May 13, 2016
Executives
Todd Waltz - EVP and CFO Eric McAfee - Founder, Chairman and CEO
Analysts
Brent Rystrom - Feltl Tom Welch - Ameriprise Financial Jim Stone - PSK Advisors Carter Driscoll - FBR Scott Ozer - Sandlapper Securities Keith Goodman - Maxim Group
Operator
Welcome to the Aemetis First Quarter 2016 Earnings Review 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, Executive Vice President and Chief Financial Officer of Aemetis Inc.
Mr. Waltz, you may begin.
Todd Waltz
Thank you, Tim. We welcome our shareholders and financial market professionals to today's Aemetis first quarter 2016 earnings review conference call.
We suggest visiting the website at aemetis.com to review today's earnings press release, the uploaded corporate presentation, filings with the SEC, recent press releases, and previous earnings conference calls. During today’s call we will be reviewing the presentation regarding the pending Edeniq acquisition.
This presentation is available for review or download on the aemetis.com home page. 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 performance, plans, opportunities, and expectations with respect to financial 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 uncertainties, 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 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 recently comparable GAAP measures is included in our earnings release for the quarter ended on March 31, 2016, which is available on our website.
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 expense. Now, I'd like to review financial results for the first quarter of 2016.
Revenues were $33.3 million for the first quarter of 2016 compared to $34.7 million for the first quarter of 2015. The decline in revenue was primarily attributable to decreases in ethanol and wet distiller’s grain average selling prices and volumes.
Gross margin for the first quarter of 2016 was $2.1 million compared to a negative gross margin of $228,000 during the first quarter of 2015. The increase in gross margin was primarily attributable to the lower price of feedstock compared to the same period of the prior year.
Selling, general and administrative expenses were $3 million in the first quarter of 2016 compared to $3.6 million in the first quarter of 2015. The decrease in selling, general and administrative expense was driven by lower spending in the areas of financial and consulting advisory fees compared to the same period of the prior year.
Operating loss was $1 million for the first quarter of 2016 compared to an operating loss of $4 million for the same period in 2015. Net loss was $5.1 million for the first quarter of 2.16 compared to a net loss of $8.6 million for the first quarter of 2015.
Adjusted EBITDA for the first quarter of 2016 was $244,000 compared to adjusted EBITDA loss of $2.7 million for the same period in 2015. Cash at the end of the first quarter of 2016 was $325,000 compared to $283,000 at the end of the fourth quarter of 2015.
That completes our financial review of the first quarter 2016. Now I'd like to introduce the Founder, Chairman and Chief Executive Officer of Aemetis, Eric McAfee for a business update.
Eric?
Eric McAfee
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 US 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 biorefinery production plant on the East Coast of India near the port city of Kakinada, our India biodiesel business. During the first quarter we achieved several important milestones related to India biodiesel and refined glycerin business.
In January, we received approval from the California Air Resources Board for the importation of used cooking oil and tallow biodiesel into California under the low carbon fuel standard. [indiscernible] tallow biodiesel is 57 above 40% below the carbon intensity of diesel and the carbon intensity of our used cooking oil biodiesel is 24, about 75% below the carbon intensity of diesel.
Our India plant is the only production facility in India approved to sell biodiesel into California and earn low carbon fuel standard credits. We've been working with major oil companies from our customers in our existing ethanol business to arrange logistics for the delivery and sale of biodiesel into California.
Tallow biodiesel has a high cloud point and UCO biodiesel is not approved for importation as feedstock into India, so we're working on these two issues in order to begin shipments from India to California as soon as possible. After more than a year of testing and review.
we achieved an important milestone in India last month with the approval of 100% biodiesel as a motor fuel known as B100 by the India government. We've been shipping B100 since Q2 2015 to bulk customers.
This B100 approval should expand our bulk business but also should provide access to retail customers for the first time in India. The short-term production rate at the India plant has been reduced due to high raw material prices caused by the El Nino effects on palm oil production.
Since we sell biodiesel in India at a price linked to diesel, the recent rise in crude oil prices and weakness in feedstock prices is expected to result in expansion of production during the second half of 2016. Let's discuss our ethanol business.
In Q1 2016 in spite of the excess supply of ethanol in the market, we are able to increase profitability during the quarter by switching to milo feedstock and receiving funding from CEC grant of about $3 million that was awarded in 2014. Several top positive factors are impacting our ethanol business including 93.5 million acres of corn planted for the 2016 crop year in the US which is moderating corn prices due to expected increase in corn inventories and record consumption of gasoline this year along with steady growth in E15 stations in the US and record ethanol exports to China.
The renewable fuel standard continues to increase the mandate for ethanol on a national basis with 14.5 billion gallons mandated for 2016 and the EPA for 2017 volumes of up to 15 billion gallons per year expected in June. Regarding EB-5 funding of subordinated debt at a 3% interest rate to refinance our existing higher interest rate financing, during Q1 2016, we achieved full subscription for the $36 million Phase 1 EB-5 project.
We have received $23.5 million of these funds and expect to receive the remaining $12.5 million from the escrow account during 2016. With the successful completion of the $36 million Phase 1 EB-5 funding, this month we launched the next $50 million of EB-5 funding for Phase 2.
This $50 million EB-5 Phase 2 project funds further expansion of the Keyes plant with the addition of the Edeniq and LanzaTech advanced biofuels units. EB-5 investors provide attractive 3% interest rate financing that has no principal payments for up to five years.
Let's discuss some of our growth initiatives starting with our recent signing of an agreement to acquire Edeniq, On May 5, 2016 Aemetis and Edeniq entered into a definitive agreement under which Aemetis will acquire all of the Edeniq’s outstanding shares at a stock plus cash merger transaction. Please open the presentation available on the Aemetis.com home page and titled the Aemetis Signs Agreement to Acquire Edeniq.
Under the terms of the agreement, Aemetis expects to issue between 1 million and 2 million shares of its common stock equal to about 5% to 10% of the Aemetis outstanding shares. The number of shares to be issued by Aemetis for the acquisition depends on whether Edeniq shareholders elect to receive part of their consideration in cash or stock.
The amount of cash to be paid over the next five years is up to $18 million if Edeniq shareholders elect all stock consideration and up to $40 million in the event that Edeniq shareholders elect cash consideration. Upon completion of the transaction, Edeniq will operate as a wholly-owned subsidiary of Aemetis and we expect to close during the second quarter of 2016.
Let's review the Edeniq acquisition presentation that’s available on our website. On the bottom of the presentation you'll see page numbers, so let’s flip to page three entitled Edeniq Value Contribution.
The existing renewable fuel standard in the United States is a 15-year federal mandate program and you might notice that the green area which is cellulosic-advanced biofuels primarily cellulosic ethanol has a total target, if you look in the lower right hand corner, you'll see an arrow, of 16 billion gallons per year, actually the larger than the conventional corn ethanol biofuels target of or I should say mandate of 15 billion gallons per year. So the second phase of the renewable fuel standard is at its inception phase and that is that the cellulosic ethanol business has lagged adoption based upon what the original 15-year mandate program is.
And you can pretty much produce as much cellulosic ethanol as you can possibly produce and there is a mandated market for the product. So the goal here for us is reduction of greenhouse emission and so as you can see in bullet point number conventional biofuels reduce greenhouse emissions by 20% whereas advanced biofuels such as cellulosic ethanol must reduce greenhouse gas emissions by 50%.
So this entire program is with the goal among others of reduction of greenhouse gas emissions and carbon intensity. The last bullet point here is that the Edeniq technology is proven and actually installed in six US ethanol plants and having operated up to five years in some of those plants, there is not a technology risk in the Edeniq acquisition.
There is a deployment process and that is where Aemetis is providing significant amount of value. Slide four talks about the California market, so we just talked about the federal market which is a 15 year expansion through 2022 and by the way they after the mandates are actually allowed by the EPA to grow.
On slide four we talk about California and what I think is a surprise to most people is that over 50% of all the carbon credits ever generated in the entire almost five ear cycle in California of our carbon trading market came from one molecule; it came from ethanol and actually came from traditional corn ethanol. So the use now of cellulosic ethanol in addition to corn ethanol is a significant component of all of the carbon credits achieved in California in reducing carbon intensity in California.
I should note that renewable diesel at 17% and biodiesel at 17%, in total over 85% of all of the carbon reduction in the entire history of California came from biofuels and on a go-forward basis the funding of biofuels in California is expected to be increase reflecting the vital components that we comprise out of all of the ways you can deduce carbon intensity in California. I might note by the way electricity or electric cars less than 4% of the total carbon reduction achieved in California.
Slide five, Edeniq is a very special company. It was founded in 2008, funded by some of the premier venture capitalists in Silicon Valley, including Kleiner Perkins.
Over a $100 million was invested in developing the technology including of the $100 million about $20 million was grants, $80 million was venture capital. It’s headquartered in the Central Valley, California less than a two hour drive from our plant, so there is a synergy between this technical team and our plant and our ability to deploy the technology at our plant and their sales and field personnel office is in Omaha, Nebraska to maintain direct relationships with Midwestern suppliers.
The technology is comprised of a mechanical device that does pre-treatment from the cellunator and enzymes which convert the cellulosic sugars into cellulosic ethanol. The track record of the company is a positive track record.
They achieved $20 million of revenues and $6 million of positive EBITDA in calendar year 2015. There are approximately 29 cellunators installed in six US ethanol plants.
And the commercialization of the enzyme products has already been achieved. What they are waiting for right now is final EPA approval.
Slide six, the economic benefits from Edeniq technology are rather straightforward and if you look through the key benefits, we are first of all getting more ethanol from corn, the actual starch and corn. It doesn't entirely get converted into traditional milling process, so by doing the Edeniq sharing process we get a mechanical exposure of starch which allows higher conversion of that starch into corn ethanol.
Number two; we get more corn oil production by also converting the cellulosic components. And so if you look at the bottom a 60 million gallon per year ethanol plant such as the one that we own and operate in Modesto, California gets about $3 million per year of additional starch ethanol and corn oil using the traditional process, but with an EPA approval pending, up to another $7 million per year cellulosic ethanol would be produced from the corn fiber that is already a part of the feedstock stream for an existing corn ethanol plant.
That $7 million is comprised of the original module value, so it's the same value as corn ethanol, plus the federal D3 RIN, which is advanced cellulosic ethanol RIN, plus a low carbon fuel standard value in California when that process is fully mature and applications have been approved and then lastly is the $1.01 per gallon tax credit. So total is $10 million potential annual revenue per year.
The next slide is slide 7. The history of Edeniq is want to building a commercial track record.
So we have units installed in Midwest, we have units installed here in California and then Flint Hills, which is a coke industry subsidiary, has 20 units running at three different oil refineries. On slide 8, the product platform allows up to 7% ethanol production increase at first-generation ethanol plants and you may recall that Aemetis was founded10 years ago with a plan of acquiring and building existing ethanol plant and biodiesel plant and then being able to adopt technologies more rapidly than companies that were solely technology companies and did not have those operating assets.
This is a very synergistic Edeniq Aemetis transaction where we’re integrating a platform of feedstock shearing and cellulosic enzymes in our plant and then using that to demonstrate to other customers how we’re optimizing that entire platform. The existing ethanol production increase of up to 4% from starch quite frankly means that this technology should be adopted by all corn ethanol plans, the dry mill ethanol plants just to get more starch ethanol with regards to whether there is any cellulosic ethanol, but as you saw in the previous slide, the economic value of cellulosic ethanol is quite significant.
On slide 9, there are three categories of core products for Edeniq. Category number one, and quite frankly, the most important part is it’s fundamentally an intellectual property company.
The proprietary analytical software that demonstrates cellulosic and starch ethanol yields is the core of the company, it's the core of the technology approval cycle that's been already completed by the EPA and on a go forward basis, separate from the Cellunators, separate frankly even from the enzymes is the ability to demonstrate to the satisfaction of the Environmental Protection Agency, the actual amount of additional starch and additional cellulosic ethanol yields is fundamentally a software company opportunity. And that is something that is sitting here in Cupertino, California, the headquarters of Apple Computer, recognize as being the core deployable asset in its wrap and scalability, separated from many of the mechanical aspects of building capital intensive facilities.
So most companies deploying new technology in the ethanol space are looking at $40 million to $50 million budgets and very high CapEx. The core opportunity for Edeniq is fundamentally a software and analytics opportunity.
Number two, the patented, high shear, mechanical pretreatment cellulosic fiber. This is called a Cellunator.
These devices are manufactured by a German company under the Edeniq patent. The scalability of the devices from a manufacturing point of view is not a component of any concern, it takes about six months for manufacturing and implementation at any one of the sites and so this is unusual in that most technologies that are upgrading pretty ethanol plants are multi-year projects with tens of millions of dollars of CapEx, and in this case, it is less than half a year, and frankly, as we scale up, you’ll find it’s closer to 4 months.
Thirdly, cellulase enzymes. These cellulose enzymes take the cellulosic sugars that now have been exposed from the shearing process and they convert them into ethanol, but since the feedstock is cellulosic, it's now cellulosic ethanol and of course it's part of that green band of 16 billion gallons of cellulosic ethanol mandated under the renewable fuel standard.
So these cellulase enzymes are patented by Edeniq to be able to work with the pretreatment. So you cannot, under the intellectual property protection by Edeniq, use the cellunator and enzymes together or that kind of pretreatment together without violating the IP held by Edeniq.
So a uniquely simple, low-cost quick way to generate about anywhere from 2% to 2.5% cellulosic ethanol coming out of your corn ethanol plant and also up to 4% starch ethanol. Slide 10, how big is the market, what’s the opportunity here?
Our total available market in the US is about 210 ethanol plants. By subtracting the ethanol plants that are wet mill plants that already kind of separate out the corn into various components already, by taking out some of the companies that have already adopted some other technologies in the $30 million to $40 million range and have a commitment to those technologies, we get down to about 120 ethanol plants that quite frankly are just leading money on the table every day that they go to work by not deploying this technology.
I must say that there is over 150 ethanol plants that should use this technology and we have only taken those other 30 out because of quite frankly, the financial considerations have been already made, some very expensive other pretreatment approaches. At the end of the day, we think we’re going to end up being used in a synergistic way with these other pretreatment approaches that literally cost up to $40 million or $50 million to deploy, but we extract additional cellulose and additional starch from their process as well.
So there is a rational for over 150 plants. Now, at $10 million per year of additional revenue, remember, it was 3 plus 7, its easy math, 120 ethanol plants, $10 million is the total, serviceable available market of up to $1.2 billion per year.
The average ethanol plant in the US by the way is about 70 million gallons per year, slightly larger than our 60 million gallon nameplate capacity, but each one of them has an opportunity for over 10 million of annual revenue. Stating the obvious, if you have 120 million gallon plant, your revenue opportunity is $20 million, not $10 million.
Slight 11, this is the key slide and I would like you to memorize this one because the bottom line here is the synergy between Aemetis and Edeniq. Number one is a milestone.
Aemetis has already gotten directly involved in supporting the approval of the Pacific Ethanol plant in California and the Edeniq process that can be deployed at Pacific Ethanol plant, because they already have the equipment already operating for starch ethanol increases. So the addition of a D3 RIN and $1.01 per gallon tax credit and eventually, bullet point number 2, the filing of the low carbon fuel standard approval will allow Pacific Ethanol to garner significant additional cash value from the existing equipment that’s already running, simply by adding the cellulose enzymes and achieving the advanced biofuel gallons and currently cannot get value for them.
But we’re looking to replicate that. We’re looking to replicate the Pacific Ethanol business model, let’s call it, in five ethanol plants per year and we of course expect if there is more that we can do than that, but basically five ethanol plants per year is being supported by a new business model in which we plan the revenue share with customers.
Now, why would we do this? We’re doing this, because this is a way we did our oil separator technology, our plant did not separate out oil from our distillate grand, but we partnered with a vendor who is confident in the commercial value of their technology, and they installed their equipment and there was shared revenue between the two of us, and we found that as a way that we rapidly adopted their technology, not once, but actually twice.
We have two of their systems running in our plant. We've garnered millions of dollars of financial benefit, and frankly took virtually no cash risk at all.
And having been on the customer side of this, we just had to do this for other customers of the Edeniq technology. So Aemetis installs the equipment, supplies the enzymes, provides the analytics and the customer shares in the increased revenues from cellulosic ethanol and they also benefit from this starch ethanol and corn oil revenue increases and obviously this becomes a much simpler capital investment decision for customers, because there is no capital investment.
It's a much simpler operating investment discussion because there is no operating cost investment and it's easy from an analytics fee point of view, because there are no analytics fees. So we have replicated what was successful with us as a customer as an ethanol plant operator, looking to adapt corn oil and we’re now looking to provide cellulosic ethanol, equipment enzymes and analytics to the ethanol industry with very, very low barriers of adoption.
I would actually say from the financial perspective, no barriers to adoption and it's because of our level of confidence in the success of adding value to our customer. So what do we expect?
We expect 12% to 15% penetration of our serviceable market within three years. Again, that's only about five ethanol plants per year and you can see this, perhaps, the markets adoptions should be a little faster than that, but that's our current base case.
So how do we finance this? Slide 12.
Our existing $36 million EB-5 funding has provided about $23 million to the company, this is largely funds we received in the last 12 months and we still have $12 million remaining in escrow. So this $12 million of cash sitting in escrow will come out of escrow and pay down our senior secured financing we use to acquire and upgrade our existing ethanol plant.
This month, we launched a $50 million Phase II financing at 3% interest rate. All this $50 million will be applied to reduction of our existing senior line of credit, which is $65 million senior line of credit.
So you take $65 million, you subtract $12 million, and you end up with $53 million, you subtract another $50 million and you end up with only $3 million of entire senior secured debt outstanding in this company to our Canadian partners. Now, of course we can then, because we - virtually no money for them, use them as a bridge loan financing to expand the business with the Edeniq assets and LanzaTech assets have are cash flow and so our business model here is expensive, with cheap debt and then be able to use the return on capital, as you can see here in April 2016, we’ve signed a financing agreement for $29 million that allows us to draw down bridge loan financing to expand the business.
So this technique of expensive bridge loan capital, putting us in the unique positions of growing the business and then replacing it with cheap 3% interest rates five years, no principal payment, financing using EB-5 has been proven to work at Aemetis and to my knowledge, it's the only biofuels plant in the United States that’s been able to do this recently and so we intend to continue our success in this strategy and while using our Canadian partner to be able to accelerate the business and get the cash flow benefits, for example, rolling out Edeniq on a rapid basis. Slide 13, what's the three year roadmap look like?
What you see is currently our ethanol business comprises 90 plus percent of our revenues. In the future, that will be 40% to 50% of our revenues, but dramatically improved cellulosic ethanol margins as we upgrade our Keyes plant with the LanzaTech technology and add approximately 16 million gallons of capacity.
The margins on that business selling ethanol at roughly a $3 premium over regular traditional ethanol, including all the incentives means that that margin - the margins of that business are dramatically higher and very consistent. Secondly, our renewable jet diesel and biodiesel business, likewise expand.
We’re currently a 50 million gallon business, but by adding renewable diesel to that business, we again expand margins and expand our position in the market. And then lastly, Edeniq.
Edeniq is going to be a separate subsidiary and division of the company, reporting directly to me. We have a general manager, that's already been appointed to operate that business who is an existing executive at the business and we’re expecting moderate growth, 25 million to 30 million gallons a year of total production of cellulosic ethanol from that business, which would comprise 25% to 35% of our overall revenues, because the revenues in that business as well as the margins in that business are extremely good.
So you can see, we end up with a reasonably balanced portfolio of traditional ethanol and advanced ethanol as well as an expansion of our biodiesel and our renewable diesel business. We believe that this will reduce our ethanol industry volatility as well as other commodity challenges that traditional ethanol and biodiesel plants have and put us solidly as a leader in advanced high margin ethanol and biodiesel and renewable diesel in the US as well as in Asia.
We have included for your reading pleasure in the appendix, slide 14, some of the slides that may be helpful to you if you have not visited our regular corporate presentation and I should highlight for you slide 18, which discusses the California Low Carbon Fuel Standard. This is the last slide in the deck, but it lays out how - when you produce cellulosic ethanol, how you get additional potential premiums, please underline the word potential, because we need the EPA as well as California resources board to approve each one of these plants as they are adopted.
Now, the good news is they do this all the time. Every ethanol plan in the United States has a variety of different federal and state approvals.
But it’s a process in which we adopt the equipment and then go through these technology approvals at the federal and state level. So that completes our discussion of Edeniq.
We will update investors once the Edeniq acquisition is closed, which we expect to be in June 2016, and we expect that the additional details will be forthcoming at that time. There has been a question that’s risen which is how much debt are we refinancing at Edeniq.
There is approximately $8 million of existing Edeniq debt and we are - as I mentioned, we are outside the $29 million financing arrangement with our Canadian friends that we are tapering to drive that portion of that for closing of $8 million of financing and then a significant amount of additional financing for the growth of the business. We remain firmly committed to strengthening our financial position to expand our opportunities for future growth and profitability and we believe the current environment of rising crude oil prices and increasing mandates for cellulosic ethanol, biodiesel and renewable diesel provide excellent opportunities for growth in revenues and profitability.
With 110 gallons of ethanol, distilled biodiesel production capacity already in place and Aemetis is uniquely positioned to acquire or license rates to proven technologies and then rapidly deploy these technologies to create high margin bio-economy businesses. Edeniq is an example of how this strategy is being implemented.
Now, we will take a few questions from our call participants. Operator, you want to mention it.
Operator
Thank you, Mr. McAfee.
[Operator Instructions] Our first question comes from the line Brent Rystrom, of Feltl. Please proceed with your question, Brent.
Brent Rystrom
Good morning. Hi, Eric, how are you?
Eric McAfee
Very well, thanks.
Brent Rystrom
Couple of quick questions. Can you give a little granularity on how that $20 million of revenue, what pockets those came in from last year?
Eric McAfee
The $20 million last year was from equipment sales and licensing royalties on the roughly 29 cellunators installed primarily at [indiscernible]
Brent Rystrom
Okay. And I would assume vast majority of the EBITDA comes on the licensing side, is that a reasonable assumption?
Eric McAfee
We have a component of that absolutely.
Brent Rystrom
What is the life of their IP?
Eric McAfee
What is that, license?
Brent Rystrom
What is the life, what’s the remaining life on the IP?
Eric McAfee
The remaining life is rather long, we have still got about 15 years on most of the IP. I should mention that the sight of adoption in this industry is probably going to be three to four year cycle.
We have put out pretty conservative numbers, but with only four to six month physical implementation, three years from now, you could see that we are going to have plenty of time to talk to every ethanol plant in the country and to whatever stand where you sign them up we will sign them. So I don’t think we are going to target 15-year adoption cycle in this technology.
Brent Rystrom
All right. And then out of curiosity, on the core part of your company looking outside of the acquisition, just as a contrary thought, not contrary prediction, but it’s a thought, if we do get El Nino in the Midwest this summer and we were to have yields get hit by hotter, drier weather, what ability do you have to shift feedstocks as far as your plant in California?
Eric McAfee
We are uniquely positioned to use milo and as you know, milo does well in drier weather because it require significantly less water than corn. And we have been running almost every other week milo shipment from the Midwest, so we are already using that value chain.
We’ve run about 7 trains so far in calendar 2016. So historically, milo has been about 10% discounted price from corn and if you do see a corn price spike, which is not expected of course, but if we do see one, we would expect that milo opportunity would be available to us.
Brent Rystrom
And then this is kind of off track, but it’s something I thought you might have some knowledge of. There was an announcement last Friday out of India on a second generation plant that’s going to be developed there for second generation biofuels using basically almost any feedstocks.
So could you switch grass, but yes it could use corn slover, whatever, I am curious, are you familiar with the project and do you have any cut-offs on the technology?
Eric McAfee
I do, we are familiar with it. Our plant in India was originally constructed by Praj Industries, which is the leading sugar ethanol engineering firm in the world actually and they are based out of India.
They have an advanced biofuels testing and development unit that they have been operating for over a decade and we are very familiar with their company and what they are doing. The yields in the process are still in question, and as you know, the economics all driven by the yield.
So they are definitely doing a conversion, there is no question about that, but the economics of the process are still highly in question, because the yields have not proven yet to be economic.
Brent Rystrom
Thank you.
Eric McAfee
Certainly, thank you.
Operator
Our next question comes from the line of Tom Welch of Ameriprise Financial. Please proceed with your question, Mr.
Welch.
Tom Welch
Thank you. In regards to the Goodland, Kansas acquisition, what are the actual assets that are on the ground there?
Do they actually have a finished ethanol plant, do they not have an ethanol plant, it’s not clear what the assets are in that acquisition, can you elaborate for us?
Eric McAfee
Certainly, the Goodland asset is a portfolio company of our Canadian lender and has about $63 million invested in development of traditional corn ethanol plant. What we have planned to do is not build or complete a traditional corn ethanol plant, because the local feedstock supply includes a significant amount of cellulose from corn stover and even wheat straw as well as a hazardous material supply chain that can be brought in from, not only Denver, but frankly the upper Midwest.
So it’s uniquely positioned to become an advanced biofuel project, it is not going to be the next one we do. The next one we do is in California, and then that same technology we are deploying in California with the financial support by the way of our Canadian financing partner will be replicated in Kansas.
So what they were able to bring us $15 million off balance sheet financing, I say off balance sheet because we don’t have any corporate financial exposure to the repayment of that $15 million. What we are able to do with was to set up a separate project number two in the Midwest, with financing in place and no financial exposure to the parent company for the acquisition and $15 million, of course that’s significantly less than the $63 million that’s been invested.
It’s about a 91-acre site and it’s in an advanced industrial area in Goodland, Kansas, which is in Western Kansas, about three-hour drive from Denver.
Tom Welch
Very good. Thank you.
Eric McAfee
Certainly, thank you. By the way, I should wrap that up by saying this demonstrates the - I would say a long-term partnership we have with our Canadian financing supplier and our ability to be more flexible, I suggest than some of the other companies in our business that are deploying new technology.
I think our Canadian financing partner, as a bridge loan financer, has proven that they have launched in the industry and have a trusting relationship with our company. So we are looking to continue to use them as a bridge loan financing source and repay us EB-5 funding, which would be a part of our plan in Kansas as well.
So this structure of taking bridge loan and the rapidly repaying it with EB-5 is definitely a core strategy for our company. Operator?
Operator
[Operator Instructions] Our next question comes from the line of Jim Stone of PSK Advisors. Please proceed with your question.
Jim Stone
Good morning, guys. It looks very interesting to say the least.
Could you tell us of the 29 - you said, 29 of the cellunators were shipped in the last year, is that what I heard?
Eric McAfee
We have a total of 29 installations, some of those operating communities, it’s five year actually. So 29 cellunators installed at six ethanol plants.
Jim Stone
Okay. My questions is, I assume some of those 29 then we’re very small capacity for testing and trying, how many of the full size do up in the million gallons per year have been sold?
Eric McAfee
Yes, each cellunator does about 20 million gallons equivalent, so all 29 are actually operating at 20 million gallons equivalent business somewhat different than what you usually expect where people build pilot plants and demonstration plants and the finally, small commercial plants and then large commercial plants, all these Cellunators are at full commercial capacity implementations, these are not pilot and demonstration kind of facilities.
Jim Stone
And you said that capacity is what, 29 or --?
Eric McAfee
The capacity per Cellunator is equivalent to about 20 million gallons per year of ethanol that is treated. So again, 60 million gallon ethanol plant, which you end up deploying us three Cellunators, so each Cellunator handles 20 million gallons per capacity.
Jim Stone
Can you comment on what is the status of the IPO, does that still look like it’s squeezable sometime this year?
Eric McAfee
The IPO in India has been - continued to move in the positive direction. The price of crude oil was as low as $25 a barrel in January.
That definitely had a dampening effect on the appetite in India. We are now about $45 a barrel and if that trend continues, we expect of course the appetite to increase as well.
Jim Stone
So you think the primary selling position will be related to gas - to price, not year performance?
Eric McAfee
We sell diesel - I am sorry, we sell at a price that’s directly linked to diesel in India, so as the price of crude oil goes up, India’s price of diesel goes up at basically exactly parallel to the price of crude oil, and so our price goes up and - which means frankly our margins go up. And so we are a highly leveraged, positive leveraged business against the rising price in crude oil, specifically at our biodiesel subsidiary.
We don’t have to physically do anything, we buy the same product and the same vendor and sell exactly same product and same customer and we make a whole lot more money as the price of crude oil rises.
Jim Stone
Okay. And I - you were talking in the same general ballpark of the relation of what they would pay versus what if you tried to do a deal in this country?
Eric McAfee
Correct. California has some unusual benefits, so California is a target market for us to ship India product.
Jim Stone
No, I am talking about on the IPO. If you wanted to do an all offering here in and everything else being equal and obviously, you’re not going get the same multiple that you’re getting in India, but you were talking a relatively high price in India, and I am wondering if things have changed in India, that might lower substantially lower than type you’re still looking in that same ballpark?
Eric McAfee
Yes, we are attracted frankly to the rapidly rising demand in India as well as frankly our January 2016 approval to bring our India product into California, and we think both were great opportunities. And so we are aggressively pursuing both of them.
We actually brought in some new staff just solely focused on the California marketing of our product and we are working with some major oil companies to expand distribution in the state.
Operator
Excuse me, Mr. Stone, due to time management, we have to manage our questions.
So I will have to take the next question at this time. Our next question comes from the line of Carter Driscoll of FBR.
Please proceed with your question Mr. Driscoll
Carter Driscoll
Good morning. How are you?
Eric McAfee
Good morning, Carter, good to talk to you.
Carter Driscoll
Nice to speak to you again. You were talking about some of the competing technologies out there in the place with Edeniq’s IP and then Cellunator equipment?
Eric McAfee
Certainly, I would remark probably that the pre-treatment processes offered by ICM and a company called Fluid Quip would be probably the two primary competing processes. These companies use the milling technology that already exists in a corn ethanol plant and a hammer mill essentially does exactly what it sounds like it's a hammer hitting the corn kernel.
The Cellunator device uses sheering technology, it looks a jet aircraft turbine and it's spins rapidly and it sheers the material I've heard it described as what a beaver does when a beaver chops a tree as it hits the tree with its teeth at a specific angle it doesn't hit the tree with a hammer and so the cellulosic fibers are uniquely non-responsive to being hit by a hammer but they are very responsive to sheering. These competitive technologies have very expensive capital investments required $30 million to $40 million long lead times for permitting, construction and commissioning typically a year or more.
And high operating costs because you are running essentially another hammer mill and you're hammer mill is one your highest operating cost units in the corn ethanol plant between the power required as well the maintenance and up times required. These approaches are basically just doing more hammer milling are interest, they work but when you compare that to our business proposition which is don't write any checks within four to six months will have you operating and every month they are after you, you're going to get a check in the mail from us for your revenue share of millions of dollars a year is just a dramatic departure from the current mentality of selling capital equipment and selling engineering services to ethanol plants.
Carter Driscoll
So if understand correctly, the value proposition really is lower cost, no upfront capital, is there a noticeable yield difference from the pre-treatment side and then I want to talk about what are the potential limitations, I'm assuming there is one OEM in Germany that does this, the type of commitment you have from them whether it relates to some of these agreements in terms of their ability to manufacture and just a couple of quick follow ups after that if I may.
Eric McAfee
Absolutely, let's start backwards. The acquisition, the equipment from the German manufacturer actually is a US subsidiary that manufacture that provides it out of the East Coast.
So we have relatively short lead times compared to any other capital equipment business, we're talking 90 day to 180 day lead times on all of the devices and they're coming largely from the US. There is no limitation on our exclusive its global it's covered by our patent and there really is not that much of a limitation on scale up so anything within a reasonable, and if we're going to order 50 plants to be online in the next six months that is not going to be achieved but within the perimeters of our plan we really don't have a constraint on the manufacturability of the device.
Same goes with the end times, the end time scale up is of really no consequence at this point in time. The two, it's physical inputs which is a cellular device in the enzymes, can feel as fast as our sales and marketing and analytics team can bring on new customers.
In terms of the economics, this is very, very important point, the EPA regulates whether a corn kernel fiber cellulosic sugar has been converted into cellulosic ethanol. In other words you could be doing it all day long in your bathtub but if the EPA has not approved then what's coming out your bathtub is cellulosic ethanol you're not producing cellulosic ethanol you're just producing ethanol and you have to go and get essentially a D6 RIN corn-ethanol kind of pathway.
The only current pending approval for cellulosic ethanol from corn fiber is the identical pathway it's actually now as the identical pathway at the EPA. So these other technologies over time will find some weighted show that they have produce some cellulosic ethanol, they'll develop their own software, their own analytics and as long as they don't step on and violate the patents filed by Edeniq they would be allowed to file with the EPA get their own pathway, it was a multi-year process to get Edeniq approved and they will eventually be producing cellulosic ethanol.
We think what would be more rational would be that the plant operators who are actually making the decisions would say why don't we just put in the Aemetis system, doesn't cost us any money and it makes us millions of dollars every year even though we're already running these other separation technologies upfront, the financial benefit of us being able to quantify the amount of cellulosic ethanol and starch ethanol and get them under our umbrella of approval with the EPA, I think is very, very compelling. So we believe we're actually synergistic with even the plants that have made these multi tens of millions dollars of investment already.
Carter Driscoll
It sounds like really the value proposition is getting that EPA and kind of approval for the conversion process, do you have a specific time frame around that or visibility I'm sure you have into it but is it pending within say 90 days or the close date of the acquisition or shortly thereafter?
Eric McAfee
The pathway has been approved but it's not been approved it's what's called the company registrations, so physical ethanol plant needs to get approved under the pathway in order to garner the benefits. That's supposed to be a 90 day process; the applications were filed about 120 days ago.
And so the EPA is now in the timeframe of wrapping this up from just their own schedules. Now it is EPA, I grant them that they are doing this for the first time and so things will take a little bit longer but as you can see from their own targets it is time for them to get this approval done.
Carter Driscoll
You have specific plans I'm assuming in share order that you applied for the EPA approval, correct?
Eric McAfee
Specific ethanol which is the stocked in plant about 40 miles from our plant in Central California is the pending company registration, Pacific does have a total of eight plants in the US some of which are dry mill plants and so Pacific's pending application with them already running the equipment means that they're almost immediately would be able to garner financial benefits from this approval and then rapidly from that point would be able to deploy at other sites and have their entire portfolio of ethanol plants both in Midwest as well as in California receive a financial benefits of the relationship with Aemetis.
Carter Driscoll
But obviously with your relation, you're past relationship as the founder of Pacific Ethanol; I'm assuming that the initial path would be to outfit Pacific Ethanol first and then move to other customers is that a fair assumption?
Eric McAfee
We have a very strong relationship with Pacific Ethanol, I think you may know they market over $100 million a year of our ethanol product and we're also proud with the industry association with them. We think this is a very compelling opportunity for them and I think they're filing for the pathway, I think the first do it shows their interest in the technology as well.
Operator
Our next question comes from the line of Scott Ozer of Sandlapper Securities. Please proceed with your question.
Scott Ozer
Just if you could highlight what's going on with the IPO in India and about getting the customer for the diesel that you're producing there?
Eric McAfee
The IPO in India has slowed down by the crude oil decline which is now the crude oil rise, and as we see further crude oil rise, I think the IPO in India will move along more quickly. We have retained investment banking and accounting professionals, so we're already in the process, we're now just waiting for market adoption.
In terms of our biodiesel sales, India is a very large biodiesel market and the Prime Minister of India announced he'd like to convert about 10 billion gallons of that to renewable fuels quite frankly as rapidly as possible. So we're working within the Indian bureaucracy and the approval of B100 that happened a month ago was almost a multi-year process and has now been achieved.
That opens up the potential for the entire retail diesel market and so bulk which is what we're selling into now as well as retail would allow us to grow rapidly in India. So those are the two key metrics rising diesel prices because of rising crude prices and then expanding approvals such as for the first time 100% biodiesel being approved as a motor fuel are expected to expand the market.
And I think as we get into the third and fourth quarters of this year, if we see $55, $60 crude oil prices I think you're going to see a certain about excitement around companies such as ours, there is only five producers in the whole country who are uniquely positioned to benefit from those rising crude oil prices.
Scott Ozer
And what's your expected timeline for raising the additional 50 million in EB-5 funds?
Eric McAfee
Well, I hate to tell you this, I can't rely upon history, what we do have is we have an amount of credibility because of the success of our first $36-million and so we are out marketing in China this month and we will be able to update you hopefully within the next two to three months about the success of those efforts. And so last time once we are marketing in China things went very, very quickly and so I hope by the end of the summer we'll be able to report that the pace is likewise also quick here.
Operator
Our next question comes from line of Keith Goodman of Maxim Group. Please proceed with your question Mr.
Goodman.
Keith Goodman
Just a quick question, actually two part question, bringing used cooking oil into India and getting the approvals to bring biodiesel into the California which you said you're working on both of those, when do you expect what the ETA, when do we think we could start generating more significant revenues out of biodiesel in India and in the States?
Eric McAfee
Let's start it again at the end, rising revenues in India can come from Indian domestic customers as we see the price of diesel has hiked in India quite dramatically quite frankly and as the prices of our feedstock moderate we'll see rising revenues in India just based on a steering product. What we have is an upside in that we just January of this year received approval to bring our India produced product into California if we used Tallow from animals or used cooking oil.
India is not a good supply of used cooking oil so we have to import in India. But we are fully approved to take Tallow biodiesel from India bring it into California, we're fully approved to bring UCO biodiesel from India into the California that's all done.
All we're doing right now is just expanding our feedstock supply chain by getting approval for the import of used cooking oil from the Middle East, from China, from elsewhere in Southeast Asia into India, so we can the high volumes that we are used to, we typically ship as much as 5,000 tons which is a million half gallons per shipment into Europe historically and now into California. So we're looking for broader supply chains of UCO et cetera.
The timing which is what the core of your question was is we are very active, I am talking to Indian ministers almost weekly and our team is in New Delhi meeting with the same Ministers almost weekly. So we expect good progress, there was an article written about the ministers' support of this process.
So we are - we've been - demonstrated that we can make things happen at the ministerial level in India and it's literally could be a matter of days, weeks or perhaps months but it's the bureaucracy we're dealing with, so my expectation is sometime this summer we will get that approval and because all the other approvals are in place we can then immediately begin production.
Keith Goodman
And do you have an end customer or way to bring biodiesel into California, I mean are you putting sort of the cart in front of horse and addressing that for when you do get the approval?
Eric McAfee
We have hired a person who is focused solely on the California market deployment, he is based out of Cupertino and we have our existing European customer which is a $100 billion oil trading company, the world's largest frankly who wants to sell in California. So either using our existing European trading partner or just our own major oil company relationships, we are setting up the California supply chain far ahead whenever we get UCO approval.
So once that approval happens, all we start doing is buying inventory and start the process.
Operator
At this time I'd like to turn the conference back over to management for closing remarks.
Eric McAfee
Thank you very much operator, I appreciate it. I'd like to thank our shareholders and the several stock analysts and others for joining us today.
We look forward to meeting with you and continuing our dialog about pursuing growth opportunities at Aemetis.
Todd Waltz
Thank you for attending today's Aemetis earnings conference call, please visit the Investor Section of the Aemetis website where we will post a written version and audio version of the Aemetis earnings review and business update. Tim?
Operator
This concludes today's teleconference; you may disconnect your lines at this time. Thank you for your participation.