SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS
On one or more occasions, we may make forward-looking statements in this Annual Report on Form 10-K regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. 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 identify forward-looking statements. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.
We obtained the market data used in this report from internal company reports and industry publications. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe market data used in this 10-K is reliable, it has not been independently verified. Similarly, while we believe internal company reports are reliable, we have not had the content of these reports independently verified.
Unless the context requires otherwise, references to “we,” “us,” “our,” and “the Company” refer specifically to Aemetis, Inc. and its subsidiaries.
EXPLANATORY NOTE
This annual report on Form 10-K is a comprehensive filing for the fiscal years ended December 31, 2010 and 2011 and the interim periods within 2011. It is being filed by us in order to become current in our filing obligations under the Securities Exchange Act of 1934, as amended. This is our first periodic filing since the third quarter of 2010, although we have made certain filings on Form 8-K. Included in this report are the audited financial statements for the years ended December 31, 2010 and 2011 as well as unaudited quarterly financial information for the 2011 interim periods.
This annual report should be read together and in connection with the other reports filed by us with the SEC for a comprehensive description of our current financial condition and operating results. In the interest of complete and accurate disclosure, we have included current information in this annual report for all material events and developments that have taken place through the date of filing of this annual report with the SEC.
ITEM 1. BUSINESS
General
We are an international renewable fuels and specialty chemical company focused on the production of advanced fuels and chemicals and the acquisition, development and commercialization of innovative technologies that replace traditional petroleum-based products and convert first-generation ethanol and biodiesel plants into advanced biorefineries.
Aemetis operates in three reportable geographic segments: “North America”, “India”, and “Other.” For revenue and other information regarding Aemetis’ operating segments, see Note 11. Segment Information, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference.
1
2010 Highlights
In 2010, we were primarily engaged in three activities: (i) fundraising for the retrofit of a 55 million gallon per year (MGY) ethanol plant in Keyes, California, pursuant to a Project Agreement with Cilion, Inc.; (ii) owning and operating a biodiesel production facility in Kakinada, India with a nameplate capacity of 150,000 metric tons per year; and (iii) continuing to develop our proprietary, patented and patent pending microbial and enzyme technology.
Retrofit of Keyes, CA Ethanol Plant
In December 2009, we entered into a Project Agreement with Cilion, Inc. to retrofit, re-start and operate a 55 MGY ethanol plant in Keyes, California. In December 2009 we also entered into a three year (subsequently extended to a five year) Lease Agreement with Cilion, the term of which would begin upon substantial completion of the retrofit. During 2010, substantially all of our activities in North America were focused on fundraising and retrofitting the Keyes ethanol plant. We took possession of the plant in the second quarter of 2010 and began the retrofit shortly thereafter. On October 29, 2010 and March 9, 2011 the parties amended the Project Agreement and the Lease Agreement to, among other things, extend the date by which substantial completion of the retrofit was required, extend the term of the Lease, and waive certain defaults under the Project Agreement. On April 1, 2011 the retrofit was substantially completed and the Lease term began. The plant became operational in the second quarter of 2011. We raised a total of $8.0 million in debt financing to retrofit the plant with an initial raise of $4.5 million in 2010 and an additional raise of $3.5 million in early 2011. For more information regarding this debt financing, see Note 5. Notes Payable of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference.
We own and operate a biodiesel manufacturing plant in Kakinada, India with a nameplate capacity of 150,000 metric tons of biodiesel (approximately 50 million gallons) and 18,000 metric tons of glycerin (approximately 3.8 million gallons) per annum. Our plant is capable of producing biodiesel from multiple feedstocks. In 2010, our primary feedstock was non-edible refined palm oil (NRPO), a byproduct of palm oil fractionation and a non-edible feedstock, which we sourced from suppliers in India. In 2010, we sold 7,598 metric tons of biodiesel at an average price of $849 per ton, which represented 80% of our consolidated 2010 revenue.
Crude glycerin is a natural byproduct of the biodiesel production process. In 2010, we produced and sold 1,046 metric tons of crude glycerin at an average price of $350 per metric ton.
The following table sets forth information about our production and sales of biodiesel, crude glycerin and NRPO in 2010 and 2009.
2010
2009
% Change
Biodiesel
Tons Sold(1)
Average Sales Price/Ton
Crude Glycerin
Tons Sold
NRPO
(1)
1 metric ton is equal to 1,000 kilograms (approximately 2,205 pounds).
Biodiesel production declined in 2010 due to high feedstock prices. Although production declined markedly, revenues decreased slightly to $8.1 million in 2010 from $9.2 million in 2009 as a result of higher average sales prices.
2
2011 Highlights
In the second quarter of 2011, we successfully completed the retrofit of the Keyes, CA ethanol plant and in late April 2011 began operating the plant pursuant to a 5-year lease agreement with Cilion, Inc. The Keyes plant is a dry mill ethanol production facility currently utilizing corn as feedstock. In addition, the plant produces high quality wet distillers grains (WDG) and a small amount of condensed distillers soluble (CDS) as byproducts of the ethanol production process, which are sold as a high protein, livestock feed supplement.
The plant is located adjacent to the Union Pacific Railroad and Highway 99, two major transportation arteries in California’s Central Valley region, providing convenient transportation to and from the plant for inbound feedstock and outbound feed and fuel.
During 2011, we produced three products at the Keyes plant: denatured ethanol, WDG and CDS. In 2011 we sold 100% of the ethanol and WDG we produced to J.D. Heiskell pursuant to a Purchase Agreement established with J.D. Heiskell. Small amounts of CDS were sold to various local third parties. Ethanol pricing is determined pursuant to a marketing agreement between the Company and Kinergy Marketing LLC, and is generally based on daily and monthly pricing for ethanol delivered to Los Angeles, California, as published by the Oil Price Information Service (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 the Company and A.L. Gilbert Co., and is generally determined in reference to the price of dry distillers grains (DDG) and corn.
The following table sets forth information about our production and sales of ethanol and WDG in 2011.
2011
Ethanol
Gallons Sold (in 000s)
Average Sales Price/Gallon
WDG
Tons Sold (in 000s)
During 2011 we continued to spend research and development dollars exploring the viability of commercializing our integrated cellulose and starch ethanol technology and in July 2011, we acquired Zymetis, Inc., a biochemical research and development firm, with several patents pending and in-process R&D utilizing the Z-microbe™ (a marine organism originally discovered consuming plant cellulose at a high rate in the Chesapeake Bay) to produce renewable chemicals and advanced fuels from renewable feedstocks.
The market for biodiesel in 2011 was very challenging and as a result the Company’s production of biodiesel and crude glycerin remained static although revenues increased as a result of an increase in average sale prices. In 2011, our primary feedstock for the production of biodiesel continued to be NRPO, a byproduct of palm oil fractionation and a non-edible feedstock, which we sourced from suppliers in India.
In response to difficult market conditions, during 2011, the Company took the opportunity to perform routine maintenance and to complete the plant’s glycerin refining and oil pretreatment units. The glycerin refining and oil pre-treatment units were completed in the firstquarter of 2012. The glycerin refining unit enables us to produce and sell refined glycerin and the oil pre-treatment unit enables us to refine crude palm oil into refined palm oil. In addition, in the first quarter of 2012, our India subsidiary received an Indian Pharmacopeia license, which enables it to sell refined glycerin to the pharmaceutical industry in India. In the third quarter of 2011, in order to develop a market for our refined glycerin, we imported 1,000 metric tons of refined glycerin, which we sold in 2011 and 2012. In 2011, we did not produce any refined glycerin.