Aemetis, Inc. (AMTX) Q4 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Aemetis Fourth Quarter and Year End 2016 Earnings Review Conference Call. All lines have been placed on a listen-only mode. [Operator Instructions] At this time, it is now my pleasure to turn the floor over to your host, Executive Vice President and Chief Financial Officer of Aemetis, Todd Waltz. Sir, the floor is yours.

Thank you, Angelica. Welcome to the Aemetis fourth quarter and year end 2016 earnings review conference call. We suggest visiting our Web site at aemetis.com to review today's earnings press release, updated corporate presentation, filings with the SEC, recent press releases, and previous earnings conference calls. This presentation is available for review or download on the aemetis.com homepage. Before we begin our discussion today, 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 price, plans, opportunities, and expectations with respect to financing activities. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks 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 Web site and are 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 on December 21, 2016, which is available on our Web site. Adjusted EBITDA is defined as net income or loss, to the extent deductible and calculating net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, depreciation expense, and share-based compensation expense. Now I'd like to review the financial results for 2016. Revenues were $143.2 million for the year ended December 31, 2016, compared to $146.6 million for the same period in 2015. Decrease in biodiesel volumes and wet distillers grains pricing during the year ended December 31, 2016 compared to the same period in 2015 resulted in a slight revenue decline for 2016. Gross profits for the year ended December 31, 2016 was $11.6 million, a significant increase from $4.2 million during the same period in 2015. During this period gross profit growth was attributed to higher ethanol prices and lower corn prices in North America, which decreased by 9% to $4.58 per bushel for the year ended December 31, 2016 as compared to 2015. Selling, general, and administrative expenses were $12 million during the 2016, compared to $12.4 million during 2015. The decrease in selling, general, and administrative expense was partially attributed to lower professional service fees compared to same period of the prior year. Net loss of $15.6 million for the year ended December 31, 2016 decreased in comparison to a net loss of $27.1 million during the same period in 2015. The fundamental improvement in our operating North America business is reflected in adjusted EBITDA for the year ended December 31, 2016, which was $5.1 million, an approximately $8 million improvement compared to the adjusted EBITDA for the same period in 2015. Let us review the fourth quarter of 2016. Revenues were $37.4 million for the fourth quarter of 2016, compared to $35.3 million for the fourth quarter of 2015. The increase in gross revenue was primarily attributable to increase in ethanol pricing and volume. Gross margin for the fourth quarter of 2016 was $3.9 million, a major improvement over the gross margin of $1.4 million during the fourth quarter of 2015. The gross margin improvement was primarily driven by a 9% increase in ethanol pricing. Selling, general, and administrative expense were $2.9 million in the fourth quarter of 2016, compared to $2.8 million in the fourth quarter of 2015. Operating income was $936,000 for the fourth quarter of 2016 compared to an operating loss of $1.5 million for the same period in 2015. Net loss was $1.4 million for the fourth quarter of 2016, compared to a net loss of $6.5 million for the fourth quarter of 2015. During the fourth quarter, we repaid the State Bank of India debt related to our India biodiesel plant in full, and received $2 million a piece in interest waivers from the State Bank of India related to the repayment. We experienced solid operational results from our North America ethanol business with gross margins at 11.1% of segment revenue. Our largest contributor to expense is interest expense of $4.3 million. We continue our efforts to lower our cost of capital through a combination of debt refinancings including extra [ph] releases from the EB-5 program. The fundamental health and improvement in our operating North America business is reflected in adjusted EBITDA for the fourth quarter of 2016, which increased by $2.2 million compared to adjusted EBITDA for the same period of 2015. Cash at the end of the fourth quarter of 2016 was $1.5 million, compared to $283,000 at the end of the fourth quarter of 2015. That completes our financial review of the fourth quarter and year-end for 2016. Now, I'd like to introduce the Founder, Chairman, and Chief Executive Officer of Aemetis, Eric McAfee, for a business update. Eric?

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 facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. and India. Included in our production portfolio is a 60 million gallon per year capacity ethanol plant located in Keyes, California, near Modesto. We also built, 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. Aemetis owns and operates first-generation biofuels plants in order to develop, license, or acquire advanced biofuels technologies, whether adopted or owned facilities, then have the opportunity to deploy these advanced biofuels technologies among the approximately 200 ethanol plants and hundreds of biodiesel plants in the U.S. and worldwide. Unlike technology-only companies that lack first-generation biofuels production facilities, our platform Biofuels Businesses provide non-dilutive operating income and access to debt financing to fund growth without requiring shareholder dilution. We will first briefly discuss our platform businesses in ethanol and biodiesel, and then review our low-cost financing initiatives and exciting projects in advanced biofuels. To begin, let us review our ethanol business. In November, 2016, the EPA set the 2017 blending volumes for first-generation ethanol at 15 billion gallons per year, which for the first time enforced the statutory limit the congress had set for 2015. This blending mandate is up from 14.5 billion gallons in 2016. Enforcement of the renewable fuel standard by the EPA bodes well for the biofuels industry as it creates a favorable supply-demand balance to support expanded divestment in the biofuels projects -- in future biofuels projects. Expanding exports have also had a positive effect on the market. In 2016, the U.S. biofuels industry exported approximately 1 billion gallons of ethanol, and is projected to grow in 2017. During the fourth quarter of 2016, our ethanol business gross margins expanded over last year by 850 basis points, to 11.1%. Gross margin improvement was partially or I should say actually primarily due to a 9% increase in ethanol pricing. For 2017, after the expected lower seasonal demand during the first quarter, we expect margins will be on a positive trend due to continued strong demand for gasoline, continued stability in the enforcement of the federal biofuels laws, increased demand for low-carbon biofuels in California, a robust ethanol export program that takes advantage of the lower cost of biofuels feedstock in the U.S. compared to Brazil and other biofuels producing countries. And probably low corn costs due the historically large corn crop harvested last year and this year. Let us review our India Biodiesel business. Aemetis is a leading U.S.-owned producer of biofuels in India, a country of 1.3 billion people that consumes about 25 billion gallons of petroleum diesel each year. India has a huge air pollution problem. And an estimated 650,000 people die each year in India from health related illnesses caused by air pollution. Aemetis Biodiesel produced at our India plant reduces harmful emissions by 80%, and is sold as a less expensive fuel than diesel. Indian Biodiesel and Refined Glycerin revenues in the fourth quarter of 2016 decreased sequentially to $2.7 million from $5.5 million. The primary reason for the revenue decline is a lack of domestic feedstock and the need to import feedstocks that have been priced higher due to the El Nino dryness in Asia last year. With the harvest season beginning this month we expect feedstock prices to decline as they have recently, and our domestic biodiesel business in India to improve in 2017. As the price of crude oil rises and plant oil feedstocks decrease margins and volumes on India domestic sales are expect to improve. In 2016, we actively worked with the Indian government in getting 100% biodiesel as an approved fuel to replace diesel. We are now working to allow biodiesel to be sold as a retail blended product at Indian fuel stations. Going into 2017, we'd like to take a moment to discuss why the India business has been difficult to grow following the deregulation of biodiesel in India in late 2014. First, our purchase of biodiesel in India has been restricted by the Indian government who has been unwilling to permit low-cost animal oils as imported feedstocks such as used cooking oil and animal tallow, which has caused an extended period of delay of opportunities for our India business. As a point of comparison, these same waste feedstocks for biodiesel production received strong policy support in the U.S. and in Europe. Second, currently there is no biodiesel mandate in India. The Indian government has a relatively low target of 5% blending, but it's not a mandate. To summarize, although the India government has removed many barriers, the continued lack of a blending mandate and the high price of permissible feedstock continues to create challenges. Aemetis is responding to these feedstock limitations by investing in the development of a unique enzyme technology that will allow our India plant to convert lower cost and lower quality feedstock into high quality biodiesel which meets European standards. In late 2016, Aemetis was approached for an exclusive biodiesel supply contract by one of the world's largest oil companies to take advantage of the European marketplace. We are currently negotiating with this potential customer. By way of background, the European Union suspended a 6.5% import tariff applying to India for the next three years, starting in January 2017. The proprietary enzyme process developed by Aemetis is the key to this supply agreement, allowing our feedstock and product cost to be among the lowest in the world, while producing waste-based biodiesel that qualifies to meet increasing EU biofuel mandates. Let's now review our key financing initiatives. Starting with our EB-5 update, as part of our Phase I EB-5 offering, we've received $35 million of subordinated debt from 70 foreign investors at a 3% interest rate. In late 2016, we launched a Phase II EB-5 offering for $50 million, which will allow us to significantly reduce interest costs, and to fund projects in advanced biofuels and bio chemicals that are expect to increase revenues, margins, and earnings. Now let's review our two important advanced biofuel projects. In April 2016, Aemetis signed an agreement to acquire Edeniq, a biofuels technology company that coverts corn kernel fiber into valuable cellulosic ethanol. Prior to the closing of the acquisition Edeniq attempted to terminate the signed agreement. In September 2016, Aemetis filed a lawsuit to require Edeniq to fully perform its obligations under the merger agreement, under which Edeniq agreed to be acquired by Aemetis for between 5% and 10% of Aemetis stock, plus up to a $20 million earn-out equal to approximately 20% of positive cash flow generated by Edeniq over the next five years. We continue to aggressively pursue a favorable resolution of the acquisition agreement with Edeniq. And we'll announce any material development related to the Edeniq lawsuit in acquisition. Our advanced biofuel project which involves upgrading the Keyes, California Plant to initially produce 8 million gallons per year of cellulosic ethanol by utilizing land detected proprietary fermentation technology continues to achieve important milestones. In January 2017, we received the Keyes California Environmental Quality Act permit approval for the project, and we've executed a lease for the project site. We are working to complete the United States Department of Ag Culture loan-guaranteed Phase II approval for financing the project, and we plan to break ground later this year. Our eventual goal is to produce 32 million gallons per year of cellulosic ethanol in addition to the existing 60 million gallons per year at the Keyes plant. The initial 8 million gallons of cellulosic ethanol production is expected to generate about $50 million of revenue, and more than $25 million per year of positive operating cash flow. In summary, we believe that Aemetis is well positioned with an improved fundamentals of the North American ethanol business, potential for increased biodiesel business shipping to Europe from our facility in India, significantly reduced interest costs by repayment of high interest debt with low interest EB-5 funding, and the exciting positive cash flow opportunities from the LanzaTech and other advanced ethanol projects. Now, let's take a few questions from our call participants. Operator?

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Carter Driscoll. You may now state your question, sir.

Good morning Eric, Todd.

Good morning.

First question is I see that Pacific Ethanol is looking to expand the use of Edeniq's technology beyond stock into its Madeira facilities. So it looks like the implementation seems to be going well after the first introduction. Can you talk about your ability to evaluate that? Obviously, as a company you're intimately familiar with Eric, and just give me an update on your confidence level in holding Edeniq at some point, and maybe your expectation of the timing of the potential resolution. And then I have a couple of follow-ups, if I may.

Thank you, Carter. First of all, we are very supportive of Edeniq's deployment of the technology. There are now three EPA approved implementations including Flint Hills as you may know, the Koch Industries subsidiary, and Pacific Ethanol's announcement that that they were doing a second deployment does endorse the economics of the operational efficacy of the Edeniq technology. We have another 15 ethanol plants that they've announced are in the various states of testing or negotiation. So it's being deployed at the rate, and with the level of interest that we fully expected. And we are very pleased to see the continued progress that Edeniq is making, and frankly would say we've been supportive of helping them move along and it's free [ph] for new customers into them as well. We see their operational successes as our operational success. And are currently binding merger agreement is something that is in the process of being enforced. So, we do look forward to completing the acquisition, and hopefully their business will continue along this very positive path that it's been going on so far.

So correct me if I'm wrong, did you just not say that you've referred customers to them despite them attempting to break the merger agreement. So you seem to have a relatively friendly operational relationship currently. I guess I'm struggling to figure out why they would want to come back to the fold and continue to work with you as a subsidiary under the Aemetis brand.

We do have a positive working relationship with them. And we think it is in all of our best interests and frankly in the industry's best interest to produce the valuable D3 cellulosic ethanol RINs at corn ethanol plant. And this is really the only profitable way to do it for a few million dollar investment. And so we have maintained an excellent working relationship with the operational management team of the company. We perceive that their success is our success because we have an agreement that's signed. Some of their shareholders got very excited about the EPA approval, which we played the lead role in obtaining last year. And so after we signed our definite agreement, we then led the process of getting their EPA approval, which I believe actually happened a lot quicker than anybody expected. So our issues with the Edeniq shareholders primarily revolve around their desire to change the economics of the deal, and lack of interest in doing so.

Maybe shifting gears, could you give me your expectation of the current administration, which in the past has been -- at lest President Trump is a supporter of the ethanol industry, and yet some of the cabinet members he's chosen maybe be little bit less favorable, and then you have some very public exclamations by senior counsels, such as Mr. Icahn talking about moving the point of obligation. Could you talk about how that would or would not impact the ethanol business in your view, and kind of your current view of the regulatory hurdles and or potential opportunities under a new administration?

I gave a speech at the Advanced Biofuels Leadership Conference last week, in Washington D.C., and I'll basically draw from that. Point number one is that the renewal fuel standard is part of the Clean Air Act, which is federal law that has many, many complexities. And it is critical to the biofuels industry in order to maintain investor and commercial lending support that we don't constantly go and change federal law, because changing rules the rules of the game or we're trying to make long-term investments obviously it returns to those sorts of debt and equity instruments. And so the core message is, let's not open up clean air act and renegotiate whether we want healthy air for our kids. The second point is we do have President that in essence was hired in his current position by corn farmers. If you really want to simplify his election he wouldn't have won Iowa and Ohio and a couple of other corn states, he just would not be President. And so today's news that was put on the wire with a interview with Iowa or former Iowa Governor, Terry Branstad, I think was a very good insight into what's really going on in the Trump administration, what's really going on is I think Trump's close advisors understand the value of the 94 million acres of corn being grown in the United States and not only the political, but their financial impact of bankrupting corn farmers and all the communities are good -- they pretend upon them. And outside of that inner core, there is a group including Carl Icahn and others who have the interest in the oil industry in mind. And the press release today I think clearly stated that Terry Branstad had done his work inside the administration to figure out whether administration was going to come down on this issue any stated in no uncertain terms, now is of course investor to China negotiating ethanol and distills contract that the Trump administration had quickly put a kibosh on the idea of changing the point of obligation and any other issues that would change federal law and that special Mr. Pruitt's [ph] new position head of the EPA was that his job was to fully enforce federal law and I think that message was reinforced today by -- a leading administrative person that Trump can house but also more importantly -- really has no ethanol I was number one ethanol producer in the country. Last thing you ask which is a valid point is what's the impact of moving the point of obligation and the practical impact would be chaos, there are rarely few oil refiners in the U.S., but there are over 155,000 obligation if you moved it to the blender retail level, and the actual impact of the industry would be the mandatory exactly the same, but the physical handling of the renewable education numbers the reporting requirements of these 155,000 obligated parties would create tremendous confusion among investors and lenders. Whether physically anything is executed poorly by EPA about is almost irrelevant. It's the confusion among the people the finances industry that would cause the difficulties for bringing them and that message was brought to the lighthouse very, very loudly and very strongly by the entire industry when the rumors leaked out that Carl Icahn had done an interim and commented talked one of the Association Head's and I think it was an excellent opportunity for the industry to express her opinion loudly just based upon a rumor and that has now resulted a couple of weeks later on the rumor being denied by the White House that there would be some sort of executive order. So someone a little bit inside baseball but it's important to watch how the score is at the end of the ninth inning, and the score at the end of ninth-inning is biofuels 10, oil industry zero on this point of obligation a movement, and helping that that is that every major integrated oil refinery in the United States opposes moving a point of obligation. They are actually playing on the biofuels teams on this particular point.

Good a bit of detail. Thank you, Eric. Switching gears a little bit, any you can add in terms of the inline you're looking to apply to Indian operations, talk about maybe the feed-stocks and I'm assuming its feedstocks domestically, India will now be - you try to convert and get around the import issues, the things of your roadblock, talk about timing any type of incremental investment necessary. Could you get a financial relationship with the large partner you talked about being in negotiations with potential timing any sort of those issues in terms of turning around your lean operations.

Good, thank you very much for that question. Our India operation is now free of any senior secured debt, we pay the debt off in its entirety and so we are in a position of excellent flexibility about our relationships and this will cost feedstock is both available domestically in India, as well as imported feedstock and the challenges been that as the valuable asset and other components of the feedstock is combined with less valuable components. The technology is not readily available to separate out if you quickly and cheaply. And what we were able to successfully develop over the last couple of years in partnership with the world's largest enzyme producer was a process that allowed their enzymes to survive and thrive on and to be in a very short residence time literally five or six hours accomplishing -- accomplish something that otherwise have indicating 50 to 60 hours which means the economics are dramatically better. And so will cause feedstocks quick cycle times using a process that we're playing to file patent on this month is really the core of our opportunity. Now our particular relationship for this particular customer that has -- we have signed some initial documents already, its exclusive relationship because they would like to deliver the feedstock and then buy all of our output and bring it -- in the current case spring it all the gear up, potentially could also bring it to the United States but currently be of extensive distribution and blending capability in Europe and so they would like to see that with our product. And this particular product gets what's known as double counting which makes it the most valuable biodiesel product you can bring into Europe. By the way, you asked about capital expenditures, it's a very small amount we're putting it out operating cash flow. So it really has no impact on our business at this point.

The plan initially is really to use this to export rather than to consume in India, is that correct?

We actually going to do both but this particular customer is solely focused on export. We are planning to reserve some of our capacity for domestic customers but there is a need for us to expand capacity from the current 50 million gallons to 100 million gallons capacity and that is part of discussion because we're facing just a lack of production capacity and we're going to meet their European government as well as the growing Indian market.

Thanks. My last question is, I think you talked about acceleration in the removal from escrow of EB-5 program in terms of what your experience Phase 1. You talked about your expectations and what you've been able to gather so far versus your $50 million target and timing obviously is very important in terms of being on your largest expenditures right now and vendor expect -- any update there would be helpful.

Our first EB-5 program will be an unproven developer required that we escrow the funds until about 18 month process of approving the investor immigration status and then completed because we are now a proven developer that has been reduced to less than a month. So I'm taking the night for Asia and will be there for the next week and half and we have done four trips to Asia in the last six months. Our plan is to execute this year on completing that $50 million of funding and unlike previous years where we wouldn't really see the funds until 2019, we should see those funds this calendar year if they are deposited with the campus calendar year because of the rarely short 2 to 4 weeks escrow that's recorded. We have one component which is called an exemplar that we expect to get an approval in the third quarter this year's so our funds would be escrowed until the exemplar is approved all that is just a form document with the government but the government has been a bit slow in responding to those exemplar filings. So, our current expectations are that the third and fourth quarter release of funds from escrow will come.

You feel comfortable that you could hit your goal this year assuming the government approval isn't there hanging?

We have very, very good response from our brokers and in China, Vietnam and interested enough Russia and the Middle East we have excellent representation. And the years we spent investing in those broker relationships is now paying off.

Okay. I'll get back in the queue. Thanks for answering all my questions.

Thank you, Carter.

Thank you. And our next question comes from Tom Welch. You may now state your question, sir.

Thank you, Eric, exciting news about potentially hitting capacity over in India by this production. What is the timeframe for getting the enzyme tech in place, finishing the contracts, bringing in enough of base integrals to - what is the timeframe for finally getting that biodiesel up and fully functioning and running at 50 gallons a year capacity.

We're currently in the process doing the first commercial shipment. That's in the feedstock at this point in time but we'll be producing shipping within the next four to six weeks from today. Then as a ramp up from that perspective and I will be in Singapore later this week, so we are working right now on the transactional activity. The logistics of checking ports, regulatory and all that activities behind us, now what we are doing is just the trading activity bringing the feedstock and then putting on a boat and I'm anticipating that's going to require one quarter for us to ramp up to our full relationship with this particular oil company and that will be primarily just the physical logistics of scaling out two shipments of 5,000 tons each per month. And so, I think we're talking about one quarter, they will get to that but it's a ramp up process where I expect would be initially doing one 5000 ton shipment per month and then speaking that up is Edeniq logistics and plus.

Got it. Put more of a fine point on it. We actually have the enzyme process in place right now, correct?

The enzyme process -- yes, we have in place right now to run at more limited volumes but within the next 30 days will be to run our entire plant on enzymes. We will be far ahead of the pace of the feedstock actually being delivered to the plant in terms of our constraints on growth the enzyme production, the upgrade is not a part of it.

So the bottleneck here is bringing in the feedstock and…

The term bottleneck is more of a logistics term. This particular operation is a very, very large organization. So it's mostly just the physical process of them purchasing things, bringing out the boats and bring them in and they very well might exceed our expectations, our current expectations that it's going to take us in the second quarter before you really be at full production capacity. But again they like surprises and start loading beginning of April with full months of activity.

Thanks for clarity. Furthering that question we had on shelf offering, sitting waiting to potentially take the biodiesel operation public in India, is that still on the table or is that now off the table?

Technically it's not really the shelf offering but we did retain investment banking advisory work in India and that is still on the table, it's always subject to market conditions but we are very excited about the prospects in India, we think there is desperate need for biodiesel production growth and we are very open to using the public markets in India on attractive economics to us as a tool to grow that business.

And now with this arrangement with a very large international oil company, they are providing not only the feedstock but they are also providing the turnaround financing for the whole operation, and I'm guessing that the terms are dramatically better than what they were as far as financing goes before we take off the Bank of India.

Then it's correct, and we're using a working capital relationship in which our cost of working capital essentially is zero because they provide us the feedstock and then we pay for the feedstock after we delivered the finished goods. So we are using their deep financial capability and frankly very low cost of capital as a mechanism to not have to put working capital to work and to ramp up the business it's an excess of $10 million a month without having to very high interest rates.

And that's huge because I before we are paying 15% interest rate premium on our working capital in India.

That is correct and in India the interest rates are relatively high because the Rupee depreciates against Dollar. We announced our interest cost of course the dollar denominated terms and this relationship in India is similar to the relationship we have in California that's enabled us to run our California operations without having working capital deployed, we've a couple billion dollar company that does with us in California as a primary supplier of our feedstock. And so it's a relationship that we're comfortable with. We have run it over five years in California on the same kind of mechanism and it's very beneficial to our customer because they get to not be dependent on other feedstock suppliers they actually have much more control over the rapid scale of their business because they are able to deliver the feedstock to.

On summary, we could be shipping our -- sending our first shipment biodiesel to Europe within potentially 30 days and if possible that we could have full ramp up of production in the 50 million gallons capacity, to be running at current capacity within 90 days.

I would add a month everything you said and I'd say within 30 to 60 days shipments board the Europe and within 60 to 120 days ramping up and my suggestion is that it's really going to be our customer and right now the margins are excellent, the price of soybean-based biodiesel is rise -- has risen so we'll see how their traders react to market and if they react in a aggressive manner than we'll course have to respond accordingly.

Very good. That closes my questions. Thank you.

Thank you.

Thank you. And our next question comes from Keith Goodman. You may now state your question, sir.

Hi, guys. My questions were actually very similar to last line of questions I came in, so I'll just try to add to the last part that you mentioned. Is the one thing that would derail the success in the biodiesel business over the next 30 to 60 days and then 60 to 100 days is the price of the commodity of input.

With this particular customer that is not such a factor because it's a waste product of raising feedstock and in our regular India business we use a derivative of the palm oil business so as palm oil, the edible oils go up and down, then the waste products palm goes up and down. So in this particular major customer the feedstock variability is not as much of a functional relationship.

So what would derail your timeline for the next 30 to 60 days where I guess the input would come in and then 60 to 120 days for the ramp up to actually happen?

We have two potential derailments. Number one is we're dealing with a very, very large organization and so a delay of 30 days would be just purely administrative in nature and would not be any indication of their intentions changing. So we would anticipate that would be the first time impact on timing. The second is just the import export process in India and the paperwork related to that. We think we have that - manage we of course done that many times in the past but there is always a potential for a 2 to 4 week delay just on the administrative process. I think the alignment of our interests with this major oil company has been well established, we've been working with them since last August and I think that is really the most important part of this whole discussion is that -- here is a company that can take 100 million gallons per year of biodiesel very easily and has a very large market they want to deliver to in Europe, as well as opportunities in the United States and they see our unique position in the marketplace and unique technology as a strategic relationship that requires an exclusive relationship so that we are not shipping to their competitors and that is -- that relationship that we intend to fully exercise.

Okay. And what type of margins are you getting from that relationship or do you foresee from getting to that relationship?

We anticipate the margins will be reasonable and that both parties will consider the transaction to be a profitable and attractive one.

Okay, all right. Thank you very much.

Thank you, Keith.

Thank you. And our next question comes from Scott Ozer. You may now state your question, sir.

Hi, Eric, how are you? I missed part of it. Did you say we had a customer in India, and that's why we were going to be moving to full production?

We are negotiating with a major oil company customer and anticipating that initial production is in process this month and next month, and that we're going to be ramping up from that point to nearly full capacity. We anticipate to maintain a minority of our production for domestic India customers, and so we're not shutting off India. But there was a [indiscernible] Pacific was cancelled going from India to Europe that makes our product very attractive for European customers, and this particular major oil company is desirous of us not selling to their competitors, so they're seeking an exclusive relationship to be able to supply our product in Europe.

And more so than if we were to ship it to California with the credits that we would receive?

Yes, actually it is. Because of the nature of the feedstock, the European market is the high margin opportunity right now.

Okay. And when did -- was it correct in my understanding that sometime in the third quarter we'll actually see meaningful pay down from the EB-5 funds to Third Eye.

We have paid down about $35 million in our Phase I, and we're $50 million at Phase II, and our current timing is a third quarter and fourth quarter 2017 collection of those funds. That's the current pace we're on, and subject to market conditions changing, if there were some worldwide event of something we would have to amend that. But currently our visibility would be a third quarter and fourth quarter pay down, that's correct.

So would it be takedown or paid off?

It would effectively be a potential payoff if we just replace the remaining balance, which is a relatively small amount, with debt financing and some other financing it could definitely be a payoff. We have an excellent working relationship with Third Eye Capital, and anticipate that relationship will be a bridge financing tool available to the company for acquisitions or other things we might do. So I would definitely saw though that the impact on the interest costs will be significant with a $50 million reduction in high interest debt replaced with 3% low interest debt the financial impact to our shareholders would be material upon collecting $50 million.

No, I would imagine that would be difference between night and day for the company and its bottom line, so. Okay, well that concludes my questions. So if you have anybody else in queue.

Thank you, Scott, I appreciate it.

Thank you. And our next question comes from Anthony Marchesa [ph]. You may now state your question.

Hi, Eric. First, good afternoon. First of all, I think you did a great job in answering these questions. You're very patient and you take all the time in the world. So I do appreciate that as a shareholder. My question is relating to Edeniq, how much money is the company spending on legal fees on a quarterly basis or a monthly -- however you want to describe it.

Sure. We have used a law firm in Silicon Valley who we have other non-legal matter, more dis-contractual work we do with them as well. And we've been very successful at keeping our legal fees very low. I don't know the numbers off the top of my head, but I'd say less than $20,000 a month probably. So it's a small amount of our administrative cost.

Okay. And I guess is it possible that we could see some type of resolution this calendar year or would your hope be that we would see some resolution in this calendar year?

An excellent question, in any litigation we of course don't really control the timing. The Edeniq Board of Directors to a large extent controls that timing. But we do believe there are certain disclosures that have happened during the process of the [indiscernible] and the upcoming depositions that will help clarify for Edeniq Board and shareholders that we have a fully executed binding agreement. And we have every intention to just go ahead and close the transaction. So we think that that message is going to become more and more clear. There was certainly a time of excitement for Edeniq Board members and shareholders when they found out the EPA would approve them, late last summer. And I think they responded to that excitement requesting a change in the economics with us. And we made the decision that setting aside our existing agreement and starting the negotiation over again was not something we were interested in doing. So I think that it'll become more and more apparent to them that there is a binding agreement. And there's lots of reasons of them not to have it a protracted legal situation.

Right. Okay, great. Thank you very much. I really appreciate the job you're doing.

Sure, thank you Tony.

Thank you. And there appear to be no further questions. At this time, I will turn the floor back over to you, Eric.

All right. Thank you very much, appreciate it. Thanks to the Aemetis shareholders, analysts, and others for joining us today. We look forward to meeting with you further, and in continuing our dialogue about pursuing growth opportunities at Aemetis. Thank you for attending today's Aemetis earnings conference call. Please visit the Investors Section of the Aemetis Web site, where we'll post a written version and an audio version of this Aemetis earnings review and business update. Angelica?

Thank you. This does conclude today's conference. We thank you for your participation. You may now disconnect your lines at this time, and have a great day.