In addition to the attached consolidated financial statements and notes, it also provides our management's discussion and analysis of the financial status and operating performance (MD&A) to help readers understand our operating performance, financial status and cash flow. The MD&A organization is as follows:
· Overview. Discuss our business and an overall analysis of the financial and other highlights that affect us, providing context for the rest of MD&A. · Operational results. Compare the financial performance analysis for the three and nine months ending September 30, 2021 and September 30, 2020. · Liquidity and capital resources. Analyze changes in our balance sheet and cash flow and discuss our financial situation. · Critical accounting estimates. We believe that accounting estimates are important for understanding the assumptions and judgments contained in our reported financial results and forecasts.
The following discussion should be read in conjunction with our consolidated financial statements and the notes contained elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that may cause or contribute to these differences include the factors discussed below and in other parts of this report, especially in "Part 2, Item 1A. Risk Factors" and other reports we file with the SEC. All references to a year are related to the calendar year ending December 31 of a particular year.
Headquartered in Cupertino, California, we are an international renewable natural gas, renewable fuels and by-products company focusing on the acquisition, development and commercialization of innovative carbon-negative products and technologies to replace traditional petroleum products. We operate in two reportable geographic regions: "North America" and "India".
We were established in 2006 and have completed the first phase. We are expanding the California biogas digester network and pipeline system to convert dairy waste gas into renewable natural gas (RNG). We own and operate a 65 million gallons of ethanol production facility (the "Case Plant") in Case, California. In addition to low-carbon renewable fuel ethanol, the Case plant also produces wet distillers grains ("WDG"), distillers grain oil ("DCO") and concentrated distillers grains ("CDS"), all of which are sold to local dairy plants and breeding The farm is used as animal feed. In the fourth quarter of 2021, the ethanol membrane dehydration system of the Keyes plant was put into use, which is a key part of improving the electrification of the plant and reducing the use of natural gas. The project reduces greenhouse gas ("GHG") emissions and reduces the carbon intensity of the fuel produced at the Keyes plant, allowing us to achieve higher prices for the production and sale of ethanol.
In 2018, Aemetis Biogas, LLC ("ABGL") was established to build biomethane anaerobic digesters at a local dairy plant near the Keyes plant. Many of them also purchased WDG produced at the Keyes plant. The digester is connected to a gas purification and compression unit built at the Case plant through a pipeline owned by ABGL to produce renewable natural gas ("RNG"). In the third quarter of 2020, ABGL completed the construction of the first two dairy digesters and the pipeline to transport biomethane from these dairy products to the Case plant. After receiving the biomethane from dairy products, we remove impurities and convert it into RNG, and then inject it into the local natural gas utility pipeline to supply it in the form of renewable compressed natural gas ("RCNG") for local trucks The fleet provides services or is used as renewable energy at the Case factory.
In the first quarter of 2021, we announced our "zero-carbon" biofuel production plant, which aims to produce biofuels, including renewable jet fuel and diesel fuel using cellulosic hydrogen and non-edible renewable oils, which come from Existing Aemetis biofuel plant and other sources. The first plant is located in Riverbank, California, and is called "Carbon Zero 1". It is expected to use hydropower and other renewable energy sources available on site to produce 45 million gallons of jet fuel, renewable diesel and other by-products each year. The plant is expected to provide ultra-low carbon renewable fuels for the aviation and truck markets to reduce greenhouse gas emissions and other pollutants associated with traditional petroleum-based fuels.
The company will continue to develop material fuel technology to build zero-carbon production facilities. By producing ultra-low-carbon renewable fuels, the company is expected to obtain higher-value D3 RIN and California's LCFS credits. Due to the relative scarcity of D3 RIN and the mandatory pricing formula of the US Environmental Protection Agency, the value of D3 RIN in the market is higher than D6 RIN.
On April 1, 2021, we established Aemetis Carbon Capture, Inc. to build a carbon storage project and generate LCFS and IRS 45Q credit lines by injecting CO?. Discharge into the well to ensure long-term storage of carbon underground. California’s Central Valley has become a major area for large-scale natural gas production and carbon dioxide. The injection project is due to the gas retained by the underground geological structure.
We operate a research and development laboratory to develop efficient conversion technologies for the production of biofuels and biochemicals from waste materials. We will continue to develop material fuel technology to build zero-carbon production facilities. By producing ultra-low carbon renewable fuels, we hope to obtain higher value D3 RIN and California LCFS credits. Due to the relative scarcity of D3 RIN and the mandatory pricing formula of the US Environmental Protection Agency, the value of D3 RIN in the market is higher than D6 RIN.
We also own and operate the Kakinada plant with a nameplate capacity of 150,000 tons per year, or approximately 50 million gallons per year, to produce high-quality distilled biodiesel and refined glycerin for customers in India and Europe. We believe that the Kakinada plant is one of the largest biodiesel production facilities in India in terms of nameplate capacity. The Kakinada plant can process various vegetable oil and animal fat waste materials into biodiesel that meets international product standards. The Kakinada plant also distills crude glycerin by-products from the biodiesel refining process into refined glycerin, which is sold to the pharmaceutical, personal care, paint, adhesives and other industries.
Our revenue development strategy in North America has historically relied on the supply of ethanol to the transportation fuel market in Northern California and the supply of feed products to the dairy and other animal feed businesses in Northern California. We are actively seeking higher-value markets for our ethanol to improve our overall profit margins and increase incremental revenue for the North American sector, including the development of zero-carbon plants, expansion of biogas projects, implementation of solar microgrid systems, and installation of membrane dehydration systems And other technologies. We are also actively cooperating with potential customers of local dairy products and feed to enhance the value of our WDG products in order to strengthen the demand for this product.
In the first quarter of 2021, we produced five products at the Keyes plant: denatured fuel ethanol, WDG, DCO, CO2 and CDS. In the first quarter of 2020, we started to transition from selling our ethanol to JD Heiskell under the JD Heiskell purchase agreement to directly selling ethanol to our fuel marketing customers. We have ethanol stored in finished tanks. WDG continues to be sold to AL Gilbert, while DCO is sold to other customers under the JD Heiskell purchase agreement. A small amount of CDS was sold to various local third parties. We started selling CO? Delivered to Messer in the second quarter of 2020. We started selling premium alcohol directly to various customers across the West Coast in March 2020, and we also produced and sold Aemetis hand sanitizer through our Aemetis Health Products, Inc. subsidiary in the fourth quarter of 2020. 2020.
North American income depends on the prices of ethanol, WDG premium alcohol and DCO. Ethanol pricing is affected by local and national inventory levels, local and national ethanol production, corn prices, and gasoline demand, and is determined according to marketing agreements with single fuel marketing customers, usually based on daily and monthly pricing of ethanol delivered. San Francisco Bay Area, California, published by the Oil Price Information Service, and quarterly contracts negotiated by our marketing customers with local fuel blenders. The price of WDG is affected by the price of corn, the supply and price of dried distiller’s grains, and the demand of the local dairy products and feed market. It is determined monthly according to the marketing agreement with AL Gilbert, and generally refers to the price of local dried distiller’s grains and other similar feed products. The pricing of high-end wines is based on current market supply and demand constraints. Our revenue is further influenced by our decision to operate the Keyes plant at various levels of capability, to perform the necessary maintenance, and to react to biological processes that affect production.
Our revenue strategy in India is based on continuing to provide bids for bulk fuel purchases to our bulk fuel customers, gas station customers, mining customers, industrial customers, and government oil marketing companies ("OMC"). In 2020, due to COVID-19, the tender was postponed and the format was eventually changed to allow monthly tenders for quantities at the price set by OMC each year. The company plans to participate in these tenders in 2021 when raw material prices allow profitable operations at the bid prices set by OMC.
In the first quarter of 2021, the company was approved by the Andhra Pradesh National Road Transport Corporation ("APSRTC") to supply approximately 800,000 gallons of biodiesel per month to provide fuel for public transportation buses in the region. The arrangement is expected to continue to meet APSRTC's needs, but it has been postponed due to COVID-19.
Compared with the three months ending September 30, 2020, the three months ending September 30, 2021
Our revenue mainly comes from the sales of ethanol and WDG in North America and the sales of biodiesel and refined glycerin in India.
For the three months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $49,832 $33,131 $16,701 50% India 63 7,792 (7,729) -99% Total $49,8923 $4 26% 26 content
North America. The increase in revenue for the three months ended September 30, 2021 was due to a 79% increase in the average price of ethanol to US$2.84 per gallon, while the average price for the three months ended September 30, 2020 was US$1.59 per gallon, and Ethanol sales decreased from 15 million gallons to 13.8 million gallons. In the three months ending September 30, 2020, ethanol income includes income from high-grade alcohol. Compared with the 94,000 tons in the three months ended September 30, 2020, WDG sales in the three months ended September 30, 2021 decreased to 93,000 tons, and the average price of WDG increased by 26% during these three periods. To US$96 per ton. USD 76 per ton for the months ended September 30, 2021, and the three months ended September 30, 2020. During the three-month period ending September 30, 2021, factory output averaged 100% of 55 million gallons of nameplate capacity per year, compared to 111% for the three months ended September 30, 2020. For the three months ended September 30, 2021, 79% of our North American revenue came from ethanol sales, 18% came from WDG sales, and 3% came from DCO sales, compared to the three as of September 30, 2020. In June, 72% of our North American revenue came from ethanol sales, 22% came from WDG, and 6% came from DCO, CO2 and CDS.
India. The main reason for the decrease in revenue is that the COVID-19 suspension and high raw material costs make the conversion to biodiesel infeasible. As no metric tons were sold for the three months ended September 30, 2021, biodiesel sales fell to zero, while sales for the three months ended September 30, 2020 were 8,100 metric tons. In addition, refined glycerin sales fell to zero, as no metric tons were sold for the three months ended September 30, 2021, and 556 metric tons were sold for the three months ended September 30, 2020. For the three months ended September 30, 2021, 100% of our revenue came from other sources. In contrast, for the three months ended September 30, 2020, 94% of our revenue came from the sale of biodiesel and 6% of our revenue came from the sale of biodiesel. Revenue comes from the sale of refined glycerin.
Cost of goods sold for the three months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $ 54,664 $ 33,534 $ 21,130 63% India 16 6,618 (6,602) -100 %, 6815 $ 84 , $522%
North America. For the three months ended September 30, 2021 and September 30, 2020, we milled 4.8 million bushels and 5.2 million bushels of corn, respectively. For the three months ended September 30, 2021, our average raw material cost per bushel increased from US$4.92 per bushel for the three months ended September 30, 2020 to US$7.99. In addition, for the three months ended September 30, 2021, our natural gas costs increased by US$1 million and chemical costs increased by US$500,000.
India. The decrease in the cost of selling goods is due to the decrease in sales of biodiesel and refined glycerin, as the production of these products has become infeasible. The amount of biodiesel feedstock for the three months ended September 30, 2021 was zero, and the amount of biodiesel feedstock for the three months ended September 30, 2020 was 780 metric tons. In the three months ended September 30, the average price of biodiesel feedstock was US$621 per metric ton, 2020. The amount of refined glycerin feedstock for the three months ended September 30, 2021 was reduced to zero. The production for the three months ended 30th September was 632 metric tons, and the average price of refined glycerin raw materials in these three countries was US$589 per metric ton for the month ended September 30, 2020.
37 Catalog Gross Profit (Loss) For the three months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $ (4,832) $ (403) $ (4,429) -1099% India 47 1,174 (1,127) -96% Total $ (4,785) $ 771 $ (5,556) -721%
North America. The decrease in gross profit was due to the decrease in ethanol sales for the three months ended September 30, 2020 from 15 million gallons to 13.8 million gallons in the same period in 2021, plus the increase in raw material cost per bushel from $4.92 as of September 2020 For the three months ended on the 30th, it was $7.99 for the same period in 2021.
India. The decrease in gross profit was due to a decrease in sales of biodiesel and refined glycerin in metric tons, as the production of these products became infeasible.
Operating expenses R&D expenses for the three months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $22 $37 $ (15) -41% India---0% Total $22 $ 37 $ ( 15) -41%
As of September 30, 2021 and the three months of 2020, R&D expenses remain the same.
Sales, general and administrative expenses (SG&A)
Three months ended September 30 (in thousands) 2021 2020 Inc/(dec)% change North America $ 4,637 $ 4,340 $ 297 7% India 450 223 227 102% Total $ 5,087 $ 4,563 $ 524 1
SG&A expenses mainly include employee salaries and related expenses, marketing expenses related to the sale of ethanol and WDG in North America and the sale of biodiesel and other products in India, as well as professional expenses, other company expenses and related facility expenses.
North America. The increase in SG&A expenses for the three months ended September 30, 2021 is due to an increase in salary and wages of US$200,000, an increase of US$300,000 in insurance costs, an increase of US$100,000 in other taxes, interest and penalties, and an increase in professional fees 100,000 U.S. dollars, as well as marketing costs and other 200,000 U.S. dollars. This was partially offset by a $600,000 reduction in bad debt expenses. For the three months ended September 30, 2021, SG&A expenses as a percentage of revenue dropped from 13% in the same period in 2020 to 9%.
India. As tax-free labor increased by 200,000 US dollars, SG&A expenses increased. For the three months ended September 30, 2021, SG&A's percentage of revenue increased to 714%, compared to 3% in the same period in 2020, due to the COVID-19 pandemic and three unfavorable raw material pricing resulting in a decline in revenue. The month ending September 30, 2021.
38 Other income and expenses for the three months ending September 30 (in thousands) 2021 2020 Inc/dec% change North American interest rate expenses $ 4,408 $ 5,787 $ (1,379) -24% Debt-related expenses and amortization expenses 1,140 6674 69% Value-added and other expenses of A-series priority units 2,185 1,765 420 24% Other expenses (1) 155 (156) 101% Indian interest rate expenses-9 (9) -100% Other income (29) (2) (27 ) -1350% Total $ 7,703 $ 8,388 $ (685) -8%
Other (income)/expenses. Other (income) expenses mainly include interest and amortization expenses attributable to debt financing acquired by our parent company and our subsidiaries. When debt financing includes stocks or warrants issued as expenses, the fair value of the stocks and warrants are amortized as an amortization expense, unless the elimination accounting method is adopted, in which case the cost of refinancing debt is recorded as amortization Sales expenses.
North America. Due to the principal and debt paid to Third Eye Capital in the second quarter of 2021, interest expenses for the three months ended September 30, 2021 decreased. Debt-related expenses and amortization increased because the subordinated notes were postponed in July 2021 and in the third quarter. The increase in value-added and other expenses for Series A priority units is due to the issuance of additional units from September 30, 2020 to September 30, 2021, as well as the accrued priority payments. Other expenses were reduced due to non-recurring guarantee fees of US$200,000 for the three months ended September 30, 2020.
Comparison of the nine months ending September 30, 2021 and the nine months ending September 30, 2020
Our revenue mainly comes from the sales of ethanol and WDG in North America and the sales of biodiesel and glycerin in India.
For the nine months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $146,890 $114,226 $32,664 29% India 696 14,001 (13,305) -95%, totaling $65,147 9 $6237 5
North America. For the nine months ended September 30, 2021, 76% of the company's revenue came from ethanol sales, 21% from WDG sales, and 3% from corn oil, CDS, CO2 and other sales. For the nine months ending September 30, 2021, factory output averaged 108% of 55 million gallons of nameplate capacity per year. Compared to the nine months ended September 30, 2020, the increase in revenue for the nine months ended September 30, 2021 was due to the increase in ethanol sales for the nine months ended September 30, 2021 to 44.6 million Gallons, compared to 40.5 million gallons sold for the nine months ended September 30, 2020, plus the price of ethanol per gallon increased to $2.49 for the nine months ended September 30, 2021, and as of The price for the nine months ended September 30, 2020 is $1.55. For the nine months ended September 30, 2020, 21% of revenue came from the sale of premium alcohol, which was included in ethanol revenue. For the nine months ended September 30, 2021, the average price of WDG increased by 30% to US$102 per ton. For the nine months ended September 30, 2021, WDG sales also increased by 2% to 299,000 tons. It was 292,000 tons in the same period last year. The nine months ended September 30, 2020.
India. For the nine months ended September 30, 2021, 67% of the company’s revenue came from biodiesel sales, 18% from refined glycerol, and 15% from other sales, compared to 88% from biodiesel sales and 6% from sales For the nine months ended September 30, 2020, 6% of refined glycerin came from other sales. The decrease in revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to a 97% reduction in biodiesel sales to 455 metric tons. The decrease in biodiesel production is due to the COVID-19 pandemic and unfavorable feedstock prices. For the nine months ended September 30, 2021, the average selling price of biodiesel was US$1,024 per metric ton, compared to US$855 per metric ton for the same period in 2020. Sales of refined glycerin decreased by 88% to 130 metric tons. Compared with the nine months ended September 30, 2020, the average price of glycerin increased by 17% to US$956 per metric ton for the nine months ended September 30, 2021. .
Cost of sales for the nine months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $151,614 $101,231 $50,383 50% India 719 12,599 (11,880) -914 $3,832 $135 3 3%
North America. During the nine-month period ending September 30, 2021, we ceased production of 15.6 million bushels of corn, compared to 15.8 million bushels in the same period in 2020. In the nine months ended September 30, our average corn cost per bushel increased by 56% to $7.62 per bushel in 2021 compared to the same period in 2020. In addition, in the nine months ending September 30, 2021, our natural gas costs increased by US$2.1 million and chemical costs increased by US$1.2 million.
India. The cost of sales for the nine months ended September 30, 2021 has decreased compared to September 30, 2020. This is due to a decrease in the amount of biodiesel feedstock for the nine months ended September 30, 2021. % To 465 metric tons. In the nine months ending September 30, 2020, it was reduced to 13,500 tons, plus the average price of biodiesel feedstock fell by 3% to US$619 from US$637 in the same period in 2020. In addition, the quantity of refined glycerin raw materials decreased for the nine months ended September 30, 2021, and production increased by 90% to 117 metric tons. The average price of some refined glycerin raw materials increased during the nine months ended September 30, 2021 12% to US$619 per metric ton and partially offset. The same period in 2020.
Gross profit (loss) for the nine months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $ (4,724) $ 12,995 $ (17,719) -136% India (23) 1,402 (1,425 %) -1 Total $ (4,747) $ 14,397 $ (19,144) -133% 40 Table of contents
North America. Compared with the nine months ended September 30, 2020, the gross profit for the nine months ended September 30, 2021 decreased due to reduced demand for high-end alcohol and higher corn prices.
India. The decrease in gross profit was due to a 96% decrease in sales of all products to 584 metric tons.
Operating expenses R&D expenses for the nine months ended September 30, (in thousands) 2021 2020 Inc/(dec)% change North America $66 $175 $ (109) -62% India---0% Total $66 $175 $ (109 ) -62%
Research and development expenses have decreased in the nine months ending September 30, 2021, due to a reduction of US$84,000 in costs related to research subcontracting work and a reduction of US$19,000 in laboratory supplies.
Sales, general and administrative expenses (SG&A)
Nine months ending September 30 (in thousands) 2021 2020 Inc/(dec)% change North America $ 15,016 $ 11,206 $ 3,810 34% India 1,206 1,342 (136) -10% Total $16,252 3% 8 USD 4
SG&A expenses mainly include employee salaries and related expenses, marketing expenses related to the sale of ethanol and WDG in North America and the sale of biodiesel and other products in India, as well as professional expenses, other company expenses and related facility expenses.
North America. For the nine months ended September 30, 2021, SG&A expenses as a percentage of revenue remained at 10% for the nine months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021, the increase in SG&A expenses was mainly due to an increase of $1 million in salary and stock compensation, an increase of $100,000 in supplies, services and utilities, an increase of $800,000 in insurance, and other taxes and fines 10 USD million, professional fees of USD 1.2 million, termination fees of USD 600,000, and marketing expenses of USD 0.4 million. However, compared with the SG&A expenses for the nine months ended September 30, 2020, the bad debt expenses were reduced by USD 500,000. Partially offset.
India. Due to the slowdown in sales due to the COVID-19 pandemic, SG&A expenses as a percentage of revenue for the nine months ended September 30, 2021 increased from 10% in the same period in 2020 to 173%. The absolute reduction in SG&A expenditure was due to a decrease of US$119,000 in utility and other expenses, a decrease of US$260,000 in professional fees, and partly offset by a US$139,000 increase in salaries and wages and a US$231,000 increase in miscellaneous and other expenses. Compared to the nine months ending September 30, 2020, the nine months ending September 30, 2021.
41 Table of Contents Other Income and Expenses for the nine months ended September 30, (in thousands) 2021 2020 Inc/dec% Change in North American interest rate expenses $ 14,902 $ 16,912 $ (2,010) -12% Debt-related expenses and amortization expenses 3 ,0785 46555 18% Value-added and other expenses of A-series priority units 7,928 4,087 3,841 94% Debt settlement income (1,134)-(1,134) -100% Other expenses 561 416 145 35% India interest rate expenses-40-41% income (78 ) (23) (55) 239% Total $ 25,224 $ 24,014 $ 1,210 5%
Other (income)/expenses. Other (income) expenses mainly include interest rates and amortization expenses for debt financing attributable to us and our subsidiaries, as well as interest accrued based on judgments obtained by Cordillera Fund and The Industrial Company. Debt financing includes stocks or warrants issued as expenses. The fair value of stocks and warrants is amortized as an amortization expense, unless the phase-out accounting method is adopted, in which case the cost of refinancing debt is recorded as amortization loss or gain.
North America. Due to the principal debt paid to Third Eye Capital in the second quarter of 2021, interest expenses for the nine months ended September 30, 2021 decreased. Debt-related expenses and amortization will increase due to debt and deferred expenses incurred in 2021. The fees and other costs of the A-series priority units are due to the issuance of additional units from September 30, 2020 to September 30, 2021, and the accrued priority payments. Other income related to debt settlement proceeds is due to the exemption of PPP loans. Other expenses increased due to termination expenses recognized in the nine months ending September 2021, and a guarantee fee of USD 500,000 was added for the nine months ending September 30, 2020.
India. Interest expenses have decreased because the working capital quota has been repaid, and other income has increased due to interest income.
As of September 30, 2021, cash and cash equivalents were US$6.4 million, of which US$4.6 million was in North America and the rest was in our Indian subsidiary. Our current ratio on September 30, 2021 was 0.23, and our current ratio on December 31, 2020 was 0.08. We expect that our future available liquidity resources will mainly include cash generated from operations, remaining cash balances, available borrowings (if any), based on our senior debt financing and subordinated debt financing, and any additional funds raised through the sale of equity. All use of proceeds from equity financing and debt financing must be approved by our senior lenders.
The cash and cash equivalents, current assets, current liabilities and liabilities at the end of each period are as follows (unit: thousands):
42 Contents as of December 30, 2021 Cash and cash equivalents $6,389 $592
Current assets (including cash, cash equivalents and deposits)
Current and long-term liabilities (excluding all debts) 94,094 80,264 Current and long-term liabilities
Our main source of liquidity is cash provided through the sale of equity, operations and borrowing under various debt arrangements.
We launched the second phase of EB-5 financing in 2016. According to this financing, we expect to issue additional EB-5 notes worth US$50.8 million. The terms and conditions are the same as those of our EB-5 first phase financing issuance. Basically similar. On November 21, 2019, the minimum investment amount was increased from US$500,000 per investor to US$900,000 per investor. As of September 30, 2021, US$4 million in EB-5 Phase II funds has been released to us from the escrow. The main purpose of our cash is to refinance debt, fund operations and capital expenditures. We expect these uses will continue to be our main use of cash in the future. In recent years, the global financial and credit markets have been turbulent, and future adverse conditions in these markets may have a negative impact on our ability to obtain funds or raise funds at a reasonable cost, or not at all.
We operate in a turbulent market, we have limited control over the main components of input costs and product revenue, and are investing in future facilities and facility upgrades to increase overall profit margins while mitigating the impact of these turbulent markets. Therefore, we expect that the cash provided by operating activities will fluctuate in the future, mainly due to the price changes of corn, ethanol, WDG, DCO, CDS, biodiesel, waste oil, glycerin, unrefined palm oil and natural gas. If we experience ethanol When the price gap between corn and energy costs narrows or the price gap between biodiesel prices and waste fats or palm oil and energy costs narrows, we may need additional working capital to fund operations.
Due to negative capital, negative operating performance, and almost all company assets being mortgaged, the company has been relying on its senior secured lenders to provide additional funds. In order to fulfill its obligations in the next twelve months, the company will need to refinance the company’s debt or obtain continued cooperation from senior lenders. This reliance on senior lenders has raised serious doubts about the company's ability to continue operations. The company plans to implement the following strategies to improve business processes.
For the Keyes plant, we plan to operate the plant and use new technologies or process changes to improve energy efficiency, reduce costs or increase revenue, continue to improve financial performance, and implement grants granted to improve energy and operational efficiency, thereby reducing costs , Reducing carbon demand and improving overall profitability.
For biogas projects, we plan to operate biogas digesters to capture and monetize biogas, and continue to build new dairy biogas digesters and expand existing pipelines to capture the higher carbon credits available in California. Funding for continued construction is based on extending existing priority unit purchase agreements, obtaining government-guaranteed loans, and implementing existing and new national funding plans.
For the Riverbank project, we plan to use loan guarantees and public financing based on licensed technology to raise the funds needed to build and operate the Zero Carbon 1 plant and the Riverbank cellulosic ethanol facility, which generate federal and state carbon credits that can be used for ultra-low emissions The use of low-cost non-food advanced raw materials for carbon fuels significantly improves profitability.
For the Indian plant, we plan to ensure an increase in fuel shipments from the Indian plant by developing sales channels and expanding the existing domestic market or exporting to the North American market.
In addition to the above, we also plan to continue to provide existing and new business opportunities by cooperating with our senior lenders, restructuring existing loan agreements, selling equity through ATMs, and selling current EB-5 Phase 2 products in other ways Look for funds, or arrange financing through suppliers.
As of September 30, 2021, the outstanding balance of all Third Eye Capital Notes principal, interest and expenses (net of discounts) is 117 million U.S. dollars. The current maturity date of all Third Eye Capital financing arrangements is April 1, 2022, however, the company has the right to notify and pay a 1% extension fee in accordance with the No. 20 amendment. The GAFI notes have been fully repaid in the first quarter of 2021.
As of the date of this report, the company has an additional borrowing capacity of US$40 million to meet future cash flow requirements under the reserve liquidity notes due on April 1, 2022.
We also rely on working capital lines with Gemini and Secunderabad Oils in India to fund our commercial arrangements for sourcing raw materials. We currently provide our own working capital for the Keyes plant; Gemini and Secunderabad Oils currently provide us with the working capital for the Kakinada plant. The ability of Gemini and Secunderabad Oils to continue to provide us with working capital depends in part on their respective financial strengths and banking relationships.
Changes in working capital and cash flow
The following table (in thousands) describes the changes in current and long-term debt for the nine-month period ending September 30, 2021:
Increase in debt: accrued interest of $15,187
The maturity extension fee is added to the senior debt and waived fees
1,615 Subordinated debt extension fee 680 Equipment term loan financing 55 Total debt increase is US$17,537
Debt reduction: principal, expenses and interest paid to senior lenders $ (23,859) principal and interest paid to EB-5 investors
(1,472) GAFI interest and principal payment (34,846) PPP loan relief (1,134) Term loan payment (2) Changes in debt issuance costs, net of amortization (865) Total debt reduction $ (62,178) Total debt change $ (44,641) )
Changes in working capital resulted in (i) an increase of US$1.3 million in North American inventories and an increase of US$900,000 in inventories, partially offset by a decrease of US$400,000 in India, and (ii) a decrease of US$200,000 in accounts receivable and a decrease of US$700,000 in accounts receivable The decrease in Indian accounts receivable was partially offset by an increase in North American accounts receivable by USD 500,000. (iii) The increase in prepaid expenses was USD 2.8 million, mainly due to the prepayment of USD 2 million to JD Heiskell, plus the gas prepayment of USD 800,000 , (Iv) Other current assets of the Indian business decreased by US$600,000, the North American business decreased by US$400,000, and (v) Cash increased by US$5.8 million due to funds raised through the market offering program.
For the nine months ended September 30, 2021, net cash used in operating activities was US$20 million, including US$15.5 million in non-cash expenses, US$10.7 million in net cash used in operating assets and liabilities, and net A loss of 46.3 million U.S. dollars. Non-cash expenses include: (i) USD 3.1 million in debt issuance costs and amortization of other intangible assets, (ii) USD 4.1 million in depreciation expenses, (iii) USD 1.4 million in stock compensation expenses, (iv) USD 7.9 million Among the increase in priority units and other expenses of Series A priority units, (v) debt settlement gains of US$1.1 million, and (vi) bad debt reserves increased by US$100,000. The net changes in operating assets and liabilities mainly include (i) an increase in inventories of US$900,000, (ii) an upfront cost of US$2.8 million, and (iii) a decrease of US$4.6 million in accounts payable, partly by (iv) an increase of US$7.3 million in other liabilities , (V) Other assets decreased by US$2.5 million, and (vi) accrued interest increased by US$9.3 million.
The cash used in investment activities was US$17.5 million, of which US$18.7 million was used for capital projects. This was partially offset by the US$1.2 million in proceeds received from North American grants.
The cash provided by financing activities was US$43.3 million, mainly including US$94.2 million raised through the issuance of ordinary shares, US$3.1 million received from the issuance of Series A preferred units, US$1.1 million received from the exercise of stock options, and the grant matching plan received The US$100,000 of US$53.5 million was partially offset by the repayment of US$53.5 million in borrowings, US$300,000 in Series A priority unit redemption, US$1 million in debt renewal and waiver fees, and US$400,000 in financing lease payments.
Our discussion and analysis of financial conditions and operating results are based on our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments. These estimates and judgments will affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amount of net sales and expenses in each period. We believe that our most important accounting policy is defined as the policy that we believe is the most important for describing our financial status and operating performance, and requires the management to make the most difficult, subjective or complex judgments, usually due to the need to Estimates of the impact of inherent uncertainties include: revenue recognition; the recoverability of long-term assets, and debt modification and settlement accounting. These important accounting principles have been more comprehensively described in the "Management’s Discussion and Analysis of Financial Status and Operational Results-Key Accounting Policies" in our annual report on Form 10-K for the year ended December 31, 2020. describe.
There are no reports other than the information disclosed in our annual report on Form 10-K for the year ended December 31, 2020.
For the three months ended September 30, 2021, we have no off-balance sheet arrangements.
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