Welcome to the Aemetis Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Todd Waltz, the Executive Vice President and Chief Financial Officer of Aemetis. Mr. Waltz, you may begin.

Thank you, Randy. We welcome our shareholders and financial market professionals to today’s Aemetis Third Quarter 2015 Earnings Review Conference Call. We suggest visiting the Aemetis website at aemetis.com to review today’s earnings press release, the updated Aemetis corporate presentation, Aemetis’ filings with the SEC and previous Aemetis business conference calls. Before we begin our presentation, I’d like to read the following disclaimer statement. During today’s call we’ll be making forward-looking statements, including, without limitation statements with respect to our future stock performance, plans, expectation for performance, opportunities, and expectations with respect to financial activities. I’d like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risk and uncertainty, and that future events may differ materially from the statements made. For additional information, please refer to the Company’s Security and Exchange Commission filings which are posted on our website or available from the Company without charge. Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended September 30, 2015, which is available on our website in the Media section. Adjusted EBITDA is defined as net income or loss plus, to the extent deducted and calculating such net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, depreciation expense, and share-based compensation. Now, I’d like to review the financial results for our most recent quarter. Revenues were 38.5 million for the third quarter of 2015, compared to 48.3 million for the third quarter of 2014. Decreases in ethanol and…

Thank you, Todd. For those of you who may be new to our company, let me take a moment to provide some brief background information. Aemetis was founded in 2006 and we own and operate 110 million gallons per year of renewable fuel production capacity in the U.S. and in India. Included in our production portfolio is a 60 million gallon per year capacity ethanol plant located in Keyes, California, which is near Modesto. We also own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin bio-refinery on the east coast of India near the port city of Kakinada and have plans to expand the capacity to 100 million gallons per year. Let’s discuss our businesses. The Aemetis biodiesel business has entered into an exciting, rapid growth phase due to a variety of favorable factors in our primary target market, India. With the elimination in October 2014 of about $10 billion of annual subsidies for diesel in India, biodiesel has become a lower priced, less polluting fuel in the 25 billion gallon per year India fuel market. During August 2015 the government of India approved sales of biodiesel directly from producers to both customers, bypassing the three large government-owned oil marketing companies. Finally, on October 21, 2015 the government of India eliminated the excise duty on biodiesel feedstocks and other inputs. This is a huge benefit for Aemetis, as it opens up many sources of feedstock domestically and internationally, reduces feedstock costs, and provides our India operations with significant feedstock security. We thank Prime Minister Modi and his Ministers of Revenue, Finance, and Renewable Energy for systemically removing the obstacles to help grow the biofuels industry in India. India has 13 of the 20 most polluted cities in the world. Biodiesel provides an 80% reduction…

Thank you. We’ll now be conducting a question and answer session. [Operator Instructions] Our first question is from Craig Irwin of Roth Capital Partners. Please go ahead.

Good afternoon, Eric, and congratulations on all the progress on your different technology initiatives.

Thanks, Craig.

I wanted really to focus on the Indian biodiesel business, six-and-change million dollars in revenue this quarter clearly coming from an acceleration. I know it’s coming off a small base, but you’ve made several press releases in the last few months helping people understand the changes in the Indian market. Can you maybe expand on how things are progressing this quarter, particularly with the change in tax structure with the last couple weeks, whether or not you would expect growth like this to continue?

We are absolutely seeing our customer base expand. The very favorable October 21st tax change at the federal level has enabled us to not only expand but really internationalize our feedstock access. So, our ramp up in the fourth quarter is going to be a de-bottlenecking of the plant we did in order to be able to go to our entire 50 million gallons per year. That included adding some electrical grid supply and some other upgrades we did in the plant so we can run essentially 24/7. And that was done in October, early November, and then ramping up our deliveries to customers here in November and in December. So, the quarter will see an October de-bottlenecking and maintenance cycle with revenues that were less than what we would see at 100% production obviously, but a de-bottlenecking success that really allows us to exit the quarter at a very rapid run rate. So, we're looking forward to taking full advantage of the ability to expand, not only in the southern India market, where we've really predominated, but really the state of Andhra Pradesh. It’s an agricultural state. It's very large, it’s sort of like the California of India, and it's a very high margin state for us. So, we are ideally located in the best place in India to put a biodiesel plant. The freight costs are low. The revenue numbers in the state that we're in are very, very high. And we are very pleased that now with the de-bottlenecking of feedstock and the policies now being in place it’s all about sales ramp up.

Okay, thank you for that. So, those of us that follow the story closely will obviously have to pay close attention to price going forward as volumes go up there. I noticed while glycerin had an 8% price increase sequentially, your biodiesel actually had a 15% decline. Can you talk us through what’s driving this price volatility and if maybe you can share with us some of the public yardsticks that we can look at to understand the fundamentals of pricing in the Indian market.

One of the good news items of our business in India is that our feedstocks and our pricing of our products tend to go, not in lock-step, but I would say they're closely in tandem. Our plant in India was built as, what I believe to be, the world’s largest non-food [indiscernible] biodiesel plant. And that is a waste product that is produced in India, as well as throughout Asia, as a waste product of the edible oil business. And so as the price of diesel goes up and down, the price of these oil products tend to also go up and down. So, we've had a price decline partially because the international price of diesel during the summer was about $60 a crude oil barrel and we're of course, trading at roughly $45 a crude oil barrel today. But there was, similarly a dramatic decline and it’s actually called a crash, in the feedstock side of the business in India. So, we are very well positioned using the waste oil, that has a high value contribution when you convert it into biodiesel, that as the price of crude oil moves from $45 to 50 to 60 or 70 depending how optimistic you are over the next year, that will result in increasing revenues for us. But using a waste-to-oil input we have seen that the feedstocks tend to kind of not move up as much as crude oil. Certainly last year when we were at $100 international oil, the feedstocks we used were significantly lacking in price. So, our margins definitely expand as the price of crude oil goes up, and tend to go down rapidly when the price of crude oil goes down.

Then my next question is on the ethanol side. So, I guess we’re going to have to wait for the 10-Q for a couple of the numbers in there, but it looks like your co-product return dropped by something in the range of 5% sequentially. I was wondering if maybe there was an inventory issue there, or if there was something going on specifically in your local markets that might impact short term economics, and if you expect sort of closer to the 30% range, like what you’ve had over the last several quarters, to repeat as we look at the fourth quarter and 2016?

I assume you’re talking about distiller’s grain?

Yes.

Okay. Distiller’s grain in central California is fed as a wet feed. We don’t dry it like you do in the Midwest. We ship it to a couple hundred local dairies in a wet format. And during the third quarter there was definitely a price decline in distiller’s grain. It’s been basically flat since then. And with China being a player in the distiller’s grain market, there has been some concern about the Chinese import of distiller’s grain or not. Again, it’s a global price, but sold physically to a local customer. So, we are also correlated with the price of corn, and the corn price, as we’ve seen, has had a favorable trend. So, the absolute value decrease is probably more correlated actually with corn prices, which is impacted of course by the delivery of the harvest in the fall. Corn prices tend to fall during the fall. So, we are looking to expand capacity at the plant, and distiller’s grain production increases as you expand capacity. So, one of our primary areas of focus is expanded marketing of our wet distiller’s grains to local customers in California, and doing value-added things that may make our distiller’s grain more than a commodity distiller’s grain coming out of the Midwest. It would be wet distiller’s grain with higher value to our customers than the Midwestern product.

And then, as we look at the performance of the ethanol plant in ’16, if we assume something like mid-cycle margins, are there any outside factors as far as capital upgrades, or specific improvements that you’ve made in the last year that you would call out as maybe impacting where those mid-cycle margins might be?

We are very well positioned, through a combination of periodic maintenance and one-time capital investments made over the couple of years we’ve been operating the plant at -- since the upgrade we did to milo in early 2013. And we are positioned, so we really do not have any major or even minor capital projects. We just have periodic maintenance processes. And this is a very high uptime plant. I think we’ve had one day of maintenance in the last 12 months. And so it’s designed to run very high uptime. So, we’re going to be a direct beneficiary of the improved cash flow that occurs in a mid-cycle kind of trend. Again, everyone has their own estimation of what the impact of the renewable fuel standard’s going to be, but I would like to remind everyone for two years we’ve essentially had no federal law for biofuels in the United States at all. And to enforce any kind of law provides a demand side improvement that we currently expect will improve margins. Now, the EPA is expecting a 600 million gallon per year increase, and that’s less than 60 days from now, that’s January of 2016, that will have some impact on what we’re doing. But we had noted in the comments today that our plant is uniquely positioned to be able to operate at volume up to 100% replacement of corn with grain sorghum, commonly known as milo. And this plant has run over 60 million gallons of milo and so it’s fully approved and upgraded so that as milo moves back into its historical discount to corn, it usually averages about a 10% discount to corn, we are very well positioned to be able to utilize milo in a small or a very large way to directly lower our costs.

Okay. And then just a couple financial questions. So, the biodiesel and glycerin sales in India, was that accretive to EBITDA for the company in the quarter?

That's a good question. I would say yes. I just don't know the number off the top of my head. So, we could get back to you guys on that one. But it’s in the financial report somewhere.

Yes, I was going to wait for the 10-Q to get the actual number. But crush margins in the ethanol market sound like they've been improving, particularly for west coast producers. Can you maybe comment about the market conditions that you're seeing right now, and whether or not you have commitments that give you visibility on improved performance here in the fourth quarter?

Very good question. We have definitely seen some price firmness. We've seen an upward trend on price. We have seen the entire industry increase production. And I would say actually to the surprise of many observers the industry is relatively healthy and earning positive contribution margin per gallon, and increasing production as a result. So, this industry, which had been expected to be rather weak in this current $45 crude oil environment and with no renewable fuel standard, has actually proven itself a very resilient and positive cash flow. In California we, of course, benefit from the low carbon fuel standard, which is about 1.3 billion gallons a year. But something that’s happened in the last four months is worthy of note, and that is, California is the only carbon trading market in the entire United States. And that carbon trading market had been delayed for about 18 months due to some litigation, which was resolved, and so we now have a five year California Air Resources Board low carbon fuel standard that was adopted a few months ago. And the price of carbon in California, of which we are a direct beneficiary, has risen from roughly the $20 range to, I think it hit almost $90 last week, and that is a part of the premium that we received selling into California. So, we do have some visibility into the carbon trading market, and in general there's an expectation that the carbon prices are going to be relatively firm. The California Air Resources Board estimates an average carbon price of over $100, which is a premium over today's price, and being the low carbon fuel supplier that essentially receives those dollars from the high carbon fuel suppliers, which are the oil refineries in California, that cap and trade market…

Great. And then, Eric, I haven't done the math on this in a long time, but $100 a ton for carbon, can you remind me, that's roughly equivalent to about a nickel a gallon on corn-based ethanol production, is that accurate?

Yes, it's a little more than a nickel. But I think we’re at roughly $0.06 or $0.07 right now. So, at $100 it would be at $0.07 roughly, that's with a 20% reduction, so if you go to an 80% reduction it's four times that, so you're looking at a $0.25 to $0.30 incremental value when you start talking about low carbon feedstock. And of course at the federal level the renewable identification number value is estimated to be another $1.30 per gallon, so you put the two together, $1.30 plus another $0.30, it's about $1.60 just from the value of the lower carbon fuel. And then on top of that are some other premiums, there's the dollar per gallon tax credit, for example. So, it's a very, very big opportunity for all corn producers in the United States, but for those who ship into the California low carbon environment, to reduce the carbon intensity of our feedstocks and in so doing add about $3 per gallon of additional margin. And that of course includes a little bit of cost savings on the input side, as we see with milo.

And then the last question, if I may. Again, this is going to the weeds a little bit, but that $1.30 to $1.60 in potential cellulosic RIN, in other RIN markets the producers don’t necessarily hold on to the whole thing. Do you have an approximation of how much of that value you would hope to hold on to as you sell the fuel to third party customers?

In the biodiesel business there is some uncertainty around the value of the dollar per gallon tax credit, because obviously when they’re actually conducting business, Congress hasn’t yet approved the tax credit, so there is a sharing with the customer. We've not seen a sharing with the customer in the RIN market -- the ethanol RIN market. We actually transferred the RIN along with a fuel and then add the California low carbon fuel standard value as a part of the calculation. So, we see it as RIN is included in the fuel, and the overall price of the fuel plus RIN equals the sales price. Unlike the uncertainty that Congress unfortunately has bestowed upon the biodiesel business, where people just don’t know is there going to be a tax credit or not, we know there will be a RIN and we transfer it to our customer as part of the sale.

So, just to be crystal clear, you would expect to capture the majority, or most of the value of that cellulosic RIN in your sales price off the fuel to your customers, is that accurate?

That is correct. We expect to capture a 100% of the value of the RIN and as you go to low carbon fuels what we all see is a lack of investor activity, I think that’s a good term, in these advanced fuels for a lot of very good reasons. But as they see these $3 increased margins, that’s not increased price that’s increased positive cash flow per gallon, I think you will see increasing amounts of investor interest in this low carbon fuel environment, created by California in the low carbon fuel standard, and created now for the first time in two years by the federal government and by extension in the renewable fuel standard, which of course by law goes to 2022.

Thank you. The next question is from Keith Goodman of Maxim Group. Please go ahead.

I believe you actually doubled, or somewhere in that neighborhood the amount of biodiesel that you sold from Q2 to Q3, if I’m not mistaken. Which is obviously good, offset by biodiesel pricing, but you’ve previously said that you’ll be at max capacity in 2016, and two million gallons, which I believe is what you did for the quarter, is a long way from the 12 million gallons or 13 million gallons for the quarter that would be max capacity. When do you think you can get there in 2016? And what am I missing? I mean, it’s a cheaper, better alternative to diesel. Why shouldn’t it be just a dramatic ramp right now? And can you describe the IPO process? And how you think that’s going to take place?

Alright, so we’ll talk about expanded revenues and then we’ll talk about IPOs, the two items. You are correct. The barriers to growth have been removed. And the opportunity we have now is to expand using domestic and international feedstock and to increase our margins by selling domestically into our state and ship less product a 1,000 miles away to the other part of southern India, where we have strong customers, but not as high margin, because of high freight costs and the lower prices in the local markets -- 1,000 miles away from us. So, it is a sales ramp up at this point in time. We do have three government-owned oil marketing companies that each own oil refineries and other assets that need to blend with biodiesel. And now with the removal of these barriers we are seeking to remove any barriers there might be to just selling, frankly, to the three oil marketing companies as a big part of our customer base. The way to think about it is that, they, in order to blend 5% for the railways, for example, the oil marketing company needs to acquire biodiesel. And since we are the leading distilled biodiesel producer in the whole country, the process of ramping up our sales to one or more of the three oil marketing companies is basically a bureaucratic process, to be frank with you. They are government-owned and so the timing on that ramp up is slower than what we would like, is one of the big reasons why the August 2015 ability for us to sell directly to bulk customers has enabled us to ramp our sales. So, we are expecting to continue to focus on the ramp up of our sales team, expanded tank manufacturing, because we actually physically put…

So, that --.

On the IPO, by the way, we have signed our engagement letter with an investment banking firm and we’re currently in the paperwork process of the IPO in India, and we're targeting an IPO in 2016. Of course that would be helped by signing an agreement with one of these major customers, but the entire plant can be taken to full capacity without a single oil marketing company customer, just selling to these bulk users, bus companies, and truck companies, and generators. But we certainly expect that the IPO will be assisted by an arrangement with one of the oil marketing companies.

Okay. And what percentage of your business right now is from private companies, versus any of those OMCs?

Private companies, 90% plus. So, we have a significant ramp up opportunity, since those OMCs, which have, for their own reasons, we have the prime minister of the country announcing a 5% loan, and the oil marketing companies are the mechanism to deliver that, they were 100% of the fuel supply in the entire country in the 2014 time frame. That was the law, was you could not buy fuel other than from an OMC. So, we're seeing a rapid change for our benefit in the policies, and now as those OMCs become suppliers to their customers they have to obviously buy from the five or so biodiesel suppliers in the country, of which we’re the leading one.

Okay. And on the private side, so your largest customer, what type of volumes are they giving you? Were you unable to deliver them, what they requested, because of the excise tax? Can you give us a clear picture of where the growth is going to come from, from the private side? Do you need more customers, or do you need the existing customers to increase their demand?

Actually, to be frank with you, we were constrained by feedstock supply. Prior to the October 21st change in policy, we were very restricted on the amount of feedstock we could supply, and that made it difficult for us to even meet the needs of our existing customers. So, we’re now ramping up our production of biodiesel, production of bulk delivery tanks, and just physically getting in more of their sites now that we can actually deliver. So, we were not constrained by customer demand so much as we were by feedstock supply chain, which the announcement on October 21st of the policy change resolved that issue.

Okay. And without the help of the oil marketing companies giving a massive order, when do you anticipate that you can be at max capacity?

Our plant actually runs at max capacity, so we're constrained historically by feedstock. With the de-bottlenecking we just did, our job now is basically a combination of sign the supply agreements with the OMCs, expand our existing supply agreements, and continue to deliver to our existing customers and add customers. So, it's a very broad-based marketing opportunity. We do expect the 2016 full capacity, we do expect demand to exceed our supply at 50 million gallons, and a need to increase to 100 million gallons. And I think that we should all watch for the press releases, because there are some very exciting developments with not only single bulk customers, but also the OMCs, that are now reflecting the fact that India, the 5% blend needs over a billion gallons, 1.25 billion gallons of biodiesel, and only produces about 20% of that. So, there's a billion gallon expansion in production required in India, and as we see that ramp up happen I think that our company, certainly through the IPO, will be one of the primary beneficiaries.

Okay, alright. Thanks a lot.

Thank you. The next question is from Tom Welch of Ameriprise Financial. Please go ahead.

Thank you. It's encouraging and exciting to hear about what's happening, especially with the biodiesel arena. A question, in the biodiesel area you're saying that your bottleneck was really supply of raw materials. You're inferring from that that really up to this point, because the tax involved your supply of raw materials was pretty much 100% domestic, is that correct, that’s where the bottleneck occurred?

Yes, it was -- the tax that was removed was an improper, what’s called inverted excise tax, and I won’t get into why it’s inverted, but it’s real simple. When we sell our product and we’re supposed to be able to pass along the taxes from the feedstock that comes in, in the value-added tax system. When you sell your product and you’re not able to charge your customer tax but you have to pay taxes on your feedstocks, it’s called an inverted excise tax. And it’s not proper. It’s not the way a value-added tax system’s supposed to work. So, until they removed that tax in our feedstock what actually was happening was we were actually unable to buy the principal feedstock we need to use. We had to buy other more expensive and less available commodities. So, you can almost look at it as this is the first time we’d actually buy the stearin that we use to run our plant and the ability to ramp up our business the way it was designed required that this improper inverted excise tax be removed. And that of course required a little bureaucracy to work for us, and they did, and we’re very appreciative of it. But now we’re able to actually, for the first time, buy the product we actually designed the plant to run on, which is the stearin waste [indiscernible].

Question for you to the ramp up, is your current plan to ramp up domestic production in the biodiesel arena for India, just to do it on-site or are you looking at also potentially taking over different sites? For example, it seems to me there was a biodiesel plant a couple of years ago that shuttered its doors, not far from you. It was geared to produce biodiesel from [indiscernible] oil, and that fell apart. I don’t know if you looked at buying another biodiesel plant nearby, or not. I don’t know if those assets are still even available.

The answer is yes. For competitive reasons we probably shouldn’t talk about which ones we’re targeting, but we are, I think, extremely well positioned to be able to take assets that were built, and I’ll give you two categories. One is assets that were built and they were unable to make the high quality distilled biodiesel to meet European specifications. This is a product that’s 99.8% pure. It looks like water, and when it arrives in Europe can pass the tests -- filter tests and otherwise in Europe. And so those companies who were unable to upgrade their facilities to meet that requirement were basically limited to a small amount of India-based revenue. So, there were really only five producers in the country; a couple of those producers could be acquired simply because they just didn’t do the upgrades necessary to be able to have an export market and so they fell behind and are certainly a target for us. A second category, though, which is very important to realize, is that India has special economic zones typically in port cities, with the idea that the product will be exported from that plant. And so there are several plants, and they’re built in special economic zones and when they do not export their product to the U.S. or to Europe, they actually incur a 10% tax penalty. So, we end up with a 10% cost advantage against them permanently in the India market, because they were just built in the wrong place. And some of these opportunities are very large plants, one’s 75 million gallons, for example. And so as we look at the economics of build versus buy, there’s actually two different kinds of buy, one is just buy an existing plant. A second one is to take a plant that’s physically in the wrong place and then move it a mile or two, and for a very-very low cost you end up with a large amount of capacity. So, there’s only five players in the whole market, so it’s not the corn ethanol business in the U.S. with 210 plants but there is the ability to build brand new, buy one that’s already positioned correctly, or buy and move at even cheaper prices. And we’re actively looking at all three opportunities because we do have a plan to increase the size of our existing plant and then add another 100 million gallons past that, all within the next 24 to 36 months.

Oh, really, double the size of the existing plant from 50 million gallons to 100 million gallons, and then looking at the different options, double that again to 200 million gallons at some point down the road, two, three years down the road. Wow. That’s huge.

And let me express to you, that it sounds like an interesting rapid growth phase but in the 25 billion gallon, roughly $75 billion diesel market, we won’t amount to a rounding error on a decimal point. We’ll be a little dinky spot on the map. So, it is from our -- point of 50 million gallons, it’s pretty good, it'll be a $600 million plus revenue business. But out of $75 billion we’re still very small. A 5% blend is 1.25 billion gallons and revenues of over $3 billion. So, we will -- we’re currently about a 20% market shareholder, just to stay at a 20% market shareholder we’ve got to exceed $600 million of revenues over the next two to three years. And so it's a rapidly expanding environment and we intend to try to maintain our market share, which of course means we have to rapidly expand as well.

Wow, exciting. Switching gears a little bit to ethanol. Obviously, the plant is already set up for advanced ethanol production. You're looking at feedstock, as I understand it, what you said the bottleneck there in advanced bio, bioethanol essentially, is biogas, and the price of biogas is just too high right now, or the availability just isn't there. Do you have any vision on how that might be changing in the next six months or a year, or are you just subject to market and who knows?

We are already perfectly positioned to be able to buy milo and buy biogas. And, frankly, with the carbon price in California increasing, we continue to run the financial models, we very well might just pay the higher price of biogas. Our current supply chain of natural gas is with one of the oil company majors, and so we have as good of access to biogas as any company in the country. So, I would not completely set aside the idea that we might buy biogas. And, by the way, it's a paper trade. There's no real physical thing you do at the plant to buy back biogas. That opportunity, certainly with higher carbon prices in California and with the new renewable fuel standard enforcement expected November 30th, it very possibly could be we actually run the plant the way our D5 approval with the EPA is denied. So, let's call that Scenario A, is that we’re already positioned to do that with really no capital expenditures at all. Scenario B, though, is with the passage of time the Department of Energy's extensive investment in advanced technology and a number of venture capitalists with billions of dollars of investment in how you can take non-food feedstocks and upgrade them to make ethanol, the reality is there are several very, very exciting promising technologies available to us, and I do expect that we will be announcing an upgrade to our Keyes' plant, starting small, but eventually scaling up to 30 million gallons a year. So, we will continue to be processing corn, but we'll be displacing corn for a part of our feedstock in that the margins on that business will come from a reduction in the price of our inputs, the feedstock will cost less, but significant low carbon fuel…

Very good. That concludes my questions. Thank you.

Thank you. The next question is from James Stone of PSJ Advisors. Please go ahead.

Good afternoon, gentlemen. It's good to see that you're ramping. I was disconnected a couple of times, so I may be repeating something that happened while I was not listening. I'd like to first understand the ramp up problem, because, as you and I have discussed the ramp up quite a bit. And I thought one of the advantages of your company was that you were in the midst of where the key feedstock is in the most plentiful supply. Saying that all of that is tied up and that none of them would switch to you? Is that the difficulty?

We did built the plant in a port city on the east of India. Its east of Hyderabad called Kakinada. And that port city has about a dozen refineries that take crude edible oil, process it into edible oil that can be fed to humans, and they have a waste byproduct called stearin that is a hard product, it looks like candle wax. It’s solid at room temperature. So, we built our plant really in the midst of a dozen refineries. Unfortunately, the tax regime had been improperly applied by the government in which they were taxing our purchase of that stearin feedstock and until we got that tax regime fixed our ability to buy from those local vendors was severely constricted. We were, really having to buy a different product and run it through our plant, and so we were buying a more refined product than what we really want to buy. We want to buy this waste product. And so, I personally met with the revenue secretary in his office in New Delhi multiple times, and we had events with Prime Minister Modi and the energy minister, and transfer minister and all sorts of other individuals and I can very comfortably say, that there was universal support among the entire government and its leadership in India for a need to remove this improper tax and this improper tax in our feedstocks and on October 21st of this year that was actually announced by the Revenue Department.

Okay, so you’re saying that you’re paying 12.5%, and the product itself that you’re using is not imported, it’s locally?

We have it local. It’s also available from the import markets. And actually, to tell you the truth, it’s slightly cheaper as that changes over time but it’s right now looking very attractive to import it. Since we’re a port city and we’re connected by pipeline and we can also run trucks to the port, we literally just bring it right off the boat into our plant. And then if we want to export again we can pipeline our truck --.

What I’m trying to understand is why you could not buy them? Anything you had to buy from the local folks was still at 12.5%.

It’s not now. It used to be, up until October 21, we would have had to pay that 12.5% amount, and so we had to buy more expensive feedstocks than stearin to make the margins work.

When you first built the plant there in India, was that tax in effect at that point or was it a tax that --.

It was. There was a bigger gap between the price of our feedstock and the price of biofuels. But, remember, we had no domestic market at all until diesel no longer received approximately a 30% subsidy. So, we didn’t sell anything in India until the October 2014 decision to not subsidize diesel. So unlike the U.S., where there’s support for biofuels and in concept there’s some additional value through the renewable identification numbers, etc., India was doing the opposite. They were physically subsidizing with government cash about $11 billion in 2014 in the diesel market --.

I understand. I’m trying to understand, so you built the plant knowing the tax existed. I’m surprised you weren’t starting with them a little earlier in the process to get that tax removed.

I have two items. Number one is by exporting to Europe that tax was not as relevant to us. But number two is, yes, you’re correct. We spent seven years changing this tax. And that’s one of the reasons why we’ve highlighted that the new Modi government which was elected in the summer of last year has had a very positive impact on our industry, because we’ve literally spent seven years working on getting this tax rescinded. And it had less of an impact to us, as we went into Europe. We would import our feedstock and then export against it, this tax really was not as relevant. But for domestic sales it’s been there for seven years.

When you get up to full capacity, then at that point what do you think very roughly will be your split of how much of the feedstock you’re buying local and how much you may be importing?

I think we’re going to end up at 50-50. We have some tremendous foreign suppliers who want long term partnerships on feedstock and really see the expansion of biodiesel sales into India as very important to their business. And we’ve had some just very exciting discussions with feedstock suppliers who have investment appetite, they are interested, by the way, in our business in the U.S. and how that has global implications as we make lower carbon ethanol in the U.S. and India, as you may know, is a major ethanol market and is growing rapidly. So, we have -- through this, I would say this tax regime change, the ability to sell directly to customers, the subsidy for diesel being removed, the India market is now a very healthy growth environment and we are positioned, being the Chairman of the Biodiesel Manufacturer's Association of the country and the largest distilled player, really the highest quality producer, the only one that's selling distilled product into Europe, and approved for European sales, we're the sole corporate level player in India with the highest quality product. And so our 20% market share is expected to be retained as we continue to grow the business, and the market continues to grow rapidly.

Question, if you had shipped more with the 12.5%, would you have been shipping at a loss, or would it just have been a smaller profit?

A smaller profit. Yes, mostly it’s a smaller profit issue. And so we just did the math and bought more expensive feedstocks but didn’t have to pay the tax.

Because I would think with your current cash position every penny you can get—yes, it would be nice to get a nickel, but even a penny is better than zero.

Sure.

But I’m wondering why you weren’t shipping and just taking the lower margin until you got the tax situation resolved?

Yes, the primary constraint was this lower margin, significantly lower margin. When you take 12.5% out of a $150 million revenue stream, it’s a very big chunk of cash. The inability to sell the bulk customers was removed in August of 2015, so domestic sales in India were basically zero in October of 2014, because you had a subsidy for diesel. In August of 2015 we could sell for the first time directly to our customers, and then in October we actually then had access to the feedstock that we built the plant to operate on. So, these are initiatives which we had expected would happen in 2015. I am pleased to announce they’ve actually been completed and now we’re in the ramp up stage.

Now, on that tax, is there any retroactive to the beginning of the year or anything, or is it just from October 21 forward?

It’s just from October 21 forward.

Okay. So, then the next question is pretty obvious. On October 22 did you see a jump in sales? If not, why not?

We didn't see a jump in sales because our customers had already been asking for a product we couldn't deliver. What we did have a jump in was deliveries. So, we have been able to do a de-bottlenecking of the plant, which is being wrapped up this month, and so we are expecting to exit this quarter with a full 50 million gallon per year delivery capability, and with access to feedstock that could match that. So, our emphasis has definitely shifted now to just the sales and marketing rollout, and that’s the bulk customer direct sales with our trucks delivering physically to their location, and it's the oil marketing companies, there's three of them, but there’s one that happens to be pretty close to us. So, we're ramping up that oil marketing company relationship [indiscernible].

That was the part where I was disconnected, where you said that you will be at the full capacity, or darn close to it, by year-end, is what you’re saying.

Yes, we're definitely ramping up to 2016. Our production capability is expected to be fully de-bottlenecked before year-end, actually before month-end. And so at that point in time the constraint is just the bureaucracy of the oil marketing companies, they're targeting a 5% blend, that's 1.25 billion gallons, of which they'll probably ship a billion gallons of it. And so that is the obvious scale of opportunity. But we are selling directly to their customers. When you think about it, one of their big markets is just selling to trucking companies and bus companies, and so we’re doing that directly right now.

Well, I would think for some of these trucking companies, especially ones that are close to you, they’d be very happy to drive out to your plant and buy fuel, which is a lot cheaper than if they have to take it from the other folks.

Jim, you're exactly right. That's exactly what's happening right now.

Okay, but I'm a little lost. The plant, you said, would be at the full capacity. You will be shipping at full capacity by year-end, or is that going into next year?

We won't be shipping it to full capacity at year-end. Let me put it this way, we may be shipping but we're not projecting it, and we’re not promising it. We'll have the production capacity to do exactly that. But we would have to sign, for example, one of the oil marketing company arrangements to actually achieve that. It is not currently projected, but it is certainly something we would have the production capacity to be able to do.

I was hoping you would be able to give us a Christmas present.

Yes. We're working hard on Christmas presents. The question is will they come late this year? That's really the question.

Okay. Now, on that, when do you plan to break ground for the expansion of the plant? Is that --.

We expect an announcement in 2016. We've previously announced it’s about $15 million to double the footprint of the plant. It was originally designed, or laid out to be a 100 million gallon plant. So, the additional process equipment, etc., is about $15 million expenditure. And we expect to announce in the first half of 2016 in order to be able to go into 2017 with the additional capacity.

Okay. So, very roughly speaking, you could be well near capacity on that expansion by the end of next year?

Correct. That is actually the full expectation. And, frankly, if we sign one oil marketing company we could very easily be in that position of not having sufficient supply even with the expansion.

And then I'm also -- from what you’re saying, you will be looking at buying or building something in the following year, so that by the end of that year you’d have some pretty decent supply to ship?

That’s correct, Jim. And actually that’s a driver for our IPO. The IPO is to fully capitalize that expansion plant so that we can continue to accelerate and maintain our roughly 20% market share position as the whole country goes from a 5% blend to 10%. They’re at 10% on ethanol right now. By the way, they want to be 10% on biodiesel. That’s about 2.5 billion gallons, almost all of which has to be new construction. So, in order to maintain a 20% market share we have to be at 500 million gallons a year. So, our current plan actually lags the growth of the market to a 10% growth over a three year time period. And we’re working directly with the energy minister and the other people in government who are making those decisions, and so our real reason for the IPO is so we can maintain that 20% market share.

Speaking of the IPO, with the nonsense that’s been going on in this country about IPOs and volatile markets, has any of that impacted, or you still think you’re on that trail for the 25% and 70 mil cash?

India has a different IPO process than the U.S., primarily a 75% of the offering is sold to institutions, and only 25% goes to retail. But what’s interesting is that any retail investor in the whole country can buy into any offerings, any stock offering, and so the overall supply and demand in an IPO tends to be wildly oversubscribed. We had one that we’re familiar with that was 78 times oversubscribed, over $15 billion of demand for a $200 million offering. And so we’re going through the administrative process. We do expect we will be well positioned in the middle part of 2016 to be able to complete the process, and market conditions will always have some impact on us. I think in general the oil price market condition will be improving during 2016. If you look at the supply of oil worldwide and the demand for oil worldwide with 7% economic growth in China and India, economic growth, I think we are facing a balancing of the oil price metric and in general upwardly trending oil prices. So, if we end up going from $45 to 60, that’s a 33% increase in the price of oil worldwide. And I personally think that will have a positive effect on an appetite for a lower cost, lower carbon, lower polluting product in India. And that’s what our investment bankers believe as well.

Now you’re also saying then, that you’d originally thought that you could have the IPO in the spring. Do you think that may slip to summer?

It’s going to be subject to market conditions. We certainly will expect to be positioned to go --.

That, I know.

Yes, it’s expected that we administratively would be ready to go in the spring. And then it will be just watching market conditions.

So it will be. And I was under the impression that you were looking for two bankers, and earlier you had mentioned that there's only about one banker having signed or do you have two bankers signed at this point?

We’ve announced that we’ve signed one banker. And we do expect to have multiple bankers by the time we do the offering next year.

That seems to be moving ahead nicely. You and I had spoken at one point that you said you thought there was a plant near you that had been closed, or not too far from the diesel, I’m talking about, and that you were thinking about bidding for that. Has anything happened in that process, or has that gone away?

There is a very large annual purchase order from all three oil marketing companies. We see that we’ll get better pricing by selling to the oil marketing company whose refinery is very close to us. And so we are working aggressively to develop an expanded relationship with that oil marketing company, who we are already supplying, but we’re looking to --.

No, that I understand, but maybe I didn’t make myself clear. When you and I chatted, you said there was a plant that had been shut down and you had an opportunity to buy it and move it.

Yes.

And you were --.

That opportunity --.

-- examining, that was something you wanted to do. Has that gone any further?

Yes. It's -- that actually still exists. We’re not expecting that any time in the next month or two. Jim, why don’t you and I have a call this afternoon and we’ll follow up. We’re running out of time on this call. I think we have one more caller we want to take.

Okay. Let me give you one last quick question.

Sure.

The really big guys put out RFPs, and you responded, a lot of other people I assume responded. Have they accepted anything yet?

We did not bid in that offer. We made the decision that we would get better pricing, better terms by dealing directly with the oil marketing companies individually rather than through the annual fixed price bid process that they were going through. So, I'll give you a call this afternoon, Jim.

Thank you very much. I'll turn it over to somebody else now. Thank you.

Sure. Thank you, Jim. Talk to you soon.

Thank you. The next question is from Tom Welch of Ameriprise. Please go ahead.

One quick question, Eric. Here in the United States distilled biodiesel is a pretty rare commodity. It sells for a significant premium over diesel and biodiesel. I’d point to your own California market and I’d also point to Europe, where distilled biodiesel as being a premium product sells for more than diesel and sells for more than regular biodiesel. It's probably way too early there in India, but is there any indication at all that the light bulb's starting to go on that people are beginning to understand, consumers are beginning to understand that distilled biodiesel could potentially be selling, just like it does here in the U.S. and just like it does in Europe, for an actual premium over regular diesel or biodiesel?

I would say, Tom, that the understanding of the different kinds of biodiesel is broken down to a very simple application, and that is what you would call, yellow biodiesel, which is what is non-distilled because it has contaminants in it, it has a yellow color, can only be blended up to about 20%. And so the customers that we deal with in India looking at this decision is do they buy a product that can only be 10% to 20% of their fuel, or do they buy our product, which is a 100% replacement, and in the wintertime it's an 80% replacement for the fuel in their tank. And so it's simple economics. It's either buy our product and you get five times the economic benefit, or buy a competitor's product and have a limitation on the amount of blending. Because we sell at a discount to diesel in India, an up to 10% discount, it can have a very, very strong positive financial impact on our customer's fuel budget. And the fuel budget in many of these companies is half of their total expenses. So, to be able to use five times as much of a product that has a 10% cost reduction is really the way they look at it. They're really not so much looking at it as being a higher quality, or anything else. They're basically just looking at the economics, as you would probably expect. I think over a long period of time you will see a bifurcation, a separation of customers: ones that require high quality supply chains with delivery, price, and product quality as being important to them; and ones that are driven purely by economics. And, quite frankly, they’ll take a lower quality product but blend it 5% and just throw it in the tank and save some money. And we have been focusing on the higher volume, higher quality customers, and that strategy has worked well. And I think over time the pricing advantage they have will be retained, but they'll be getting a very high quality product and will continue to be pleased with us as a supplier because of that. There is a story that hit a little bit in the media that was just, again, reiterating that you really don't want to blend more than 20% unless you're using our product. And one of our customers called up and said, we just decided to standardize on Aemetis. Universal Biodiesel is our India subsidiary. We're just not going to buy from any of these other vendors. We need that high quality product because it's what's going to allow us to have confidence that our trucks and buses are going to run all the time.

Good. Alright, thank you.

Thank you, Tom. I think that wraps up our call today. Operator, did you have any other callers? Okay, hearing none.

Thank you, Aemetis shareholders. Thank you for the stock analysts that were on the call today, and other investors. We really look forward to meeting with you and continuing our dialogue about growth opportunities for Aemetis. Feel free to contact me, or Todd Waltz, at any time.

Thank you for attending today's Aemetis Business Update Conference Call. Please visit the Investor website of Aemetis, where we have posted a written version and an audio version of the Aemetis earnings release and business update.