30, 2019.

Inventories

Inventories consist of the following:

	June 30, 2019	December 31, 2018
Raw materials	$1,405	$3,647
Work-in-progress	1,599	1,327
Finished goods	1,089	1,155
Total inventories	$4,093	$6,129

As of June 30, 2019 and December 31, 2018, the Company recognized a lower of cost or net realizable value impairment of $38 thousand and $0.2 million respectively, related to inventory.

1215

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

~~Inventories~~

~~Inventories consist of the following:~~

June 30,
2018

December 31,
2017

Raw materials
$3,585
$2,829
Work-in-progress
  2,102
  1,605
Finished goods
  1,010
  1,303
Total inventories
$6,697
$5,737

Property, Plant and Equipment

Property, plant and equipment consist of the following:

	June 30, 2018	December 31, 2017	June 30, 2019	December 31, 2018
Land	$2,709	$2,747	$4,121	$4,116
Plant and buildings	82,642	82,652	83,126	82,445
Furniture and fixtures	1,039	1,003	1,063	1,056
Machinery and equipment	3,909	3,972	4,227	3,928
Construction in progress	1,837	941	4,889	3,581
GAFI property, plant & equipment	15,408		15,408
Total gross property, plant & equipment	107,544	106,723	112,834	110,534
Less accumulated depreciation	(29,841)	(27,886)	(34,327)	(32,042)
Total net property, plant & equipment	$77,703	$78,837	$78,507	$78,492

During the six months ended June 30, 2019 and for the year ended December 31, 2018, interest capitalized in property, plant, and equipment was $147 thousand and $135 thousand, respectively.

Depreciation on the components of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:

	Years
Plant and Buildings	~~20 - 30~~20-30
Machinery & Equipment	~~5 - 7~~5-7
Furniture & Fixtures	~~3 - 5~~3-5

For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded depreciation expense of $1.1 million ~~and $1.2 million respectively.~~for each period. For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded depreciation expense of $2.2 million and $2.3 million ~~for each period.~~respectively.

Management is required to evaluate these long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Management determined there was no impairment on the long-lived assets during the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

1316

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Debt

Debt consists of the notes from our senior lender, Third Eye Capital, other working capital lenders and subordinated lenders as follows:

	June 30, 2018	December 31, 2017	June 30, 2019	December 31, 2018
Third Eye Capital term notes	$7,022	$6,931	$7,022	$7,024
Third Eye Capital revolving credit facility	41,117	35,371	54,702	47,225
Third Eye Capital revenue participation term notes	11,792	11,636	11,792	11,794
Third Eye Capital acquisition term notes	23,500	20,048	24,482	23,841
Third Eye Capital promissory note	2,082	-	2,156	-
Cilion shareholder seller notes payable	5,898	5,824	6,048	5,974
Subordinated notes	9,391	8,725	10,779	10,080
EB-5 long term promissory notes	36,658	36,039
EB-5 promissory notes			39,944	38,536
Unsecured working capital loans	4,711	4,861	3,616	4,822
GAFI Term and Revolving loans	26,180	24,351	26,583	25,821
Total debt	168,351	153,786	187,124	175,117
Less current portion of debt	19,418	15,625	21,356	17,298
Total long term debt	$148,933	$138,161	$165,768	$157,819

On July 6, 2012, Aemetis, Inc. and Aemetis Advanced Fuels Keyes, Inc. ~~(AAFK)~~(“AAFK”), entered into an Amended and Restated Note Purchase Agreement with Third Eye Capital (the ~~Note~~“Note Purchase ~~Agreement)~~Agreement”). Pursuant to the Note Purchase Agreement, Third Eye Capital extended credit in the form of (i) senior secured term loans in an aggregate principal amount of approximately $7.2 million to replace existing notes held by Third Eye Capital (the ~~Term Notes)~~“Term Notes”); (ii) senior secured revolving loans in an aggregate principal amount of $18.0 million ~~(Revolving~~(the “Revolving Credit ~~Facility)~~Facility”); (iii) senior secured term loans in the principal amount of $10.0 million to convert the prior revenue participation agreement to a note ~~(Revenue~~(the “Revenue Participation Term ~~Notes)~~Notes”); and (iv) senior secured term loans in an aggregate principal amount of $15.0 million ~~(Acquisition~~(the “Acquisition Term ~~Notes)~~Notes”) used to fund the cash portion of the acquisition of Cilion, Inc. (the Term Notes, Revolving Credit Facility, Revenue Participation Term Notes and Acquisition Term Notes are referred to herein collectively as the ~~Original~~“Original Third Eye Capital ~~Notes)~~Notes”).

On January 4, 2018, a Promissory Note (the January 2018 Note) for $160 thousand was advanced by Third Eye Capital to Aemetis, Inc., as a short-term credit facility for working capital and other general corporate purposes with an interest rate of 14% per annum maturing on the earlier of (a) receipt of proceeds from any financing, refinancing, or other similar transaction, (b) extension of credit by payee, as lender or as agent on behalf of certain lenders, to the Company or its affiliates, or (c) April 1, 2018. In consideration of the January 2018 Note, $10 thousand of the total proceeds were paid to Third Eye Capital as financing charges. As of June 30, 2018, the outstanding balance of principal and interest on the January 2018 note was $162 thousand. On April 1, 2018, the January 2018 Note was paid in full.

On February 27 2018, a Promissory Note (the February 2018 Note, together with the Original Third Eye Capital Notes, the Third Eye Capital Notes) for $2.1 million was advanced by Third Eye Capital to Aemetis, Inc., as a short-term credit facility for working capital and other general corporate purposes with an interest rate of 14% per annum maturing on the earlier of (a) receipt of proceeds from any financing, refinancing, or other similar transaction, (b) extension of credit by payee, as lender or as agent on behalf of certain lenders, to the Company or its affiliates, or (c) April 30, 2018. In consideration of the February 2018 Note, $0.1 million of the total proceeds were paid to Third Eye Capital as financing charges. Subsequently, the maturity date of the note was extended to June 30, 2018 with $84 thousand in fees due and payable at the time of the redemption of the Note. As of June 30, 2018, the outstanding balance of principal and interest on the February 2018 note was $2.1 million.

~~AEMETIS, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(Unaudited, tabular data in thousands except par value and per share data)~~

On March 27, 2018, Third Eye Capital agreed to Limited Waiver and Amendment No. 14 to the Note Purchase Agreement, or Amendment No. 14, to: (i) extend the maturity date of the Third Eye Capital Notes by two years to April 1, 2020 in exchange for an amendment fee consisting of 6% (3% per year) of the outstanding note balance in the form of an increase in the fee payable in the event of a redemption of the Third Eye Capital Notes (as defined in the Note Purchase Agreement); (ii) provide that the maturity date may be further extended at our election to April 1, 2021 in exchange for an extension fee of 5%; (iii) provide for an optional ~~quarterly~~ waiver of the ratio of note indebtedness covenant until January 1, 2019 with the payment of a waiver fee of $0.25 million; and (iv) remove the redemption fee described in (i) above from the calculation of the ratio of note indebtedness covenant. In addition to the fee discussed in (i), as consideration for such amendment and waiver, the borrowers also agreed to pay Third Eye Capital an amendment and waiver fee of $0.5 million to be added to the outstanding principal balance of the Revolving Credit Facility.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

We ~~have~~ evaluated Amendment No. 14 in accordance with ASC 470-60 Troubled Debt Restructuring. According to guidance, we considered Amendment No. 14 to be a troubled debt restructuring. We assessed all the terms to confirm if there is a concession granted by the creditor. The maturity date of the Third Eye Capital Notes was extended to April 1, 2020 for a 6% fee, ~~compared to~~which was lower on an annual basis than the extension fee of 5% provided by Amendment No. 13 for a one-year extension. No interest is accrued on these ~~fees.~~fees and there were no other settlements in Amendment No. 14 on these Notes. In order to assess whether the creditor granted a concession, we calculated the post-restructuring effective interest rate by projecting cash flows on the new terms and solved for a discount rate equal to the carrying amount of pre-restructuring of debt, and by comparing this calculation to the terms of Amendment No. 13, we determined that Third Eye Capital provided a concession in accordance with the provisions of ASC 470-60 Troubled Debt Restructuring and thus applied troubled debt restructuring accounting. The extension fee, due at maturity, was discounted at the effective interest rate of the Third Eye Capital Notes, and an immediate charge was taken to recognize the fees into amortization expense on the income statement related to the ~~troubled~~trouble debt restructuring of $3.1 million and amendment fees of $0.5 million. Using the effective interest method of amortization, the remaining extension fee of $1.4 million will be amortized over the stated remaining life of the Third Eye Capital Notes.

On June 30, 2018, the Company requested and received an optional waiver of the ratio of note indebtedness covenant with the payment of a waiver fee of $0.25 million, which was added to the Revolving Credit Facility for the quarter ended June 30, 2018. The Company may request additional optional waivers of the ratio of note indebtedness covenant for the quarters ended September 30, 2018 and December 31, 2018, but there are no waivers available for the quarters ended March 31, 2019 and June 30, 2019. According to ASC 470-10-45 debt covenant classification guidance, if it is probable that the Company will not be able to cure the default at measurement dates within the next 12 months, the related debt needs to be classified as current. To assess this guidance, the Company performed ratio and cash flow analysis using the forecast and debt levels. Based on this analysis, the Company believes that it is reasonably possible that through a combination of cash flow from operations, new projects that provide additional liquidity, and sales of EB-5 investments, it will be able to meet the ratio of the note indebtedness covenant, hence the notes are classified as long term debt.

On March 27, 2018, Third Eye Capital also agreed to a one-year reserve liquidity facility governed by a promissory note, payable in the principal amount of up to ~~$6.0 million dollars.~~$6 million. Borrowings under the facility are available from March 27, 2018 until maturity on April 1, 2019. Interest on borrowed amounts accrues at a rate of 30% per annum, paid monthly in arrears, or 40% if an event of default has occurred and continues. The outstanding principal balance of the indebtedness evidenced by the promissory note, plus any accrued but unpaid interest and any other sums due thereunder, shall be due and payable in full at the earlier to occur of (a) the closing of any new debt or equity financing, refinancing or other similar transaction between Third Eye Capital or any fund or entity arranged by them and the Company or its affiliates, (b) receipt by the Company or its affiliates of proceeds from any sale, merger, equity or debt financing, refinancing or other similar transaction from any third party and (c) April 1, 2019. The promissory note is secured by liens and security interests upon the property and assets of the Company. If any amounts are drawn under the facility, the Company will pay a non-refundable fee in the amount of ~~$0.2 million~~$200 thousand payable from the proceeds of the first drawing under the facility. We did not draw any amounts under the facility and no balance was outstanding as of December 31, 2018 under this facility. On March 11, 2019, Third Eye Capital agreed to increase the amount available under the reserve liquidity facility up to $8.0 million and extend the maturity date to April 1, 2020 with the same terms as above.

Based on the terms of Amendment No. 14, the Company intends to extend the maturity to April 1, 2021 for a fee of 5% on the outstanding debt which can be paid or added to the outstanding balance of the revolving notes.

On March 11, 2019, Third Eye Capital agreed to Limited Waiver and Amendment No. 15 to the Note Purchase Agreement (“Amendment No. 15”), to waive the ratio of note indebtedness covenant until January 1, 2020. As a consideration for this amendment, the Company also agreed to pay Third Eye Capital an amendment fee of ~~June 30, 2018, no draws were outstanding on this Note.~~$1.0 million to be added to the redemption fee which is due upon redemption of the Notes.

1518

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Based on the Amendment No. 15, the ratio of note indebtedness covenant is waived for the quarters ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019. According to ASC 470-10-45 debt covenant classification guidance, if it is probable that the Company will not be able to cure the default at measurement dates within the next 12 months, the related debt needs to be classified as current. As the Amendment No. 15 waived the ratio of the note indebtedness covenant over the next two quarters, we needed to assess if the Company can meet this covenant for the quarters ended March 31, 2020 and June 30, 2020. To assess this guidance, the Company performed ratio and cash flow analysis using the forecast and debt levels. The Company will need approximately $42.4 million of cash flows from operations and other forms of subordinated debt over the next 12 months to reduce debt to levels that allow for compliance with Third Eye Capital financial covenants and to meet operations of the Company. Based on this analysis, the Company believes that it is reasonably possible that through a combination of cash flow from operations, new projects that provide additional liquidity, and obtaining other low cost subordinated debt, it will be able to meet the ratio of the note indebtedness covenant over the next 12 months, hence the notes are classified as long term debt.

On February 27, 2019, a Promissory Note (the “February 2019 Note”, together with the Original Third Eye Capital Notes, the Third Eye Capital Notes) for $2.1 million was advanced by Third Eye Capital to Aemetis, Inc., as a short-term credit facility for working capital and other general corporate purposes with an interest rate of 14% per annum maturing on the earlier of (a) receipt of proceeds from any financing, refinancing, or other similar transaction, (b) extension of credit by payee, as lender or as agent on behalf of certain lenders, to the Company or its affiliates, or (c) April 30, 2019. In consideration of the February 2019 Note, $0.1 million of the total proceeds were paid to Third Eye Capital as financing charges. On April 30, 2019, the February 2019 Note was modified to remove the stated maturity date and instead will be due on demand by Third Eye Capital. As of June 30, 2019, the outstanding balance of principal and interest on the February 2019 note was $2.2 million.

Terms of Third Eye Capital Notes

Term Notes. As of June 30, ~~2018,~~2019, the Company had ~~total of~~ $7.0 million in principal and interest outstanding under the Term Notes. The Term Notes accrue interest at 14% per ~~annum. The Term Notes~~annum and mature on April 1, ~~2020.~~2020*.

B.B

Revolving Credit Facility. The Revolving Credit Facility accrues interest at the prime rate plus 13.75% ~~(18.50%~~(19.25% as of June 30, ~~2018)~~2019), payable monthly in arrears. The Revolving Credit Facility matures on April 1, ~~2020.~~2020*. As of June 30, ~~2018,~~2019, AAFK had ~~$41.1~~$54.7 million in principal and interest and waiver fees outstanding under the Revolving Credit Facility net of ~~which $0.5~~$0.3 million were interest-accruing waiver fees added on March 27, 2018 as part of Amendment No. 14 and $0.25 million were interest-accruing covenant waiver fees added on June 30, 2018 to the Revolving Credit Facility.unamortized discount issuance costs.

Revenue Participation Term Notes. The Revenue Participation Term ~~Notes bear~~Note bears interest at 5% per annum and ~~mature~~matures on April 1, ~~2020.~~2020*. As of June 30, ~~2018, the Company~~2019, AAFK had ~~a total of~~ $11.8 million in principal and interest outstanding on the Revenue Participation Term Notes.

Acquisition Term Notes. The Acquisition Term Notes accrue interest at the prime rate plus 10.75% ~~(15.50%~~(16.25% per annum as of June 30, ~~2018)~~2019) and mature on April 1, ~~2020.~~2020*. As of June 30, ~~2018,~~2019, Aemetis Facility Keyes, Inc. had ~~$23.5~~$24.5 million in principal and interest and redemption fees outstanding net of ~~which $3.1~~unamortized discount issuances costs of $1.3 million. The outstanding principal balance includes a total of $7.0 million ~~was the present value of~~in redemption fees, including $4.5 million which ~~were~~was added to the Acquisition Term Notes on March 27, 2018 as part of Amendment No. ~~14.~~14 and $1.0 million covenant waiver fees as part of Amendment No. 15.

Reserve Liquidity Notes.The Reserve Liquidity Notes, with available borrowing capacity in the amount of $8.0 million, accrue interest at the rate of 30% per annum and are due and payable upon the earlier of: i) the closing of new debt or equity financings, ii) receipt from any sale, merger, debt or equity financing, or iii) April 1, 2020*. We have no borrowings outstanding under the Reserve Liquidity Notes as of June 30, 2019.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

The Third Eye Capital Notes contain various covenants, including but not limited to, debt to plant value ratio, minimum production requirements, and restrictions on capital expenditures. The terms of the Third Eye Capital Notes allow the lender to accelerate the maturity in the occurrence of any event that could reasonably be expected to have a material adverse effect, such as any change in the business, operations, or financial condition.

The Third Eye Capital Notes are secured by first priority liens on all real and personal property of, and assignment of proceeds from all government grants and guarantees from Aemetis, Inc. The Third Eye Capital Notes all contain cross-collateral and cross-default provisions. McAfee Capital, LLC (McAfee Capital), owned by Eric McAfee, the Company’s Chairman and CEO, provided a guaranty of payment and performance secured by all of its Company shares. In addition, Eric McAfee provided a blanket lien on substantially all of his personal assets, and McAfee Capital provided a guarantee in the amount of $8.0 million.

* The note maturity date can be extended by the Company to April 2021. As a condition to any such extension, the Company would be required to pay a fee of 5% of the carrying value of the debt which can be paid in cash or added to the outstanding debt. As a result of this ability to extend the maturity at the Company’s will, the Third Eye Capital Notes are classified as non-current debt.

Cilion shareholder seller notes payable. In connection with the Company’s merger with Cilion, Inc., ~~(Cilion)~~("Cilion") on July 6, 2012, the Company issued $5.0 million in notes payable to Cilion shareholders as merger compensation subordinated to the senior secured Third Eye Capital Notes. The liability bears interest at 3% per annum and is due and payable after the Third Eye Capital Notes have been paid in full. As of June 30, ~~2018,~~2019, Aemetis Facility Keyes, Inc. had ~~$5.9~~$6.0 million in principal and interest outstanding under the Cilion shareholder seller notes payable.

~~AEMETIS, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(Unaudited, tabular data in thousands except par value and per share data)~~

Subordinated Notes. On January 6 and January 9, 2012, AAFK entered into Note and Warrant Purchase Agreements with two accredited investors pursuant to which it issued $0.9 million and $2.5 million in original notes to the investors ~~(Subordinated Notes)~~(the “Subordinated Notes”). The Subordinated Notes mature every six months. Upon maturity, the Subordinated Notes are generally extended with a fee of 10% added to the balance outstanding plus issuance of warrants exercisable at $0.01 with a two-year term. Interest accrues at 10% and is due at maturity. Neither AAFK nor Aemetis may make any principal payments under the Subordinated Notes until all loans made by Third Eye Capital to AAFK are paid in full.

On July 1, ~~2018,~~2019, the Subordinated Notes were amended to extend the maturity date until the earlier of (i) December 31, ~~2018;~~2019; (ii) completion of an equity financing by AAFK or Aemetis in an amount of not less than $25.0 million; or (iii) after the occurrence of an Event of Default, including failure to pay interest or principal when due and breaches of note covenants. A 10% cash extension fee was paid by adding the fee to the balance of the new note and warrants to purchase 113 thousand shares of common stock were granted with a term of two years and an exercise price of $0.01 per share. We will evaluate the July 1, ~~2018~~2019 amendment and the refinancing terms of the Subordinated Notes ~~and determine the accounting treatment~~ in accordance with ASC 470-50 Debt – Modification and Extinguishment.

As of June 30, 2019, there were 83,000 warrants outstanding that were issued in connection with the extension of the Subordinated Notes pursuant to the January 1, 2019 amendment.

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had, in aggregate, ~~$9.4~~$10.8 million and ~~$8.7~~$10.1 million in principal and interest outstanding respectively, under the Subordinated Notes.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

EB-5 ~~long-term~~ promissory notes. EB-5 is a U.S. government program authorized by the Immigration and Nationality Act designed to foster employment-based visa preference for immigrant investors to encourage the flow of capital into the U.S. economy and to promote employment of U.S. workers. The Company entered into a Note Purchase Agreement dated March 4, 2011 (as further amended on January 19, 2012 and July 24, 2012) with Advanced BioEnergy, LP, a California limited partnership authorized as a Regional Center to receive EB-5 investments, for the issuance of up to 72 subordinated convertible promissory notes (the ~~EB-5 Notes)~~“EB-5 Notes”) bearing interest at 3%2-3%. Each note was issued in the principal amount of $0.5 million and due and payable four years from the date of each note, for a total aggregate principal amount of up to $36.0 million (the ~~EB-5~~“EB-5 Phase I ~~funding)~~funding”). The original maturity date on the promissory notes can be extended automatically for a one or ~~two year~~two-year period initially and is eligible for further one-year automatic extensions as long as there is no notice of non-extension from investors and the investors’ immigration ~~process is~~processes are in progress. On February 27, 2019, Advanced BioEnergy, LP, and the Company entered into an Amendment to the EB-5 Notes which restated the original maturity date on the promissory notes with automatic six-month extensions as long as the investors’ immigration processes are in progress. Except for four early investor EB-5 Notes, the Company was granted 12 months from the date of the completion of immigration process to redeem these EB-5 Notes. Accordingly, the notes have been recognized as long term while the four early investor notes have been classified as current debt. The EB-5 Notes are convertible into Company’s common stock after three years at a conversion price of $30 per share.

Advanced BioEnergy, LP arranges investments with foreign investors, who each make loans to the Keyes ~~plant~~Plant in increments of $0.5 million. The Company has sold an aggregate principal amount of $36.0 million of EB-5 Notes under the EB-5 Phase I funding since 2012 to the date of this filing. As of June 30, ~~2018,~~2019, $35.0 million has been released from the escrow amount to the Company, ~~including~~with $0.5 million ~~released on April 26, 2018. As of June 30, 2018, $0.5 million is~~ remaining in escrow and $0.5 million is to be funded to escrow. As of June 30, ~~2018,~~2019, $35.0 million in principal and ~~$1.7~~$2.4 million in accrued interest was outstanding on the EB-5 Phase I Notes. ~~Out of the $36.7 million total outstanding, $1.7 million will be due within a year.~~

On October 16, 2016, the Company launched its EB-5 Phase II funding, with plans to issue $50.0 million in additional EB-5 Notes on substantially similar terms and conditions as those issued under the Company’s EB-5 Phase I funding to refinance indebtedness and ~~for~~ capital expenditures of Aemetis, Inc. and ~~Goodland~~GAFI. The Company entered into a Note Purchase Agreement dated with Advanced ~~Fuels, Inc.~~BioEnergy II, LP, a California limited partnership authorized as a Regional Center to receive EB-5 Phase II investments, for the issuance of up to 100 EB-5 Notes bearing interest at 3%. Each note will be issued in the principal amount of $0.5 million and due and payable five years from the date of each note, for a total aggregate principal amount of up to $50.0 million (the “EB-5 Phase II funding”).

~~AEMETIS, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(Unaudited, tabular data~~Advanced BioEnergy II, LP arranges investments with foreign investors, who each make loans to the Riverbank Cellulosic Ethanol Facility in ~~thousands except par value~~increments of $0.5 million. The Company has sold an aggregate principal amount of $2.5 million of EB-5 Notes under the EB-5 Phase II funding since 2016 to the date of this filing. As of June 30, 2019, $2.5 million was released from escrow to the Company and ~~per share data)~~

$47.5 million remains to be funded to escrow. As of June 30, 2019, $2.5 million in principal and interest was outstanding on the EB-5 Phase II Notes.

Unsecured working capital loans. On April 16, 2017, the Company entered into an operating agreement with Gemini Edibles and Fats India Private Limited ~~(Gemini)~~(“Gemini”). Under this agreement, Gemini agreed to provide the Company with working capital, on an as needed basis, to fund the purchase of feedstock and other raw materials for ~~its~~the Kakinada ~~plant.~~Plant. Working capital advances bear interest at 12%. In return, the Company agreed to pay Gemini an amount equal to 30% of the plant’s monthly net operating profit and recognized these as operational support charges in the financials. In the event that the Company’s biodiesel facility operates at a loss, Gemini owes the Company 30% of the losses as operational support charges. Either party can terminate the agreement at any time without penalty. Additionally, Gemini received a first priority lien on the assets of the Kakinada ~~plant. The~~Plant. During the six months ended June 30, 2019 and 2018, the Company made principal and interest payments to Gemini of approximately $13.7 million and $5.4 million, ~~and $2.8 million during the six months ended June 30, 2018 and 2017.~~respectively. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had ~~$3.4~~approximately $3.0 million and ~~$3.5~~$4.6 million outstanding onunder this ~~agreement.~~agreement, respectively.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

In November 2008, the Company entered into an operating agreement with Secunderabad Oils Limited (“Secunderabad Oils”). The 2008 agreement provided the working capital and had the first priority lien on assets in return for 30% of the plant’s monthly net operating profit. These expenses were recognized as ~~operational support charges~~selling, general, and administrative expenses by the Company in the financials. All terms of the 2008 agreement with Secunderabad Oils were terminated to amend the agreement as below. On July 15, 2017, the agreement with Secunderabad Oils was amended to provide the working capital funds for British Petroleum business operations ~~(“BP Operations”)~~ only in the form of inter-corporate deposit for an amount of approximately $2.3 million over a 95 days period at the rate of 14.75% per annum interest rate. The term of the agreement continues until the either party terminates it. Secunderabad Oils has a second priority lien on the assets of the Company’s Kakinada ~~plant~~Plant after this agreement. On April 15, 2018, the agreement was amended to purchase the raw material for business operations at 12% per annum interest rate. During the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company made principal and interest payments to Secunderabad Oils of approximately ~~$2.7~~$0.5 million and ~~$2.3~~$2.7 million, respectively. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had ~~$1.3~~$0.7 million and $0.3 million outstanding under this agreement, respectively.

Variable Interest Entity (GAFI) Term loan and Revolving loan.

On July 10, 2017, GAFI entered into ~~the GAFI~~a Note Purchase Agreement (the “GAFI Note Purchase Agreement”) with Third Eye Capital ~~and the noteholders made a party thereto from time to time~~ (the ~~GAFI Noteholders)~~“Noteholders”). See ~~“Part I, Item 1. Financial Statements –~~further discussion regarding GAFI in Note 5. ~~Variable Interest Entity.”~~ Pursuant to the GAFI Note Purchase Agreement, the ~~GAFI~~ Noteholders agreed, subject to the terms and conditions of the GAFI Note Purchase Agreement and relying on each of the representations and warranties set forth therein, to make (i) ~~the~~a single term loan to GAFI ~~Term Loan~~ in an aggregate amount of ~~fifteen~~$15 million ~~dollars~~(the “GAFI Term Loan”) and (ii) ~~the GAFI Revolving Loan in an amount~~revolving advances not to exceed ~~ten~~$10 million ~~dollars~~ in the ~~aggregate.~~aggregate (the “GAFI Revolving Loan”). The interest rate per annum applicable to the GAFI Term Loan is equal to ~~10%~~ten percent (10%). The interest rate per annum applicable to the GAFI Revolving ~~Loan~~Loans is the greater of ~~the~~ Prime Rate plus seven and three quarters percent (7.75%) and twelve percent ~~(12%~~(12.00%). The applicable interest rate as of June 30, 2019 was 13.25%. The maturity date of the ~~GAFI Loans~~loans (“Maturity Date”) is July 10, ~~2019. The maturity date~~2019, provided that the Maturity Date may be extended at the option of GAFI for up to two additional one-year periods upon prior written notice and upon satisfaction of certain conditions and the payment of a renewal fee for such extension. On June 10, 2019, notice was given to renew the maturity date of GAFI notes to July 10, 2020 by following extension terms in the GAFI Note Purchase Agreement in exchange for a fee of $0.5 million. An initial advance under the GAFI Revolving Loan was made for $2.2 million as a prepayment of interest on the GAFI Term Loan for the first eighteen months of interest payments. In addition, a fee of $1.0 million was paid in consideration to the Noteholders.

On June 28, 2018, GAFI entered into Amendment No. 1 to the GAFI Term Loan with Third Eye Capital for an additional amount of $1.5 million with a fee of $75 thousand added to the loan from Third Eye Capital at a 10% interest rate. The fee of $75 thousand was recognized as expense on the Amendment date. Pursuant to Amendment No. 1, Aemetis, Inc. entered into a Stock Appreciation Rights Agreement to issue 1,050,000 Stock Appreciation Rights (SARs) to Third Eye Capital on August 23, 2018, with an exercise date of one year from the issuance date with a call option for the Company at $2.00 per share during the first 11 months of the agreement either to pay $2.1 million in cash or issue common stock worth of $2.1 million based on 30-day weighted average price of the stock on the call date, and a put option for Third Eye Capital at $1.00 per share during the 11thmonth of the agreement where the Company can redeem the SARs for $1.1 million in cash. In the event that none of the above options is exercised, the SARs will be automatically exercised one year from the issuance date based upon the 30-day weighted average stock price and paid in cash and cash equivalents. We used an outside valuation expert to value the SARs using the Monte Carlo method, and recorded the fair value of the SARs of $1.3 million as fees on Amendment No. 1 and will be amortized over the term of the loan according to ASC 470-50Debt – Modification and Extinguishment.The Company also recorded a liability for the fair value of $1.3 million which is re-measured at every quarter end until the SARs are exercised. As of June 30, 2019, none of the options was exercised on SARs. On December 20, 2018, $1.6 million from Amendment No. 1 was paid.

1822

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

~~As of June 30, 2018 and~~On December ~~31, 2017, GAFI had $15.0 million outstanding on the term loan and $10.0 million outstanding on the revolving loan, with $0.1 million in interest paid in arrears.~~

~~On June 28,~~3, 2018, GAFI ~~borrowed~~entered into Amendment No. 2 to the GAFI Term Loan with Third Eye Capital for an additional amount of ~~$1.5~~up to $3.5 million ~~with a fee of $75 thousand added to the loan fron~~from Third Eye Capital at a 10% interest rate. GAFI borrowed $1.8 million against this Amendment No. 2 with a $175 thousand fee added to the loan and $0.2 million was withheld from the $1.8 million for interest payments. $1.5 million is available to draw under GAFI Amendment No. 2 for the CO2Project. Among other requirements, the Company is also required to make the following mandatory repayments of the CO2Term Loan: (i) on a monthly basis, an amount equal to 75% of any payments received by the Company for CO2produced by Linde LLC, (ii) an amount equal to 100% of each monthly payment received by the Company for land use by Linde for CO2plant, (iii) on a monthly basis, an amount equal to the product of: $0.01 multiplied by the number of bushels of corn grain used in the ethanol production at the Keyes Plant. Based on the mandatory payments, an amount of $0.4 million is estimated to be paid in the next 12 months and is classified as current debt as of June 30, 2019. We evaluated the Amendment No. 2 to the GAFI Term Loan and applied modification accounting treatment in accordance with ASC 470-50Debt – Modification and Extinguishment.

As of June 30, ~~2018, the outstanding balance on the loan was $1.6 million.~~

2019, GAFI the Company and its subsidiary AAPK also entered into separate intercompany revolving promissory notes (the GAFI Intercompany Notes), dated July 10, 2017, pursuant to which GAFI may, from time to time, lend a portionhad $16.5 million net of ~~the proceeds~~discounts issuance costs of the GAFI Revolving Loan borrowed under the Amended GAFI NPA to the Company. The Company borrowed $1.5 million on June 28, 2018. As of June 30, 2018 and December 31, 2017, the Company and AAPK had $6.9 million and $5.7$0.5 million outstanding on the ~~GAFI Intercompany Notes.~~Term Loan and $10.0 million on the Revolving Loan respectively.

~~Debt~~Scheduled debt repayments for the Company’s loan obligations follow:

Twelve months ended June 30,	Debt Repayments	Debt Repayments
2019	$19,418
2020	133,327	$21,356
2021	14,000	159,346
2022	3,398	3,500
2023		2,548
2024		2,500
Total debt	170,143	189,250
Debt issuance costs	(1,792)	(2,126)
Total debt, net of debt issuance costs	$168,351	$187,124

1923

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

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)~~“GAFI Guarantors”) also agreed to enter into a limited guaranty (the ~~GAFI~~“GAFI Limited ~~Guaranty)~~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)~~“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,~~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.

2024

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

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

Goodland Advanced Fuels, Inc.

As of

June 30, 2018

December 31, 2017

Assets

Current assets:

Cash and cash equivalents
$2
$184
Prepaid expenses
  787
  1,581
Total current assets
  789
  1,765



Property, plant and equipment
  15,408
  15,408
Promissory note receivable from Aemetis
  6,921
  5,709



Total assets
$23,118
$22,882



Liabilities and stockholder deficit


Short term borrowings
$1,577

$-
Secured and revolving notes
  24,604

  24,351



Total liabilities
  26,181
  24,351



Accumulated deficit
  (3,063)
  (1,469)
Total liabilities and stockholder deficit
$23,118
$22,882

Goodland Advanced Fuels, Inc.

Statements of Operations

Three months ended

Six months ended

June 30, 2018

June 30, 2018

Selling, general and administrative expenses
$134
$232



Operating loss
  (134)
  (232)



Interest expense


Interest rate expense
  689
  1,367
Debt related fees and amortization expense
  200
  325
Other income
  (166)
  (330)



Net loss
$(857)
$(1,594)

As of June 30, 2018, the Company had outstanding balance of $6.9 million under the Intercompany Revolving Notes. In the consolidation process, these intercompany borrowings and interest thereon were eliminated.

~~6. Stock-Based Compensation~~

~~Plan Stock Options~~

Aemetis authorized the issuance of 3.2 million shares of common stock under its Zymetis 2006 Stock Plan and Amended and Restated 2007 Stock Plan (together, the “Company Stock Plans”), which include both incentive and non-statutory stock options. These options generally expire five to ten years from the date of grant with a general vesting term of 1/12th~~every three months and are exercisable at any time after vesting subject to continuation of employment.~~

	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

2125

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

	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.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

6. Biogas LLC – Series A Preferred Financing

On December 20, 2018, Aemetis Biogas LLC (the “ABGL”) entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Unit Agreement”) by selling Series A preferred Units to Protair-X Americas, Inc. (the “Purchaser”), with Third Eye Capital acting as an agent for the purchaser (the “Agent”). ABGL plans to construct and collect biogas from dairies located near the Keyes Plant (the “CO2Project”). Biogas is a blend of methane along with CO2and other impurities that can be captured from dairies, landfills and other sources. After a gas cleanup and compression process, biogas can be converted into bio-methane, which is a direct replacement of petroleum natural gas and can be transported in existing natural gas pipelines.

ABGL is authorized to issue 11,000,000 Common Units, and up to 6,000,000 convertible, redeemable, secured, preferred membership units (the “Series A Preferred Units”). ABGL issued 6,000,000 Common Units to the Company. ABGL also issued 1,660,000 Series A Preferred Units to the Purchaser for $8,300,000 with the ability to issue an additional 4,340,000 Series A Preferred Units at $5.00 per Unit for a total of up to $30,000,000 in funding. Additionally, 5,000,000 common units are held in reserve as potential conversion units issuable to the Purchaser upon certain triggering events discussed below.

The Preferred Unit Agreement includes (i) preference payments of $0.50 per unit on the outstanding Series A Preferred Units commencing on the second anniversary, (ii) conversion rights for up to 1,200,000 common units or up to maximum number of 5,000,000 common units (also at a one Series A Preferred Unit to one Common Unit basis) if certain triggering events occur, (iv) one Board seat of the three available to be elected by Preferred Unit holders, (iii) mandatory redemption value at $15 per unit payable at an amount equal to 75% of free cash flow generated by ABGL, up to $90 million in the aggregate (if all units are issued), (iv) full redemption of the units on the sixth anniversary, (v) minimum cash flow requirements from each digester, and (vi) $0.9 million paid as fees to the Agent from the proceeds.

Triggering events occur upon ABGL’s failure to redeem units, comply with covenants, any other defaults or cross defaults, or to perform representations or warranties. Upon a triggering event: (i) the obligation of the Purchaser to purchase additional Series A Preferred Units is terminated, (ii) cash flow payments for redemption payments increased from 75% to 100% of free cash flows, and (iii) total number of common units into which preferred units may be converted increases from 1,200,000 common units to 5,000,000 common units on a one for one basis.

Pursuant to signing the agreement with the Purchaser, the ABGL issued 1,660,000 Series A Preferred Units for an amount of $8.3 million in first tranche of investment. ABGL paid $6.0 million of this amount to Aemetis, Inc. in the form of management fees for managing and executing the Project. We assessed the above terms and concluded that the minority shareholders lacks substantive participating rights, principally based on the ownership percentage, manager representation, and expertise in the industry. Therefore, ABGL is controlled by Aemetis, Inc. and accordingly consolidated into the Company. The Series A Preferred Units are recorded as mandatorily redeemable and treated as a liability as the conversion option was deemed to be non-substantive. The Company is accreting up to the redemption value of $24.9 million over the estimated future cash flow periods of six years using the effective interest method. In addition, the Company identified freestanding future tranche rights and the accelerated redemption feature related to a change in control provision as derivatives which required bifurcation. These derivative features were assessed to have minimal value as of June 30, 2019 and December 31, 2018 based on the evaluation of the other conditions included in the agreement.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

On ~~January18,~~June 21, 2019, ABGL issued 50,000 Series A Preferred Units for incremental proceeds of $250 thousand as part of the first tranche of the Series A Preferred Unit Agreement. Consistent with the first issuance, the units are treated as a liability as the conversion option was deemed to be non-substantive. The redemption value of these additional units of $750 thousand is accreted over the estimated future cash flow periods of six years from the original anniversary date using the effective interest method.

As of June 30, 2019 and December 31, 2018, the Company recorded $8.2 million and ~~May 17, 2018, 725~~$7.0 million outstanding under this agreement.

7. Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and ~~423 thousand~~disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) 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.

The new standard was effective for us on January 1, 2019. We adopted the new standard on its effective date. A modified retrospective transition approach was required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the practical expedient pertaining to land easements. 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.

This standard had a material effect on our consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities. However, it did not have a material impact on the Consolidated Statement of Operations.

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 which we have control over these identified assets 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. We have only one lease that has option to extend, we have concluded that it is not reasonably certain that we would exercise the option to extend the lease. Therefore, as of the lease commencement date, our lease terms generally did not include these options. 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 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. The equipment cost is recognized as it is incurred. The corporate office has a sublease agreement in which we are a sub lessor and the term of the lease is for five months and then becomes month to month. 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.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

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 to 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 June 30, 2019	Six months ended June 30, 2019

Operating lease expense	$143	$324
Short term lease expense	12	53
Variable lease expense	17	49
Sub lease income	(51)	(68)

Total lease cost	$121	$358

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Supplemental non-cash flow information related to right-of-use asset and lease liabilities was as follows for the three and six months ended June 30, 2019:

	Three months ended June 30, 2019	Six months ended June 30, 2019
Accretion of the lease liability	$36	$76

Amortization of right-of-use assets	$146	$287

Weighted Average Remaining Lease Term Operating Leases	1.8 years
Weighted Average Discount Rate Operating Leases	14.7%

Maturities of operating lease liabilities were as follows:

Twelve months ended June 30,	Operating leases

2020	$701
2021	228
2022	141
Total lease payments	$1,070

Less imputed interest	(126)

Total operating lease liability	$944

8. Stock-Based Compensation

Plan Stock Options

2019 Plan

On April 29, 2019, the Aemetis 2019 Stock Plan (the “2019 Stock Plan”) was approved by stockholders of the Company. This plan permits the grant of Incentive Stock Options, Non-Statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine in its discretion. The 2019 Stock Plan’s term is 10 years and supersedes all prior plans. The 2019 Stock Plan authorized the issuance of 200,000 shares of common stock for the 2019 calendar year, in addition to permitting transferring and granting any available and unissued or expired options under the Amended and Restated 2007 Stock Plan in an amount equal to 177,246 options.

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

On June, 6, 2019, 374,000 option grants were issued to employees and directors under the ~~Company~~2019 Stock ~~Plans respectively.~~ Plan. These options expire ten years from the date of grant. Employee grants have a general vesting term of 1/12thevery three months and are exercisable at any time after vesting subject to continuation of employment. Option grants for directors had immediate vesting with 10-year term expiration.

With the approval of the 2019 Stock Plan, the Zymetis 2006 Stock Plan and Amended and Restated 2007 Stock Plan (the “Terminated Stock Plans” and together with the 2019 Stock Plan, the “Company Stock Plans”) are terminated for granting any options under either plan. However, any options granted before approval will remain outstanding and can be exercised, and any expired options will be available to grant under the 2019 Stock Plan.

On January 8, 2019, 707,000 stock option grants were issued for employees and directors under the Amended and Restated 2007 Stock Plan. On February 21, 2019, 10,000 stock option grants were issued to a consultant by the Company.

As of June 30, ~~2018, 2.9~~2019, 3.8 million options are outstanding under the Company Stock Plans.

Inducement Equity Plan Options

In March 2016, the Board of Directors of the Company (the “Board”) approved an Inducement Equity Plan authorizing the issuance of ~~100 thousand~~100,000 non-statutory stock options to purchase common stock.

On June 6, 2019, 25,000 option grants were made under the Inducement Equity Plan to employees. As of June 30, ~~2018, 12 thousand~~2019, 25,000 options were outstanding.

Common Stock Reserved for Issuance

The following is a summary of options granted under the Company Stock Plans:

	Shares Available for Grant	Number of Shares Outstanding	Weighted-Average Exercise Price	Shares Available for Grant	Number of Shares Outstanding	Weighted-Average Exercise Price

Balance as of December 31, 2017	196	2,189	$2.70
Balance as of December 31, 2018				149	2,889	$1.80
Authorized	655	-		855	-
Granted	(1,148)	1,148	1.07	(1,116)	1,116	0.78
Exercised	-	(2)	0.67
Forfeited/expired	414	(414)	4.38	190	(190)	3.11
Balance as of June 30, 2018	117	2,921	$1.82

Balance as of June 30, 2019				78	3,815	$1.50

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

As of June 30, ~~2018,~~2019, there were ~~1.7~~2.4 million options vested under all the Company Stock Plans.

Stock-based compensation for employees

Stock-based compensation is accounted for in accordance with the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded stock compensation expense in the amount of ~~$318~~$196 thousand and ~~$195~~$317 thousand, respectively. For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded stock compensation expense in the amount of $486 thousand and $581 thousand, ~~and $604 thousand,~~ respectively.

~~AEMETIS, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(Unaudited, tabular data in thousands except par value and per share data)~~

Valuation and Expense Information

All issuances of stock options or other issuances of equity instruments to employees as the consideration for services received by us are accounted for based on the fair value of the equity instrument issued. The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock based compensation expense requires us to make assumptions and judgments about the variables used in the calculation, including the fair value of our common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of our common stock, a risk-free interest rate, and expected dividends. We also estimate forfeitures of unvested stock options. To the extent actual forfeitures differ from our estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. Compensation cost is recorded only for vested options. We use the simplified calculation of expected life described in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, and volatility is based on an average of the historical volatilities of the common stock of four entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. We use an expected dividend yield of zero, as we do not anticipate paying any dividends in the foreseeable future. Expected forfeitures are assumed to be zero due to the small number of plan participants and the plan.

~~There were 423 thousand options granted during~~During the three months ended June 30, ~~2018.~~2019 and 2018, 399,000 and 423,000 options were granted respectively. The weighted average fair value calculations for options granted during the three months ended June 30, 2019 and 2018 are based on the following assumptions:

	For the three months ended June 30,
Description	2019	2018
Dividend-yield	0%	0%
Risk-free interest rate	2.00%	3.04%
Expected volatility	88.58%	85.6%
Expected life (years)	6.81	6.48
Market value per share on grant date	$0.92	$1.71
Fair value per share on grant date	$0.71	$1.28

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

~~For the three months ended June 30,~~

~~Description~~

~~2018~~

~~Dividend-yield~~

~~Risk-free interest rate~~

~~3.04~~%

~~Expected volatility~~

~~85.6~~%

~~Expected life (years)~~

~~6.48~~

~~Market value per share on grant date~~

$~~1.71~~

~~Fair value per share on grant date~~

$~~1.28~~

As of June 30, ~~2018,~~2019, the Company had ~~$1.2~~$1.0 million of total unrecognized compensation expense for employees, which the Company will amortize over the ~~2.0~~2.1 years weighted average remaining term.

The Company entered into a Stock Appreciation Rights Agreement to issue 1,050,000 Stock Appreciation Rights (SARs) to Third Eye Capital on August 23, 2018 as part of Amendment No. 1 to the GAFI Note Purchase Agreement with an exercise date of one year from the issuance date. The SARs Agreement contains a call option for the Company at $2.00 per share during the first 11 months of the agreement either pay $2.1 million in cash or issue common stock worth of $2.1 million based on 30-day weighted average price of the stock on the call date, and a put option for the Third Eye Capital at $1.00 per share during the 11thmonth of the agreement where Third Eye Capital can redeem the SARs for $1.1 million in cash and cash equivalents. If none of the above options is exercised, SARs are automatically exercised and paid for in cash and cash equivalents one year from the date of the issuance date based upon the 30-day weighted average price of the Company’s stock price. We used an outside valuation expert to value the SARs using the Monte Carlo method. This valuation model requires us to make assumptions and judgments about the variables used in the calculation, such assumptions include the following: stock price on the measurement date, the volatility of our common stock for the period remaining, and a risk-free interest rate for the period remaining. Based on the valuation of issuance date, we recorded a fair value of the SARs of $1.28 million as fees on Amendment No. 1 to the GAFI Term Loan and these fees are amortized over the term of the loan according to ASC 470-50Debt – Modification and Extinguishment.The Company also recorded a liability for the fair value of $1.28 million in other liabilities which will be re-measured at every quarter end using the Monte Carlo valuation method until the SARs are exercised.

The SARs were measured at June 30, 2019 and December 31, 2018 using the following assumptions:

Description	June 30, 2019	December 31, 2018

Risk-free interest rate	2.20%	2.60%
Expected volatility	101%	125%
Market value per share	$0.85	$0.61
Fair value per share on grant date	$1.14	$1.08

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

The Company considers the stock appreciation rights to be level 3 of the fair value hierarchy based upon the applicable guidance.

The following table reflects the activity for liabilities measured at fair value using Level 3 inputs from December 31, 2018 to June 30, 2019:

SARs Liability Balance

Balance as of December 31, 2018	$1,132
Related change in fair value	35
Balance as of March 31, 2019	$1,167
Related change in fair value	25
Balance as of June 30, 2019	$1,192

Agreements

Working Capital Arrangement. Pursuant to a Corn Procurement and Working Capital Agreement with J.D. Heiskell, the Company agreed to procure whole yellow corn and grain sorghum, primarily from J.D. Heiskell. The Company has the ability to obtain grain from other sources subject to certain conditions; however, in the past all the Company’s grain purchases have been from J.D. Heiskell. Title and risk of loss of the corn pass to the Company when the corn is deposited into the Keyes Plant weigh bin. The term of the Corn Procurement and Working Capital Agreement expires on December 31, 2018 and the term can be automatically renewed for additional one-year terms. J.D. Heiskell further agrees to sell all ethanol the Company produces to Kinergy Marketing or other marketing purchasers designated by the Company and all WDG the Company produces to A.L. Gilbert. The Company markets and sells DCO to A.L. Gilbert and other third parties. The Company’s relationships with J.D. Heiskell, Kinergy Marketing, and A.L. Gilbert are well established and the Company believes that the relationships are beneficial to all parties involved in utilizing the distribution logistics, reaching out to widespread customer base, managing inventory, and building working capital relationships. Revenue is recognized upon delivery of ethanol to J. D. Heiskell as revenue recognition criteria have been met and any performance required of the Company subsequent to the sale to J.D. Heiskell is inconsequential. These agreements are ordinary purchase and sale agency agreements for the Keyes ~~plant.~~Plant.

2334

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

The J.D. Heiskell sales activity associated with the Corn Procurement and Working Capital Agreement ~~during~~for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:

	As of and for the three months ended June 30,		As of and for the six months ended June 30,		As of and for the three months ended June 30,		As of and for the six months ended June 30,
	2018	2017	2018	2017	2019	2018	2019	2018
Ethanol sales	$30,129	$28,130	$58,341	$51,675	$29,808	$30,129	$56,997	$58,341
Wet distiller's grains sales	8,499	6,457	16,327	12,038	8,733	8,499	17,336	16,327
Corn oil sales	893	852	1,816	1,650	852	893	1,652	1,816
Corn/milo purchases	28,760	26,338	56,505	49,727
Corn purchases					30,719	28,760	59,980	56,505
Accounts receivable	852	384	852	384	1,238	852	1,238	852
Accounts payable	2,241	1,719	2,241	1,719	3,118	2,241	3,118	2,241

Ethanol and Wet Distillers Grains Marketing Arrangement. The Company entered into an Ethanol Marketing Agreement with Kinergy Marketing and a Wet Distillers Grains Marketing Agreement with A.L. Gilbert. Under the terms of the agreements, subject to certain conditions, the Ethanol Marketing Agreement matures on August 31, ~~2018~~2019 and the Wet Distillers Grains Marketing Agreement matures on December 31, ~~2018~~2019 with automatic one-year renewals thereafter. For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company expensed marketing costs of $0.7 million ~~and $0.7 million~~ for each period ~~respectively,~~ under the terms of both the Ethanol and the Wet Distiller’s Grains Marketing agreements. For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company expensed marketing costs of ~~$1.4~~$1.3 million and ~~$1.2~~$1.4 million, respectively.

As of June 30, 2018, the Company entered into forward purchase contracts for approximately 36 thousand tons of corn, which is the principal raw material for ethanol production. The delivery of this grain will be expected through September 2018.

~~As of June 30, 2018,~~2019, the Company has forward sales commitments for approximately ~~50 thousand~~91,000 tons of WDG. These committed sales will be expected through September ~~2018.~~2019.

Unrealized gains and losses on forward contracts and commitments, in which delivery has not occurred, are deemed “normal purchases and normal sales”, and therefore are not marked to market in the Company’s financial statements, but are subject to a lower of cost or market assessment.

8.10.

Segment Information

Aemetis recognizes two reportable geographic segments: “North America” and “India.” The “North America” operating segment includes the ~~Company’s owned ethanol plant~~Keyes Plant in Keyes, ~~California~~the cellulosic ethanol facility in Riverbank, the cluster of biogas digesters on dairies near the Keyes Plant, the Goodland Plant in Kansas, and ~~its technology~~the research and development lab. As the Company’s technology gains market acceptance, this business segment will initially include its domestic commercial application of cellulosic ethanol technology, its plant construction projects and any acquisitions of ethanol or ethanol related technology facilitiesfacility in ~~North America.~~Minnesota.

The “India” operating segment includes the Company’s 50 million gallon per year nameplate capacity biodiesel manufacturing plant in (“Kakinada Plant”), the administrative offices in Hyderabad, India, and the holding companies in Nevada and Mauritius. The Company’s biodiesel is marketed and sold primarily to customers in India through brokers and by the Company directly.

2435

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Summarized financial information by reportable segment for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 follows:

	Three months ended June 30, 2018			Six months ended June 30, 2018			Three months ended June 30, 2019			Three months ended June 30, 2018
	North America	India	Total Consolidated	North America	India	Total Consolidated	North America	India	Total Consolidated	North America	India	Total Consolidated

Revenues	$39,628	$5,400	$45,028	$76,804	$11,242	$88,046	$39,486	$11,133	$50,619	$39,628	$5,400	$45,028
Cost of goods sold	37,079	5,181	42,260	73,061	10,351	83,412	38,483	8,863	47,346	37,079	5,181	42,260

Gross profit	2,549	219	2,768	3,743	891	4,634	1,003	2,270	3,273	2,549	219	2,768

Expenses
Other Expenses
Research and development expenses	55	-	55	117	-	117	90	-	90	55	-	55
Selling, general and administrative expenses	3,420	169	3,589	6,935	461	7,396	3,190	755	3,945	3,420	169	3,589
Interest expense	5,199	152	5,351	14,083	296	14,379	6,470	116	6,586	5,199	152	5,351
Other expense (income)	(2)	(3)	(5)	43	20	63
Accretion of Series A preferred units							471	-	471	-
Loss contingency on litigation							6,200	-	6,200	-
Other income							(74)	(15)	(89)	(2)	(3)	(5)

Income (loss) before income taxes	$(6,123)	$(99)	$(6,222)	$(17,435)	114	(17,321)	$(15,344)	$1,414	$(13,930)	$(6,123)	$(99)	$(6,222)

Capital expenditures	$567	$208	$775	$1,057	$714	$1,771	$234	$206	$440	$567	$208	$775
Depreciation	992	157	1,149	1,984	315	2,299	947	149	1,096	992	157	1,149

Three months ended June 30, 2017

Six months ended June 30, 2017

North America

India

Total Consolidated

North America

India

Total Consolidated

Revenues
$35,465
$5,299
$40,764
$65,418
$6,920
$72,338
Cost of goods sold
  34,359
  4,700
  39,059
  65,008
  6,212
  71,220







Gross profit
  1,106
  599
  1,705
  410
  708
  1,118







Expenses






Research and development expenses
  110
  -
  110
  196
  -
  196
Selling, general and administrative expenses
  2,867
  395
  3,262
  5,891
  666
  6,557
Interest expense
  4,271
  57
  4,328
  8,828
  25
  8,853
Other expense (income)
  (11)
  3
  (8)
  38
  (18)
  20







Income (loss) before income taxes
$(6,131)
$144
$(5,987)
$(14,543)
  35
  (14,508)







Capital expenditures
$340
$127
$467
$383
$128
$511
Depreciation
  997
  155
  1,152
  1,995
  303
  2,298

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

	For the six months ended June 30, 2019			For the six months ended June 30, 2018
	North America	India	Total Consolidated	North America	India	Total Consolidated

Revenues	$76,122	$16,385	$92,507	$76,804	$11,242	$88,046
Cost of goods sold	75,450	14,135	89,585	73,061	10,351	83,412

Gross profit	672	2,250	2,922	3,743	891	4,634

Other Expenses
Research and development expenses	123	-	123	117	-	117
Selling, general and administrative expenses	7,256	930	8,186	6,935	461	7,396
Interest expense	12,512	283	12,795	14,083	296	14,379
Accretion of Series A preferred units	920	-	920	-	-	-
Loss contingency on litigation	6,200	-	6,200	-	-	-
Other expense (income)	37	(749)	(712)	43	20	63

Income (loss) before income taxes	$(26,376)	1,786	(24,590)	$(17,435)	114	(17,321)

Capital expenditures	$585	$453	$1,038	$1,057	$714	$1,771
Depreciation	1,941	293	2,234	1,984	315	2,299

North America: During the three and six months ended June 30, 2019, the Company’s revenues from ethanol, WDG, and corn oil were made pursuant to the Corn Procurement and Working Capital Agreement established between the Company and J.D. Heiskell. Sales of ethanol, WDG, and corn oil to J.D. Heiskell accounted for 99.8% and 99.9% of the Company’s North America segment revenues for the three and six months ended June 30, 2019, respectively.

During the three and six months ended June 30, 2018, the Company’s revenues from ethanol, WDG, and corn oil were made pursuant to the Corn Procurement and Working Capital Agreement established between the Company and J.D. Heiskell. Sales of ethanol, WDG, and corn oil to J.D. Heiskell accounted for 99.7% of the Company’s North America segment revenues for both the three and six months ended June 30, 2018.

During the three and six months ended June 30, 2017, the Company’s revenues from ethanol, WDG, and corn oil were made pursuant to the Corn Procurement and Working Capital Agreement established between the Company and J.D. Heiskell. Sales of ethanol, WDG, and corn oil to J.D. Heiskell accounted for 99.6% of the Company’s North America segment revenues for the three and six months ended June 30, 2017, respectively.

India. During the three months ended June 30, ~~2018, two~~2019, three biodiesel customers accounted for ~~46%~~29%, 24% and ~~10% and one refined glycerin customer accounted for 11%~~20% of the Company’s consolidated India segment revenues while none of the refined glycerin customers accounted for more than 10%, compared to two biodiesel customers accounting for ~~57%~~46% and ~~17% and no refined glycerin customers accounting for more than~~ 10% of the Company’s consolidated India segment revenues inand one refined glycerin customer accounting for 11% of such revenues during the three months ended June 30, ~~2017.~~2018.

During the six months ended June 30, ~~2018, two~~2019, three biodiesel customers accounted for ~~54%~~35%, 16% and ~~11% and no~~13% of the Company’s consolidated India segment revenues while none of the refined glycerin customers accounted for more than 10% of ~~the Company’s consolidated India segment~~such revenues, compared to two biodiesel customers accounting for 54% and ~~13%~~11% of the Company’s consolidated India segment revenues and nonone of the refined glycerin customers accounting for more than 10% of ~~the Company’s consolidated India segment~~such revenues during the six months ended June 30, ~~2017.~~2018.

2537

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

Total assets by segment consist of the following:

	As of		As of
	June 30,	December 31,	June 30,	December 31,
	2018	2017	2019	2018

North America	$78,854	$80,479	$77,408	$78,149
India	14,274	13,852	14,927	13,672
Total Assets	$93,128	$94,331	$92,335	$91,821

9.11.

Related Party Transactions

The Company owes Eric McAfee, the Company’s Chairman and CEO, and McAfee Capital LLC (“McAfee Capital”),, owned by Eric McAfee, $0.4 million in connection with employment agreements and expense reimbursements previously accrued as salaries expense and accrued liabilities. The balance accrued related to these employment agreements was $0.4 million as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company expensed ~~$10~~$8 thousand and $6$10 thousand, respectively, to reimburse actual expenses incurred by McAfee Capital and related entities. For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company expensed ~~$24~~$21 thousand and ~~$23~~$24 thousand, respectively, to reimburse actual expenses incurred by McAfee Capital and related entities. The Company previously prepaid $0.2 million to Redwood Capital, a company controlled by Eric McAfee, for the Company’s use of flight time on a corporate jet. As of June 30, ~~2018,~~2019, $0.1 million remained as a prepaid expense.

As consideration for the reaffirmation of guaranties required by Amendment No. 13 and 14 to the Note Purchase Agreement which the Company entered into with Third Eye Capital on March 1, 2017 and March 27, 2018 respectively, the Company also agreed to pay $0.2 million for each year in consideration to McAfee Capital in exchange for their willingness to provide the guaranties. The balance of ~~$284~~$362 thousand and ~~$342~~$400 thousand for guaranty fee remained as an accrued liability as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 respectively.

The Company owes various members of Board amounts totaling $1.2 million and $1.1 million as of June 30, 2019 and December 31, 2018, respectively, in connection with board compensation fees, which are included in accounts payable on the balance sheet. For the three months ended June 30, 2019 and 2018, the Company expensed $97 thousand and $88 thousand respectively, in connection with board compensation fees. For the six months ended June 30, 2019 and 2018, the Company expensed $198 thousand and $177 thousand respectively, in connection with board compensation fees.

~~10.~~

12.

Subsequent Events

Subordinated Debt Refinancing

On July 1, ~~2018,~~2019, the Subordinated Notes with two accredited investors were amended to extend the maturity date until the earlier of (i) December 31, ~~2018;~~2019; (ii) completion of an equity financing by AAFK or Aemetis in an amount of not less than $25.0 million; or (iii) after the occurrence of an Event of Default, including failure to pay interest or principal when due and breaches of note covenants. A 10% cash extension fee was paid by adding the fee to the balance of the new Note and warrants to purchase 113 thousand shares of common stock were granted with a term of two years and an exercise price of $0.01 per share. Accounting for the July 1, ~~2018~~2019 amendments and the refinancing terms of the Subordinated Notes will be evaluated in accordance with ASC 470-50 Debt – Modification and Extinguishment.

2638

AEMETIS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited, tabular data in thousands except par value and per share data)

EdenIQ Litigation

~~11.~~The Company has pending litigation with EdenIQ, Inc. (“EdenIQ”) related to wrongful termination of a merger agreement, filed in Santa Clara County Superior Court. The Company and EdenIQ filed motions for attorney’s fees and costs. On July 24, 2019, the court granted $6.2 million of attorney’s fees and costs to EdenIQ. The Company has assessed this matter in accordance with ASC 855 as subsequent event type 1. As a result, a $6.2 million loss on contingency has been recorded within the Company’s consolidated financial statements as of June 30, 2019.

13. Management’s Plan

The accompanying financial statements have been prepared contemplating the realization of assets and satisfaction of liabilities in the normal course of business. The Company has been required to remit substantially all excess cash from operations to the senior lender and it is therefore reliant on the senior lender to provide additional funding when required. In order to meet its obligations during the next 12 months, the Company will need to either refinance the Company’s debt or receive the continued cooperation of the senior lender. This dependence on the senior lender raises substantial doubt about the entity’s ability to continue as a going concern. The Company plans to pursue the following strategies to improve the course of the business:

●

Operate the Keyes ~~plant~~Plant and continue to improve operational performance, including the adoption of new technologies or process changes that allow for energy efficiency, cost reduction or revenue enhancements to the current operations.

●

Expand the ethanol sold at the Keyes ~~plant~~Plant to include the cellulosic ethanol to be generated at the Riverbank Cellulosic Ethanol Facility, a cellulosic ethanol production facility in nearby Riverbank, California, ~~(the Riverbank Cellulosic Ethanol Facility),~~ and to utilize lower cost, non-food advanced feedstocks to significantly increase ~~margins.~~margins by 2020.

●

Monetize the ~~CO2~~ CO2produced at the Keyes ~~plant~~Plant by executing on the agreement with Linde for the delivery of gas to their neighboring facility to be built during ~~2018.~~2019.

●

~~Rely on the approval of a $125M U.S. Department of Agriculture loan guarantee~~Construct and operate biogas digesters to ~~raise~~capture and monetize biogas by 2020.

●

Raise the funds necessary to construct and operate the Riverbank Cellulosic Ethanol Facility using the licensed technology from LanzaTech ~~Technology (Lanza Tech)~~ and InEnTec Technology ~~(InEnTec)~~ to generate federal and state carbon credits available for ultra-low carbon ~~fuels.~~fuels by reliance on the approval of a $125 million U.S. Department of Agriculture loan guarantee.

●

Secure higher volumes of shipments of fuels at the India plant by developing the sales channels ~~including,~~and expanding the existing domestic ~~markets, extending international sales by supplying large oil companies, and exporting fuel into the European Union and United States biodiesel markets to capture valuable low carbon fuel credits.~~markets.

●

Continue to locate funding for existing and new business opportunities through a combination of working with our senior lender, restructuring existing loan agreements, selling the current offering for $50 million from the Phase II EB-5 program, or by vendor financing arrangements.

Management believes that through the above actions, the Company will have the ability to generate capital liquidity to carry out the business plan for the next 12 months.

2739

Item 2.

~~Management's~~Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

●

Overview. Discussion of our business and overall analysis of financial and other highlights affecting us to provide context for the remainder of MD&A.

●

Results of Operations. An analysis of our financial results comparing the three and six months ended June 30, ~~2018~~2019 to the three and six months ended June 30, ~~2017.~~2018.

●

Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition.

●

Critical Accounting Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. As discussed in further detail above, the actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, specifically our most recent Annual Report on Form 10-K. All references to years relate to the calendar year ended December 31 of the particular year.

Overview

~~We are~~Headquartered in Cupertino, California, Aemetis is an ~~international~~advanced renewable fuels and biochemicals company focused on ~~the production of advanced renewable fuels and chemicals through~~ the acquisition, development and commercialization of innovative technologies that replace traditional petroleum-based products through the conversion of ~~first-generation~~second-generation ethanol and biodiesel plants into advanced biorefineries. We operate in two reportable geographic segments: “North America” and “India.”

~~We were incorporated~~Founded in ~~Nevada in 2006.~~

We2006, we own and operate a 60 million gallon per year ethanol facility in the California Central Valley near Modesto where we manufacture and produce ethanol, wet distillers’ grains (“WDG”), condensed distillers solubles (“CDS”), and distillers’ corn oil (“DCO”). We operate a research and development laboratory to develop efficient conversion technologies using waste feedstocks to produce biofuels and biochemicals. Additionally, we have the option to own a partially completed plant in Goodland, Kansas (the “Goodland Plant”) through a variable interest entity (VIE) Goodland Advanced Fuels, Inc., (GAFI), which was formed to acquire the Goodland Plant. Upon exercise of the option, we plan to deploy a cellulosic ethanol technology to the Goodland Plant. We also own and operate a 50 million gallon per year renewable chemical and advanced fuel production facility ~~located~~on the East Coast of India producing high quality distilled biodiesel and refined glycerin for customers in ~~Keyes, California (the Keyes plant). The Keyes plant produces its own combined heat~~India and power through the use of a natural gas-powered steam turbine, and reuses 100% of its process water with zero water discharge. In addition to ethanol, the Keyes plant produces Wet Distillers Grains (WDG), Distillers Corn Oil (DCO), and Condensed Distillers Solubles or corn syrup (CDS), all of which are sold to local dairies and feedlots as animal feed. The primary feedstock used for the production of low carbon renewable fuel ethanol at the Keyes plant is number #2 yellow dent corn. The corn is procured by J.D. Heiskell from various Midwestern grain facilities and shipped, via Union Pacific Rail Road, to an unloading facility adjacent to the Keyes plant. During the third quarter of 2017, we entered into an agreement with a major industrial gas company to sell CO2 produced at the Keyes ethanol plant, which will add incremental income for the North America segment in the future.

Europe.

We also lease a site in Riverbank, ~~CA,~~California, near the Keyes ~~plant,~~Plant, where we plan to utilize biomass-to-fuel technology that we have licensed from LanzaTech Technology (“LanzaTech”) and InEnTec Technology (“InEnTec”) to build ~~the Riverbank~~a cellulosic ethanol production facility (the “Riverbank Cellulosic Ethanol ~~Facility~~Facility”) capable of converting local California surplus biomass – principally agricultural waste – into ultra-low carbon renewable cellulosic ethanol. ~~The Riverbank Cellulosic Ethanol Facility plans to utilize the existing distillation and logistics infrastructure at our nearby Keyes plant.~~ By producing ultra-low carbon ~~intensity~~ renewable cellulosic ~~fuel~~ ethanol, we expect to capture higher value D3 cellulosic renewable identification numbers (RINs) and California’s Low Carbon Fuel Standard ~~(LCFS) carbon~~(“LCFS”) credits. Renewable fuels such as corn-based ethanol (D6 RIN) and cellulosic-based ethanol (D3 RIN) receive a higher price in the marketplace when RINs and LCFS incentives are sold with the renewable fuel based on the unique carbon score attributed to the plant generating the fuel. D3 RINs have a higher value in the marketplace than D6 RINs due to D3 RINs’ relative ~~scarcity.~~scarcity and mandated pricing formula from the United States Environmental Protection Agency (the “EPA”).

In December 2018, we acquired a 5.2-acre parcel of land for the construction of a facility by Linde LLC industrial gas company to sell CO2produced at the Keyes Plant, which will add incremental income for the North America segment.

During ~~2017, GAFI~~2018, Aemetis Biogas, LLC (“ABGL”) was formed to ~~acquire land, buildings~~construct bio-methane digesters at local dairies near the Keyes Plant, many of whom are already customers of the distillers’ grain produced by the Keyes Plant. The digesters are connected by a pipeline to a gas cleanup and ~~process equipment~~compression facility to produce Renewable Natural Gas (RNG). ABGL currently has 13 signed participation agreements and three fully executed leases with nearby dairies at the Keyes Plant in ~~Goodland, Kansas. At acquisition,~~order to capture their volatile methane, which would otherwise be released into the ~~assets were valued~~atmosphere, primarily from their wastewater lagoons. We plan to capture biogas from multiple dairies and pipe the gas to a centralized location at ~~$15.4 million~~our Keyes Plant where we will clean the biogas into bio-methane. The bio-methane can be used in our Keyes Plant to displace petroleum natural gas, or can be sold at retail to trucking companies or injected into the utility natural gas pipeline to be utilized in the transportation sector to displace diesel in trucks. The environmental benefits of the Aemetis Biogas project are potentially significant because dairy biogas has a negative carbon intensity under the California LCFS and ~~provide~~conversion into bio-methane for displacement of diesel in trucks is a ~~base~~valuable use of biogas. The biogas produced by ABGL will also receive D3 RINS under the federal Renewable Fuel Standard (“RFS”) which have a higher value than the current D6 RINS we receive in the traditional ethanol market.

North America

Our revenue development strategy in North America was based on supplying ethanol into the transportation fuel market in Northern California and supplying feed products to dairy and other animal feed operations in Northern California. We are actively seeking higher value markets for our ethanol in an effort to improve our overall margin and are actively working with local dairy and feed potential customers to promote the ~~construction and~~value of our WDG product in an effort to strengthen demand for this product. In addition, the development of cellulosic ethanol production facility, CO2produced at the ~~GAFI plant. GAFI entered into~~Keyes Plant, and bio-methane conversion will add incremental income to the GAFI Note Purchase Agreement with Third Eye Capital. GAFI, the Company and its subsidiary Aemetis Advanced Product Keyes (AAPK) also entered into separate GAFI Intercompany Notes, pursuant to which GAFI may lend a portion of the proceeds of the GAFI Revolving Loan under the GAFI Note Purchase Agreement. The terms of the GAFI Intercompany Notes, in combination with the GAFI Limited Guaranty and the GAFI Option Agreement provide sufficient basis for Aemetis to direct the activities of GAFI.North America segment.

We ~~also own~~produce four products at the Keyes Plant: denatured ethanol fuel, WDG, DCO and CDS. In the first quarter of 2019, we sold 100% of the ethanol and WDG we produced to J.D. Heiskell pursuant to a Purchase Agreement established with J.D. Heiskell. DCO was sold to J.D. Heiskell and other local animal feedlots (primarily poultry). Smaller amounts of CDS were sold to various local third parties. Ethanol pricing is determined pursuant to a marketing agreement between us and Kinergy, and is generally based on daily and monthly pricing for ethanol delivered to the San Francisco Bay Area, California, as published by OPIS, as well as quarterly contracts negotiated by Kinergy with local fuel blenders. The price for WDG is determined monthly pursuant to a marketing agreement between A.L. Gilbert and us and is generally determined in reference to the local price of DDG and other feed products. North American revenue is dependent on the price of ethanol, WDG, and DCO. Ethanol pricing is influenced by local and national inventory levels, local and national ethanol production, corn prices and gasoline demand. WDG is influenced by the price of corn, the supply and price of DDG, and demand from the local dairy and feed markets. Our revenue is further influenced by our decision to operate the Keyes Plant at any capacity level, maintenance requirements, and the influences of the underlying biological processes.

In May 2019, our ethanol production was approved for a ~~biodiesel production facility~~lower Carbon Intensity (“CI”) score and was awarded additional LCFS credits for the ethanol produced from January 1, 2019 to May 21, 2019. These credits have a market value and can be sold in ~~Kakinada, India~~the open market. We recorded a contract liability of $0.6 million as of June 30, 2019, in connection with a ~~nameplate capacity~~contract with a customer to sell LCFS credits which we earned from lowering the CI score on ethanol produced from January 1, 2019 to March 31, 2019. However, the credits were not transferred to the customer until July 2, 2019 while we received cash in advance.

India

Our revenue strategy in India is based on continuing to sell biodiesel to our bulk fuel customers, retail fuel stations customers, mining customers and tender offers placed by India government oil companies for bulk purchases of ~~150 thousand metric tons per~~fuels. The India government imposed restrictions on imports of biodiesel mixtures, which will positively impact local sales of biodiesel. In addition, this opened doors to supply biodiesel for manufacturing purposes and infrastructure companies which developed interest in our product.

In 2019, under the Indian government mandate of mixing biodiesel with diesel, the Kakinada Plant won the tender to supply biodiesel to Government Oil Marketing Companies (“OMCs”) such as Hindustan Petroleum, Bharat Petroleum, and Indian Oil Corporation. Under this agreement, we began supplying biodiesel in May 2019. These tenders open annually in December for bidding and are awarded for the following year ~~which is equal to about 50 million gallons per year.~~based on competitiveness of price and quality of the biodiesel supplied. We believe the ~~Kakinada plant is one~~deployment of the largest biodiesel production facilities in India on a nameplate capacity basis. The Kakinada plant is capable of processing a variety of vegetable oil and animal fat waste feedstocks into biodiesel that meet international product standards. The Kakinada Plant also distills the crude glycerin byproduct from the biodiesel refining process into refined glycerin, and sells the valuable lubricant to the pharmaceutical, lotions, paint, adhesive and other industries. Our objective is to continue to capitalize on the substantialthese strategies will allow for revenue growth potential of the biodiesel industry in India and address established markets in the European Union (EU) and United States of America (U.S.) by leveraging relationships with a large oil company and trading partners.through 2019.

Results of Operations

Three Months Ended June 30, ~~2018~~2019 Compared to Three Months Ended June 30, ~~2017~~2018

Revenues

Our revenues are derived primarily from sales of ethanol and WDG in North America and biodiesel and refined glycerin in India.

Three Months Ended June 30 (in thousands)

	2018	2017	Inc/(dec)	% change	2019	2018	Inc/(dec)	% change

North America	$39,628	$35,465	$4,163	12%	$39,486	$39,628	$(142)	-0.4%
India	5,400	5,299	101	2%	11,133	5,400	5,733	106%

Total	$45,028	$40,764	$4,264	10%	$50,619	$45,028	$5,591	12%

North America. The ~~12% increase~~slight decrease in revenues during the three months ended June 30, ~~2018~~2019 was due to a ~~5% increase~~1% decrease in gallons of ethanol sold to ~~16.4~~16.2 million gallons, compared to ~~15.6~~16.4 million gallons ~~in the three months ended June 30, 2017, combined with slight increase of 2% in the average price of ethanol to $1.84 per gallon in~~during the three months ended June 30, 2018. ~~In addition,~~There was no change in the average price of ethanol sold of $1.84 per gallon during the three months ended June 30, 2019 and 2018. The decrease in ethanol volumes is offset by the average sales price of WDG ~~increased~~increasing by ~~34%~~1% to $81.71 during the three months ended June 30, 2019 compared to $80.65 induring the three months ended June 30, 2018 ~~compared~~while the sales volume of WDG also increased slightly by 2% to ~~$60.29 in~~107 thousand tons from 105 thousand tons during the three months ended June 30, ~~2017 while the sales volume of WDG decreased slightly by 2% to 105 thousand tons.~~2018. For the three months ended June 30, ~~2018,~~2019, we generated 75% of our revenues from sales of ethanol, 22% from sales of WDG, and 3% from sales of corn oil and CDS compared to 76% of our revenues from sales of ethanol, 21% from sales of WDG, and 3% from sales of corn oil and ~~CDS.~~CDS for the three months ended June 30, 2018. During the three months ended June 30, ~~2018,~~2019, plant production averaged ~~119%~~118% of the 55 million gallon per year nameplate ~~capacity.~~capacity compared to 119% during the three months ended June 30, 2018.

2942

India. For the three months ended June 30, ~~2018 and 2017,~~2019, we generated ~~71%~~97% of our sales from biodiesel and 29% of our sales from refined glycerin. The increase in revenues for the three months ended June 30, 2018 was due to increase in the average price of refined glycerin by 28% to $1,027 per metric ton compared to the average price of refined glycerin at $800 per metric ton in the three months ended June 30, 2017. In addition, the average price of biodiesel increased by 2% to $897 per metric ton in the three months ended June 30, 2018 compared to $876 per metric during the three months ended June 30, 2017, partially offset by decrease in volumes of biodiesel by 8% to 4,282 metric tons in the three months ended June 30, 2018 compared to 4,661 metric tons in the three months ended June 30, 2017.

~~Cost of Goods Sold~~

~~Three Months Ended June 30 (in thousands)~~

2018

2017

Inc/(dec)

% change

North America
$37,079
$34,359
$2,720
  8%
India
  5,181
  4,700
  481
  10%





Total
$42,260
$39,059
$3,201
  8%

~~North America.We ground 5.7 million bushels of corn during the three months ended June 30, 2018 compared to 5.5 million bushels of corn~~during the three months ended June 30, 2017. Our cost of feedstock per bushel increased by 5% to an average of $5.02 per bushel during the three months ended June 30, 2018 compared to $4.78 per bushel during the three months ended June 30, 2017. The 4% increase in bushels of corn ground and 5% increase in the average price of corn per bushel increased our feedstock costs by 9%.

~~India.~~The increase in cost of goods sold was attributable to the increase in refined glycerin prices by 99% to $927 per metric ton compared to $465 per metric ton in the three months ended June 30, 2017 while the volume of refined glycerin feedstock we ground increased by 6% to 1,392 metric tons compared to 1,316 in the same period last year. The average volume of biodiesel feedstock we ground increased by 48% to 3,689 metric tons in the three months ended June 30, 2018 compared to 2,497 thousand metric tons in the three months ended June 30, 2017 while the average price of biodiesel feedstock decreased by 27% to $746 per metric ton compared to the same period in 2017.

~~Gross Profit~~

~~Three Months Ended June 30 (in thousands)~~

2018

2017

Inc/(dec)

% change

North America
$2,549
$1,106
$1,443
  130%
India
  219
  599
  (380)
  -63%





Total
$2,768
$1,705
$1,063
  62%

~~North America.~~Gross profit increased by 130% due to an increase in the average price of WDG of 34% and ethanol of 2% coupled with an increase in ethanol sales volumes by 5% during the three months ended June 30, 2018 compared to the same period in 2017. In addition, natural gas and electricity costs along with transportation costs were lower in the three months ended June 30, 2018 compared to the same period in 2017.

~~India.~~Gross profit decreased by 63% due to an increase in feedstock costs by 28% to $4.0 million in the three months ended June 30, 2018 compared to the same period in 2017 while the volume of sales decreased by 6% to 5,800 metric tons for all products in the three months ended June 30, 2018, partially offset by an average selling price increase for all products of 9% to $931 during the three months ended June 30, 2018.

~~Operating Expenses~~

~~R&D~~

~~Three Months Ended June 30 (in thousands)~~

2018

2017

Inc/(dec)

% change

North America
$55
$110
$(55)
  -50%
India
  -
  -
  -
  0%





Total
$55
$110
$(55)
  -50%

R&D expenses decreased in the three months ended June 30, 2018 was due to staffing changes, decreases in rent, and property taxes of $45 thousand and professional fees of $17 thousand compared to the same period in 2017, principally due to the relocation of our R&D facility from Maryland to Minnesota.

~~Selling, General and Administrative Expenses (SG&A)~~

~~Three Months Ended June 30 (in thousands)~~

2018

2017

Inc/(dec)

% change

North America
$3,420
$2,867
$553
  19%
India
  169
  395
  (226)
  -57%





Total
$3,589
$3,262
$327
  10%

SG&A expenses consist primarily of salaries and related expenses for employees, marketing expenses related to sales of ethanol and WDG in North America and biodiesel and other products in India, as well as professional fees, other corporate expenses, and related facilities expenses.

~~North America.~~SG&A expenses as a percentage of revenue during the three months ended June 30, 2018 increased to 9% from 8% in the three months ended June 30, 2017. SG&A expenses during the three months ended June 30, 2018 increased by 19% compared to the three months ended June 30, 2017. The increase was due to an increase in professional fees of $360 thousand, salaries and supplies expense of $141 thousand, and marketing and travel expenses of $63 thousand, offset by decreases in utilities and interest penalties of $11 thousand during the three months ended June 30, 2018.

~~India. SG&A expenses as a percentage of revenue during the three months ended June 30, 2018 decreased to~~ 3% as compared to 7% in the corresponding period of 2017. The 57% decrease in SG&A expenses during the three months ended June 30, 2018 compared to the same period of 2017 was due to an decrease in operation support charges of $179 thousand, professional fees of $32 thousand, marketing and travel expenses of $19 thousand, offset by an increase in salaries and supplies of $4 thousand in the three months ended June 30, 2018 compared to the three months ended June 30, 2017.

~~Other Income and Expense~~

~~Three Months Ended June 30 (in thousands)~~

Other (income)/expense

2018

2017

Inc/(dec)

% change

North America

Interest rate expense
$4,280
$3,107
$1,173
  38%
Debt related fees and amortization expense
  919
  1,164
  (245)
  -21%
Other income
  (2)
  (11)
  (9)
  -82%





India




Interest rate expense
  152
  57
  95
  167%
Other (income) expense
  (3)
  3
  6
  200%





Total
$5,346
$4,320
$1,020
  24%

~~Other (Income)/Expense.~~Other (income) expense consists primarily of interest rate and amortization expenses attributable to our debt facilities and those of our subsidiaries, and interest accrued on the judgments obtained by Cordillera Fund and The Industrial Company. The debt facilities include stock or warrants issued as fees. The fair value of stock and warrants are amortized as amortization expense, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment loss or gain.

~~North America~~. Interest expense was higher in the three months ended June 30, 2018 due to higher debt balances. The decrease in amortization expense was due to debt issuance costs present during the prior period becoming amortized as of June 30, 2018. In addition, we recognized $0.7 million of interest expense and $0.2 million in amortization expense in connection with the GAFI loans. The decrease in other income in the three months ended June 30, 2018 was due to the receipt of $10 thousand in the three months ended June 30, 2017 from the sale of some lab and other equipment from the closing of our Maryland R&D facility.

~~India~~. Interest expense increased as a result of draws on two working capital loans in the three months ended June 30, 2018. The increase in other income was caused primarily by an increase in foreign exchange gains.

~~Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

~~Revenues~~

~~Our revenues are derived primarily from sales of ethanol and WDG in North America and biodiesel and glycerin in India.~~

~~Six Months Ended June 30 (in thousands)~~

2018

2017

Inc/(dec)

% change

North America
$76,804
$65,418
$11,386
  17%
India
  11,242
  6,920
  4,322
  62%





Total
$88,046
$72,338
$15,708
  22%

~~North America.~~ For the six months ended June 30, 2018, we generated 76% of our revenue from sales of ethanol, 21% from sales of WDG, and 3% from sales of corn oil and CDS. During the six months ended June 30, 2018, plant production averaged 118% of the 55 million gallon per year nameplate capacity. The increase in revenues for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was due to an increase in ethanol sales volume of 11% to 32.4 million gallons and an increase in the average ethanol price of 1% to $1.80, compared to $1.78 during the six months ended June 30, 2017. In addition, the average price of WDG increased by 28% to $79 per ton while WDG sales volume increased by 6% to 208 thousand tons in the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

~~India.For the six months ended June 30, 2018, we generated 74% of our sales from biodiesel and 26%~~ of our sales from refined glycerin compared to 71% of our sales from biodiesel and 29% of our sales from refined glycerin ~~during~~for the ~~six~~three months ended June 30, ~~2017.~~2018. The increase in revenues for the ~~six~~three months ended June 30, 2019 was due to an increase in the volumes of biodiesel by 203% to 12,960 metric tons compared to the 4,282 metric tons during the three months ended June 30, 2018. The increase in volumes was due to obtaining and supplying OMC tender contracts in addition to the retail, mining, and bulk customers during the three months ended June 30, 2019. The average price of biodiesel decreased by 7% to $833 per metric ton during the three months ended June 30, 2019 compared to $897 per metric during the three months ended June 30, 2018. In addition, the refined glycerin volumes decreased by 60% to 601 metric tons during the three months ended June 30, 2019 compared to 1,518 metric tons during the three months ended June 30, 2018 ~~compared~~while the average price also decreased by 45% to $560 per metric ton during the ~~six~~three months ended June 30, ~~2017 was due~~2019 compared to a 66% increase in the sales volume of biodiesel to 9,168 metric tons and an increase in the average sales price of biodiesel of 2% to $910 per metric ton. Sales volume of refined glycerin increased slightly by 1% to 2,715 metric tons while the average price of glycerin increased by 43% to $1,068$1,027 per metric ton in the ~~six months ended June 30, 2018 compared to the six months ended June 30, 2017.~~same period in 2018.

Cost of Goods Sold

~~Six~~Three Months Ended June 30 (in thousands)

	2018	2017	Inc/(dec)	% change	2019	2018	Inc/(dec)	% change

North America	$73,061	$65,008	$8,053	12%	$38,483	$37,079	$1,404	4%
India	10,351	6,212	4,139	67%	8,863	5,181	3,682	71%

Total	$83,412	$71,220	$12,192	17%	$47,346	$42,260	$5,086	12%

North America.We ground ~~11.3 million bushels of corn and milo during the six months ended June 30, 2018 compared to 10.3~~5.7 million bushels of corn during the ~~six~~three months ended June 30, ~~2017.~~2019 and 2018. Our cost of ~~corn~~feedstock per bushel increased by 3%7% to ~~$4.98~~an average of $5.37 per bushel induring the ~~six~~three months ended June 30, ~~2018~~2019 compared to $5.02 per bushel during the ~~same period in 2017. The~~three months ended June 30, 2018. In addition, the increase in cost of goods sold ~~during the six months ended June 30, 2018 compared to June 30, 2017 reflects the increase in ethanol sales volume by 11% combined with the increase in average price of feedstock.~~

~~India.~~ ~~The increase in cost of goods sold during the six months ended June 30, 2018 compared to June 30, 2017~~ was attributable to an increase in the volume of biodiesel feedstock we ground by 135% to 7,734 metric tons compared to 3,297 metric tons during the six months ended June 30, 2017. In addition, the volume of refined glycerin feedstock we ground increased by 135% to 2,411 metric tons in the six months ended June 30, 2018 compared to 1,028 metric tons in the six months ended June 30, 2017.

~~Gross Profit~~

~~Six Months Ended June 30 (in thousands)~~

2018

2017

Inc/(dec)

% change

North America
$3,743
$410
$3,333
  813%
India
  891
  708
  183
  26%





Total
$4,634
$1,118
$3,516
  314%

~~North America.Gross profit for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 increased~~ due to an increase in the average price of ~~WDG sold of 28%~~natural gas per therm by 7%, and ~~an increase in ethanol sales volumes~~electricity costs by ~~11%~~23%, offset by ~~increases~~a decrease in ~~the volume of feedstock we ground by 11%~~chemicals, other variable and ~~the average price of feedstock of 3%.~~operating costs.

India. The increase in ~~gross profit~~cost of goods sold was attributable to anthe increase in revenues from biodiesel. The volume of biodiesel feedstock we consumed increased by 196% to 10,919 metric tons compared to 3,689 metric tons in the same period last year. The average price of biodiesel feedstock decreased by 16% to $629 per metric ton during the three months ended June 30, 2019 compared to $746 per metric ton during the three months ended June 30, 2018. In addition, the volume of refined glycerin we consumed decreased by 61% to 541 metric tons during the three months ended June 30, 2019 compared to 1,392 metric tons in the same period in 2018 while the average price ~~of refined glycerin sold of 43%~~also decreased by 31% to ~~$1,068~~$643 per metric ton ~~and of~~compared to $927 per metric ton during the ~~sales volume of biodiesel of 66%~~three months ended June 30, 2018.

Gross Profit

Three Months Ended June 30 (in thousands)

	2019	2018	Inc/(dec)	% change

North America	$1,003	$2,549	$(1,546)	-61%
India	2,270	219	2,051	937%

Total	$3,273	$2,768	$505	18%

North America.Gross profit decreased by 61% due to ~~9,168 metric tons, coupled with a decrease~~increases in the average ~~price~~cost of ~~feedstock~~corn per bushel by ~~20% to $789 per metric ton~~7%, natural gas by 7%, and ~~partially offset~~electricity costs by ~~an increase in~~23% while ethanol gallons sold decreased by 1% during the ~~total volume of feedstock ground by 135% to 10,145 metric tons as~~three months ended June 30, 2019 compared to the same period in ~~2017.~~2018.

India.Gross profit increased by 937% due to increased volume of sales for all products by 134% to 13,561 metric tons, while the average price of feedstock ground for all products decreased by 21% to $630 per metric ton during the three months ended June 30, 2019 compared to the same period in 2018. The gross profit increase was partially offset by a decrease in the average selling price for all products by 12% to $821 during the three months ended June 30, 2019 compared to $931 in the same period in 2018.

Operating Expenses

R&D

~~Six~~

Three Months Ended June 30 (in thousands)

	2018	2017	Inc/(dec)	% change	2019	2018	Inc/(dec)	% change

North America	$117	$196	$(79)	-40%	$90	$55	$35	63%
India	-				-

Total	$117	$196	$(79)	-40%	$90	$55	$35	63%

R&D expenses ~~decreased in~~increased during the ~~six~~three months ended June 30, ~~2018~~2019 due to ~~staffing changes, decreases~~increases in ~~rent, and property taxes of $82 thousand and~~ professional fees of ~~$15~~$52 thousand ~~partially~~and lab supplies and utilities of $10 thousand, offset by ~~an increase~~a decrease in ~~miscellaneous~~depreciation and ~~utilities~~other expenses ~~of $18 thousand compared to the same period in 2017, principally due to the movement of our R&D lab from Maryland to Minnesota.~~

by $27 thousand.

Selling, General and Administrative Expenses (SG&A)

~~Six~~Three Months Ended June 30 (in thousands)

	2018	2017	Inc/(dec)	% change	2019	2018	Inc/(dec)	% change

North America	$6,935	$5,891	$1,044	18%	$3,190	$3,420	$(230)	-7%
India	461	666	(205)	-31%	755	169	586	347%

Total	$7,396	$6,557	$839	13%	$3,945	$3,589	$356	10%

SG&A expenses consist primarily of salaries and related expenses for employees, marketing expenses related to product sales, ~~of ethanol and WDG in North America and biodiesel and other products in India,~~ as well as professional fees, other corporate expenses, and related facilities expenses.

North ~~America~~America.. SG&A expenses as a percentage of revenue induring the ~~six~~three months ended June 30, ~~2018 were consistent at~~2019 decreased to 8% from 9% ~~as compared to~~during the ~~corresponding period of 2017.~~three months ended June 30, 2018. SG&A expenses during the ~~six~~three months ended June 30, ~~2018 increased~~2019 decreased by ~~17%~~7% compared to the ~~six~~three months ended June 30, ~~2017.~~2018. The ~~increase in SG&A expenses~~decrease was ~~primarily~~ due to ~~an increase~~a decrease in ~~salaries, insurance, rent, and interest penalties of $72 thousand,~~ professional fees of ~~$781~~$86 thousand, travel and ~~marketing, travel,~~supplies of $57 thousand, salaries of $99 thousand, and other expenses of ~~$191~~$189 thousand ~~for~~due to grant receipts charged against these expenses, offset by an increase in rent, insurance and penalties of $202 thousand during the ~~six~~three months ended June 30, ~~2018 compared to the six months ended June 30, 2017.~~2019.

India. SG&A expenses as a percentage of revenue induring the ~~six~~three months ended June 30, ~~2018 decreased~~2019 increased to ~~4% as~~7% from 3% compared to ~~10% in~~ the corresponding period in 2018. The 347% increase in SG&A expenses during the three months ended June 30, 2019 compared to the same period of ~~2017. The decrease~~2018 was ~~partially~~ due to ~~decrease~~increase in ~~operational~~operating results which in turn increased the operation support charges of ~~$223~~$466 thousand, ~~professional fees of $17 thousand, and partially offset by increases in~~ salaries and supplies of ~~$30~~$52 thousand, utilities and professional fees of $55 thousand, and ~~marketing fees~~other expenses of $5$13 thousand induring the ~~six~~three months ended June 30, ~~2018 compared to the six months ended June 30, 2017.~~2019.

Other Income and Expense

~~Six~~Three Months Ended June 30 (in thousands)

Other (income)/expense

2018

2017

Inc/(dec)

% change

North America

Interest rate expense
$8,407
$5,981
$2,426
  41%
Debt related fees and amortization expense
  5,676
  2,847
  2,829
  99%
Other income
  43
  38
  5
  13%





India




Interest rate expense
  296
  25
  271
  1084%
Other (income) expense
  20
  (18)
  (38)
  -211%





Total
$14,442
$8,873
$5,493
  62%

Other (income)/expense
	2019	2018	Inc/(dec)	% change
North America
Interest rate expense	$5,074	$4,280	$794	19%
Debt related fees and amortization expense	1,396	919	$477	52%
Accretion of Series A preferred units	471	-	$471	100%
Loss contingency on litigation	6,200	-	$6,200	100%
Other income	(74)	(2)	$76	3800%

India
Interest rate expense	116	152	$(36)	-24%
Other income	(15)	(3)	$12	400%

Total	$13,168	$5,346	$7,822	146%

Other (Income)/Expense. Other (income) expense consists primarily of interest rate and amortization expenses attributable to our debt facilities and those of our subsidiaries, and interest accrued on the judgments obtained by Cordillera Fund and The Industrial Company. The debt facilities include stock or warrants issued as fees. The fair value of stock and warrants are amortized as amortization expense, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment loss or gain.

3445

North America. Interest expense was higher during the three months ended June 30, 2019 due to higher debt balances. The increase in amortization expense was due to debt issuance costs present during the prior period becoming amortized as of June 30, 2019. According to accounting treatment for Series A Preferred Unit financing, we accrete the change in the redemption value over the estimated redemption period of six years. We recorded the accretion of $0.5 million during the three months ended June 30, 2019. Based on the judgment given in the EdenIQ litigation, we recorded a $6.2 million in loss on contingency during the three months ended June 30, 2019. The increase in other income during the three months ended June 30, 2019 was due to the receipt of $30 thousand of income for land usage in the CO2Project, $51 thousand in income from sub lease of the Cupertino office, $16 thousand in recognition of excess penalties reversed, and offset by $25 thousand in other expense for change in fair value of SARs.

India. Interest expense decreased as a result of more payments of principal and interest than draws on two working capital loans during the three months ended June 30, 2019. The increase in other income was caused primarily by an increase in other income from insurance and deposits of $18 thousand offset by recognition of other expense of $3 thousand.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Revenues

Our revenues are derived primarily from sales of ethanol and WDG in North America and biodiesel and glycerin in India.

Six Months Ended June 30 (in thousands)

	2019	2018	Inc/(dec)	% change

North America	$76,122	$76,804	$(682)	-1%
India	16,385	11,242	5,143	46%

Total	$92,507	$88,046	$4,461	5%

North America. For the six months ended June 30, 2019, we generated 75% of our revenue from sales of ethanol, 23% from sales of WDG, and 2% from sales of corn oil and CDS. During the six months ended June 30, 2019, plant production averaged 118% of the 55 million gallon per year nameplate capacity. The slight decrease in revenues for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was due to a decrease in the average ethanol price of 2% to $1.76 while the ethanol sales volume stayed consistent at 32.4 million gallons compared with the same period in 2018. The average price of WDG increased by 3% to $81 per ton while WDG sales volume increased by 3% to 214 thousand tons in the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

India.For the six months ended June 30, 2019, we generated 92% of our sales from biodiesel and 8% of our sales from refined glycerin compared to 74% of our sales from biodiesel and 26% of our sales from refined glycerin during the six months ended June 30, 2018. The increase in revenues for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was due to a 99% increase in the sales volume of biodiesel to 18,242 metric tons. The increase in biodiesel volumes was due to obtaining and supplying under the OMCs tender contract in addition to sales to our regular retail, mining, and bulk customers. The average sales price of biodiesel decreased by 9% to $830 per metric ton during the three months ended June 30, 2019 compared to $910 per metric ton in the same period in 2018. The sales volume of refined glycerin decreased by 26% to 1,997 metric tons while the average price of glycerin also decreased by 42% to $618 per metric ton in the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Cost of Goods Sold

Six Months Ended June 30 (in thousands)

	2019	2018	Inc/(dec)	% change

North America	$75,450	$73,061	$2,389	3%
India	14,135	10,351	3,784	37%

Total	$89,585	$83,412	$6,173	7%

North America. We ground 11.3 million bushels of corn and milo during the six months ended June 30, 2019 and 2018. Our average cost of corn per bushel increased by 6% to $5.29 per bushel in the six months ended June 30, 2019 compared to the same period in 2018. The increase in cost of goods sold during the six months ended June 30, 2019 compared to June 30, 2018 reflects the increase in average price of corn per bushel by 6%, average price of natural gas per therm by 9%, and electricity costs by 17%, offset by a decrease in chemicals, other variable and operating costs.

India. The increase in cost of goods sold during the six months ended June 30, 2019 compared to June 30, 2018 was attributable to an increase in the volume of biodiesel feedstock we ground by 101% to 15,562 metric tons compared to 7,734 metric tons during the six months ended June 30, 2018 partially offset by a decrease in the average price of biodiesel feedstock by 13% to $648 compared to $748 in the same period in 2018. In addition, the volume of refined glycerin feedstock we ground decreased by 30% to 1,681 metric tons and the average price of the refined glycerin feedstock decreased by 17% to $768 per metric ton in the six months ended June 30, 2019 compared to the same period in 2018.

Gross Profit

Six Months Ended June 30 (in thousands)

	2019	2018	Inc/(dec)	% change

North America	$672	$3,743	$(3,071)	-82%
India	2,250	891	1,359	153%

Total	$2,922	$4,634	$(1,712)	-37%

North America.Gross profit for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 decreased due to a decrease in the average price of ethanol sold of 2% and increase in the average price of feedstock of 6% offset by increase in the average price of WDG by 3%. In addition, the ethanol volumes sold and corn ground volumes stayed consistent, offset by WDG sales volume increasing by only 3% during the three months ended June 30, 2019 compared to the same period in 2018.

India.The increase in gross profit was attributable to an increase in the sales volume of biodiesel of 99% to 18,242 metric tons coupled with a decrease in the average price of biodiesel feedstock by 13% to $648 per metric ton.

Operating Expenses

R&D

Six Months Ended June 30 (in thousands)

	2019	2018	Inc/(dec)	% change

North America	$123	$117	$6	5%
India	-	-	-	-

Total	$123	$117	$6	5%

R&D expenses increased in the six months ended June 30, 2019 due to increases in supplies and lease expense of $33 thousand, professional fees of $46 thousand, offset by decrease in utilities of $12 thousand and decrease in amortization of intangibles and other expenses of $61 thousand.

Selling, General and Administrative Expenses (SG&A)

Six Months Ended June 30 (in thousands)

	2019	2018	Inc/(dec)	% change

North America	$7,256	$6,935	$321	5%
India	930	461	469	102%

Total	$8,186	$7,396	$790	11%

North America. SG&A expenses as a percentage of revenue in the six months ended June 30, 2019 increased to 10% from 9% in the six months ended June 30, 2018. SG&A expenses during the six months ended June 30, 2019 increased by 5% compared to the six months ended June 30, 2018. The increase in SG&A expenses was primarily due to an increase in insurance, rent, and penalties of $283 thousand, professional fees of $584 thousand, offset by decreases in salaries, supplies, and travel of $138 thousand and $408 thousand of grant receipts charges against these expenses for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

India. SG&A expenses as a percentage of revenue in the six months ended June 30, 2019 increased to 6% as compared to 4% in the corresponding period of 2018. The increase was due to increase in operating results which in turn increased operational support charges of $329 thousand, salaries and supplies of $97 thousand, utilities and professional fees of $31 thousand, and other expenses of $12 thousand during the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Other Income and Expense

Six Months Ended June 30 (in thousands)

Other (income)/expense
	2019	2018	Inc/(dec)	% change
North America
Interest rate expense	$9,893	$8,407	$1,486	18%
Debt related fees and amortization expense	2,619	5,676	(3,057)	-54%
Accretion of Series A preferred units	920	-	920	100%
Loss contingency on litigation	6,200	-	6,200	100%
Other income	37	43	(6)	-14%

India
Interest rate expense	283	296	(13)	-4%
Other income	(749)	20	769	3845%

Total	$19,203	$14,442	$6,299	44%

Other (Income)/Expense.Other (income) expense consists primarily of interest rate and amortization expenses attributable to our debt facilities and those of our subsidiaries, and interest accrued on the judgments obtained by Cordillera Fund and The Industrial Company. The debt facilities include stock or warrants issued as fees. The fair value of stock and warrants are amortized as amortization expense, except when the extinguishment accounting method is applied, in which case refinanced debt costs are recorded as extinguishment loss or gain.

North America. Interest expense was higher during the six months ended June 30, ~~2018~~2019 due to an increase in principal and interest on our Senior Notes and Subordinated Notes. ~~Amortization~~The decrease in amortization expense in the six months ended June 30, ~~2018 increased~~2019 was mainly due to ~~expensing the present value~~absence of immediate expense of fees compared to immediate expense of redemption fees of $3.1 million and $0.5 million waiver fees on Amendment No. ~~14.~~14 in the three months ended March 31, 2018 due to troubled debt restructuring. According to accounting treatment for Series A Preferred Unit financing, we have to accrete the change in the redemption value over the estimated redemption period of six years. We recorded the accretion of $0.9 million for the six months ended June 30, 2019. In addition, based on the judgment given in the EdenIQ litigation, we ~~recognized $1.4 million of interest expense and $0.3~~recorded a $6.2 million in ~~amortization expense in connection with~~loss on contingency during the ~~GAFI loans.~~three months ended June 30, 2019. The slight ~~increase~~decrease in other expense in the six months ended June 30, ~~2018~~2019 was due to ~~normal~~fully amortized guarantee ~~expense~~fees of $125 thousand and $60 thousand recognized as change in fair value of SARs offset by increase in $70 thousand in sub rental income of the Cupertino office, recognition of $18 thousand income on excess penalties reversal, and $60 thousand of income for land usage in the ~~first quarter of 2018 offset by the receipt of $10 thousand from the sale of some lab and other equipment from the closing of our Maryland R&D facility.~~CO2Project.

India. Interest expense ~~increased~~decreased slightly as a result of more payments than draws on two working capital loans in the six months ended June 30, ~~2018 compared to a credit for early payoff of raw material vendor loans in the six months ended June 30, 2017.~~2019. The ~~slight~~ increase in other ~~expense~~income of $0.7 million was caused primarily by ~~an increase in foreign exchange losses in the six months ended June 30, 2018.~~release of long-standing accounts payable and interest on these payables as matters closed legally.

Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents were ~~$1.1~~$0.4 million at June 30, ~~2018,~~2019, of which ~~$1.0~~$0.3 million was held in our ~~North American entities, including $2 thousand held by GAFI,~~Indian subsidiary and $0.1 million was held in ~~our Indian subsidiary.~~North America segment. Our current ratio at June 30, ~~2018~~2019 was ~~0.27~~0.18 compared to a current ratio of ~~0.32~~0.24 at December 31, ~~2017.~~2018. We expect that our future available capital resources will consist primarily of cash generated from operations, ~~remaining cash balances,~~Liquidity Reserve Notes, EB-5 program borrowings, senior debt, subordinated debt and any additional funds raised through sales of ~~equity.~~preferred units.

Liquidity

Cash and cash equivalents, current assets, current liabilities and debt at the end of each period were as follows (in thousands):

	June 30, 2018	December 31, 2017	June 30, 2019	December 31, 2018
Cash and cash equivalents	$1,069	$428	$350	$1,188
Current assets (including cash, cash equivalents, and deposits)	11,288	11,462	10,227	10,311
Current and long term liabilities (excluding all debt)	21,841	20,406	44,722	32,286
Current & long term debt	168,351	153,786	187,124	175,117

Our principal sources of liquidity have been cash provided by operations and borrowings under various debt arrangements. As of June 30, ~~2018,~~2019, the EB-5 escrow account is holding funds in the amount of $0.5 million from one investor pending approval by the USCIS. ~~Funding of $0.5 million was released to the Company on April 26, 2018 and the~~The balance of $0.5 million is expected to be released from the escrow account ~~during the third quarter of 2018.~~ in 2019.

We launched an EB-5 Phase II funding in 2016, under which we expect to issue $50.0 million in additional EB-5 Notes on substantially similar terms and conditions as those issued under our EB-5 Phase I funding. As of June 30, 2019, the EB-5 escrow funding of $2.5 million was released to the Company. Our principal uses of cash have been to refinance indebtedness, fund operations, and for capital expenditures. We anticipate these uses will continue to be our principal uses of cash in the future. Global financial and credit markets have been volatile in recent years, and future adverse conditions of these markets could negatively affect our ability to secure funds or raise capital at a reasonable cost, or at all.

3550

We operate in a volatile market in which we have limited control over the major components of input costs and product revenues, and are making investments in future facilities and facility upgrades that improve the overall margin while lessening the impact of these volatile markets. As such, we expect cash provided by operating activities to fluctuate in future periods primarily because of changes in the prices for corn, ethanol, WDG, DCO, CDS, biodiesel, waste fats and oils, non-refined palm oil and natural gas. To the extent that we experience periods in which the spread between ethanol prices and corn and energy costs narrow or the spread between biodiesel prices and waste fats and oils or palm oil and energy costs narrow, we may require additional working capital to fund operations.

Management believes that through the following actions, the Company will have the ability to generate capital liquidity to carry out the business plan for ~~2018:~~next 12 months:

●

Monetize the ~~CO2~~ CO2produced at the Keyes ~~plant~~Plant by executing on the agreement with Linde for the delivery of gas to their neighboring facility to be built during ~~2018.~~2019.

●

~~Rely on the approval of a $125M U.S. Department of Agriculture loan guarantee~~Construct and operate biogas digesters to ~~raise~~capture and monetize biogas by 2020.

●

At June 30, ~~2018,~~2019, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes ~~excluding~~equaled $98.0 million, not including the promissory note and GAFI ~~Loans discussed below, equaled $85.3 million.~~Loans. The current maturity date for ~~all of~~ the Third Eye Capital ~~financing arrangements~~Notes is April 1, 2020; provided, however, that pursuant to Amendment No. 14, we have the right to extend the maturity date of the Third Eye Capital Notes to April 1, 2021 upon notice and payment of a 5% extension ~~fee.~~fee which can be paid as low cost debt is available or can be added to debt as senior debt gets reduced by low cost debt. In addition, we borrowed $2.1 million on promissory note with Third Eye Capital on Feb 27, 2019 and the outstanding balance was $2.2 million as of June 30, 2019. We intend to repay the Third Eye Capital Notes through operational cash flow, proceeds from the issuance of the EB-5 Notes, ~~and/or~~ a senior debt refinancing and/or an equity financing.

At June 30, ~~2018,~~2019, GAFI’s outstanding balance of principal, interest and fees, net of discounts, on all GAFI Loans equaled ~~$26.2~~$26.6 million. The current maturity date for the GAFI Loans is July 10, ~~2019.~~2020 with option to extend the maturity to July 10, 2021. GAFI intends to repay the GAFI Loans through proceeds from the issuance of a GAFI EB-5 offering.

~~As of June 30, 2018, the Company has $6.0 million additional borrowing capacity to fund future cash flow requirements under the Reserve Liquidity Notes with a maturity date of April 1, 2019.~~

~~We have no availability under senior debt and Goodland credit facilities.~~

Our senior lender has provided a series of accommodating amendments to the existing and previous loan facilities in the past as described in further detail in~~Note 4.Debtof the Notes to Consolidated~~ “Part I, Item 1. Financial Statements ~~in Part I of this Form 10-Q.~~– Note 4. Debt.” However, there can be no assurance that our senior lender will continue to provide further amendments or accommodations or will fund additional amounts in the future.

3651

As of June 30, 2019, the Company has $8.0 million additional borrowing capacity to fund future cash flow requirements under the Reserve Liquidity Notes until April 1, 2020.

We also rely on our working capital lines with J.D. Heiskell in California, and Gemini ~~Edible~~and Secunderabad Oils ~~and Fats~~ in India to fund our commercial arrangements for the acquisitions of feedstock. J.D. Heiskell currently provides us with working capital for the Keyes plant, ~~and~~ Gemini ~~Edible Oils and Fats~~ currently provides us with working capital for the Kakinada ~~plant.~~plant and Secunderabad Oils provides us inter-corporate deposit for our BP Operations. The ability of ~~both~~ J.D. Heiskell, Gemini, and ~~Gemini Edible~~Secunderabad Oils ~~and Fats~~ to continue to provide us with working capital depends in part on both of their respective financial strength and banking relationships.

Change in Working Capital and Cash Flows

The below table describes the changes in current and long term debt during the six months ended June 30, ~~2018:~~2019:

	Change in total debt	$~~14,565~~ 12,007
Increases to debt:
Accrued interest	~~8,415~~ 10,127
Amendment ~~No.14~~No. 15 wavier fee	~~500~~
~~TEC debt Extension/~~ added to redemption fee	~~3,051~~ 1,000
~~January 2018 Promissory note including $10K withheld as fees by TEC~~	~~160~~
Feb ~~2018~~2019 Promissory note including $0.1 million withheld as fees by TEC ~~and $84 thousand paybale at due date~~	~~2,184~~ 2,132
~~April 2018 Promissory note including $10K withheld as fees by TEC~~	~~260~~
Sub debt extension fees	340
India working capital draws and changes due to foreign currency	~~8,015~~ 12,673
GAFI ~~loan including $75K fee withheld as fees by TEC~~Amendment No. 2 draw	~~1,575~~ 24
EB-5 ~~escrow~~Phase 2 two investor investment received	~~500~~ 1,000
~~Note indebtedness covenant wavier fee for Q2'18~~	~~250~~
Change in debt issuance costs, net of amortization	~~1,274~~ 1,121
	Total increases to debt	$~~26,524~~ 28,417


Decreases to debt:
Principal and interest payments to senior lender	~~(1,774~~) (89)
Interest payments to EB-5 investors	~~(366~~) (97)
Principal, fees and interest payments on working capital loans in India	~~(8,460~~) (14,175)
GAFI interest, fee and principal payments	~~(1,359~~) (2,049)

	Total decreases to debt	$~~(11,959~~) (16,410)

Working capital changes resulted in (i) a ~~$1.0~~$2.7 million increase in ~~inventories~~accounts receivable due to ~~raw material purchased~~increase in ~~the end of the second quarter~~sales by India operations which caused the receivable balance in India to increase by $1.9 million and ~~(ii) a $0.6~~the $0.8 million increase in North America entities was due to no cash ~~partially~~collection during the weekend as the quarter end fell on a weekend, (ii) a $2.0 million decrease in inventories was mainly due to conversion of $2.2 million of raw material in India operations offset by slight increases in other types of inventories, (iii) a ~~$1.1~~$0.4 million decrease in prepaid expenses and other assets mainly due to recognition of ~~$0.7~~$0.1 million ~~prepaid interest on the GAFI Term Loan~~McAfee guarantee fees expensed and ~~$0.3~~$0.5 million in insurance prepaid and other prepaid ~~interest of our debt classified as long-term debt~~recognized in North America entities, and (iv) a ~~decrease~~$0.4 million increase in other ~~prepaid interest~~assets consisting of ~~$0.1 million in UBPL operations, and~~ a ~~$0.7~~$0.4 million decrease in ~~accounts receivable and other assets.~~North America entities offset by a $0.8 million increase in India operations mainly due to bank guarantee deposits set aside for OMC contracts.

Net cash used in by operating activities during the six months ended June 30, ~~2018~~2019 was ~~$1.6~~$1.2 million, consisting of non-cash charges of ~~$8.6~~$6.3 million, net changes in operating assets and liabilities of ~~$7.1~~$17.0 million and net loss of ~~$17.3~~$24.6 million. The non-cash charges consisted of: (i) ~~$5.7~~$2.6 million in debt related fees and amortization and patents amortization, (ii) ~~$2.3~~$2.2 million in depreciation expenses and (iii) ~~$0.6~~$0.5 million in stock-based compensation expense. Net changes in operating assets and liabilities consisted primarily of an increase in ~~inventories~~accounts receivable of ~~$1.3~~$2.7 million ~~increase in other current long term assets of $0.1 million, and a $0.7 million decrease in other liabilities, partially~~ offset by: (i) a ~~$0.6~~$2.0 million decrease in ~~accounts receivable,~~inventories, (ii) a ~~$1.1~~$0.4 million decrease in prepaid expenses (iii) ~~$2.1~~a $2.7 million increase in accounts payable, ~~and~~ (iv) a ~~$5.5~~$0.6 million decrease in other assets, (v) a $5.8 million increase in other liabilities, and (vi) a $8.3 million increase in accrued interest.

Cash used by investing activities ~~consists~~consisted of capital expenditures of ~~$1.1~~$0.6 million from U.S. operations and ~~$0.7~~$0.4 million from our ~~UBPL~~India operations.

Cash provided by financing activities was ~~$4.0 million, primarily from proceeds from borrowings of $12.4~~$1.4 million, consisting primarily of ~~$0.5~~$0.3 million received from the ~~EB-5 program, $3.9~~Series A Preferred Unit issuance, $2.0 million received from ~~TEC~~Third Eye Capital promissory ~~notes,~~note, $1.0 million received from EB-5 investments, and ~~$8.0~~$12.7 million from working capital partners in India for ~~UBPL~~their operations, partially offset by payments of ~~$0.5~~$13.9 million in ~~for TEC Promissory notes, and $7.8 million~~principal to working capital partners in India for ~~UBPL~~their operations. GAFI had a $24 thousand of borrowings and $0.7 million in payments including maturity renewal fee of $0.5 million on GAFI notes.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with ~~accounting principles generally accepted in the United States of America.~~U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. We believe that the following represents our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain: revenue recognition; recoverability of long-lived assets, convertible notes, and extinguishment accounting. These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Recently Issued Accounting Pronouncements

None reported beyond those disclosed in our ~~2017~~2018 annual report.

Off Balance Sheet Arrangements

We had no off balance sheet arrangements during the three months ended June 30, ~~2018.~~2019.

Item 3.

~~Quantitative~~Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable.

Item 4.

~~Controls~~Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Management (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our CEO and CFO concluded that, although remediation plans were initiated to address the material weakness over financial reporting as ofidentified in the ~~end of~~Company’s Annual Report on Form 10-K for the ~~period covered in this report, our~~fiscal year ended December 31, 2018, the disclosure controls and procedures along with the related internal controls over financial reporting were not effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

~~Inherent Limitations on Effectiveness of Controls~~

Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our controls and procedures are designed to provide reasonable assurance that our control system’s objective will be met and our CEO and CFO have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

~~There~~A new control and procedures around the new control were designed and implemented to address the material weakness identified as of December 31, 2018. Other than the new control design, there were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As discussed in greater detail under Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, we initiated a remediation plan to address the material weakness in our internal control over financial reporting identified as of the fiscal year then ended. Our efforts to improve our internal controls are ongoing.

For a more comprehensive discussion of the material weakness in internal control over financial reporting identified by management as of December 31, 2018, and the remedial measures undertaken to address this material weakness, investors are encouraged to review Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

PART II -- OTHER INFORMATION

Item 1.

~~Legal~~Legal Proceedings

On August 31, 2016, the Company filed a lawsuit in Santa Clara County Superior Court against ~~defendants~~defendant EdenIQ, Inc. ~~(EdenIQ) and its CEO, Brian D. Thome and Trinity Capital Investments (Trinity)~~(“EdenIQ”). The lawsuit iswas based on EdenIQ’s wrongful termination of a merger agreement that would have effectuated the merger of ~~the Company and EdenIQ.~~EdenIQ into a new entity that would be primarily owned by Aemetis. The lawsuit ~~also asserts~~asserted that EdenIQ ~~and Mr. Thome~~had fraudulently induced the Company into assisting EdenIQ to obtain EPA approval for a new technology ~~which~~that the Company would not have done but for the Company’s belief that the merger ~~agreement.~~would occur. The relief sought ~~includes~~included EdenIQ’s specific performance of the merger, ~~agreement and~~ monetary damages, as well as punitive damages, attorneys’ fees, and costs. In response to the ~~Company’s Santa Clara County~~ lawsuit, EdenIQ ~~has~~ 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 ~~of the status of~~surrounding the merger. Further, EdenIQ named Third Eye Capital ~~Investments (TEC)~~Corporation (“TEC”) as a defendant in ~~its~~a second amended cross-complaint alleging that TEC ~~made~~had failed to disclose that its financial commitment to fund the merger ~~agreement contingent on~~included terms that were not disclosed. Finally, EdenIQ claimed that TEC and the ~~EPA’s approval of EdenIQ’s technology thereby participating in a fraudulent concealment of~~Company concealed material information ~~with Aemetis to~~surrounding the ~~detriment~~financing of ~~EdenIQ.~~the merger. By way of its cross-complaint, EdenIQ ~~seeks~~sought monetary damages, punitive damages, injunctive relief, attorneys’ fees and costs. ~~Trinity was later dismissed from~~In November 2018, the ~~lawsuit due to jurisdictional issues, but~~claims asserted by the Company ~~is pursuing Trinity in Arizona where it is domiciled. On February 24, 2017,~~were dismissed on summary judgment and the Company filed a ~~lawsuit~~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 ~~County~~amount of ~~Maricopa in Arizona against defendants Trinity~~approximately $6.2 million. The Company’s ability to amend its claims and ~~Alex Erhart. The lawsuit is based on Trinity’s intentional interference with contractual relations and/~~present its claims to the court or ~~business expectancy arising from Trinity and Mr. Erhart’ s interference with EdenIQ’s performance of~~a jury could materially affect the ~~merger agreement and their efforts~~court’s decision to ~~induce~~award EdenIQ ~~to terminate the merger agreement with Aemetis. The relief sought includes monetary damages, attorneys’~~its fees and costs. ~~Because discovery is still pending, an estimate as~~In addition to ~~any~~further legal motions and a potential appeal of the Court’s summary judgment order, the Company ~~chances~~plans to appeal the court’s award of ~~prevailing cannot be made at this time.~~EdenIQ’s fees and costs. The Company intends to continue to vigorously pursue its legal claims and defenses against EdenIQ.

3954

Item 1A.

~~Risk~~Risk Factors.

No change in risk factors since the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC on March ~~29, 2018.~~15, 2019.

Item 2.

~~Unregistered~~Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

~~Defaults~~Defaults Upon Senior Securities.

No unresolved defaults on senior securities occurred during the three months ended June 30, ~~2018.~~2019.

Item 4.

~~Mine~~Mine Safety Disclosures.

None.

Item 5.

~~Other~~Other Information.

None.

Item 6.

~~Exhibits.~~Exhibits.

~~3.1~~	~~Amended and Restated Articles of Incorporation filed on March 16, 2017.~~
31.1	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
32.1	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

4056

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AEMETIS, INC.


	By:	/s/ Eric A. McAfee
		Eric A. McAfee Chief Executive Officer (Principal Executive Officer)

Date: August ~~9, 2018~~8, 2019

	AEMETIS, INC.


	By:	/s/ Todd Waltz
		Todd Waltz Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: August ~~9, 2018~~8, 2019

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North America (in thousands)
	For the three months ended June 30,		For the six months ended June 30,
	2018	2017	2018	2017
Ethanol sales	$30,129	$28,130	$58,341	$51,675
Wet distiller's grains sales	8,499	6,457	16,327	12,038
Other sales	1,000	878	2,136	1,705

	$39,628	$35,465	$76,804	$65,418

India (in thousands)
	For the three months ended June 30,		For the six months ended June 30,
	2018	2017	2018	2017
Biodiesel sales	$3,841	$4,100	$8,342	$4,933
Refined Glycerin sales	1,559	1,199	2,900	1,987
	$5,400	$5,299	$11,242	$6,920

	Three months ended June 30, 2017			Six months ended June 30, 2017
	North America	India	Total Consolidated	North America	India	Total Consolidated

Revenues	$35,465	$5,299	$40,764	$65,418	$6,920	$72,338
Cost of goods sold	34,359	4,700	39,059	65,008	6,212	71,220

Gross profit	1,106	599	1,705	410	708	1,118

Expenses
Research and development expenses	110	-	110	196	-	196
Selling, general and administrative expenses	2,867	395	3,262	5,891	666	6,557
Interest expense	4,271	57	4,328	8,828	25	8,853
Other expense (income)	(11)	3	(8)	38	(18)	20

Income (loss) before income taxes	$(6,131)	$144	$(5,987)	$(14,543)	35	(14,508)

Capital expenditures	$340	$127	$467	$383	$128	$511
Depreciation	997	155	1,152	1,995	303	2,298