Global Clean Energy Holdings, Inc. - Annual Report: 2021 (Form 10-K)

 

WASHINGTON, D.C. 20549

 

 

 

 

Commission file number:

 

(Exact name of Small Business Issuer as specified in its charter)

 

 

 

Securities registered under Section 12(b) of the Act:

 

Securities registered pursuant to Section 12(g) of the Act:

 

¨

x

¨

x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90 days.

x

¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x

¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

¨

 

¨

¨

x

As of June 30, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates (based on the closing sale price of the registrant’s Common Stock on the OTCQX Market, and for the purpose of this computation only, on the assumption that all of the Registrant’s directors and officers and any 10% or greater stockholders are affiliates), was approximately $156,453,000.

 

The outstanding number of shares of common stock as of March 31, 2022, was 42,223,933.

Documents incorporated by reference:

 

 

 

 

PART I

ITEM 1      BUSINESS

Importantly, not all biofuels are created equal. For comparison, renewable diesel produced from soybean oil has a CI score of approximately 59 grams of CO2 emissions per megajoule of energy (“gCO2e/MJ”), while our renewable diesel production using Camelina feedstock without a meal credit has a CI of only 24 gCo2e/MJ. As detailed in the graphic below, this improved CI score has the potential to result in incremental LCFS credit generation of approximately $0.56 per gallon at $122 LCFS. Finally, if the CARB approves treating Camelina meal similarly to Distillers Dried Grains with Solubles (“DDGS”) in ethanol with a credit, our finished product’s CI score could decrease to approximately 7, by reducing it an additional 16.5 gCO2e/MJ, yielding additional LCFS credits worth nearly $0.26 per gallon.

 

 

 

Renewable Diesel is produced by hydrotreating and isomerizing the same feedstocks as biodiesel: vegetable oils, used cooking oil (“UCO”), animal fats, etc. However, a variety of favorable qualities distinguish it as a superior fuel and enable it to carry a price premium to biodiesel. First, RD is chemically identical to petroleum-based diesel and can therefore utilize the same infrastructure and function as a drop-in, 100% replacement for petroleum-based diesel without blending. It also offers better performance and increased stability — RD does not experience the cold weather performance issues, water absorption, nor microbial growth of biodiesel. Finally, RD burns cleaner than traditional diesel, reducing local emissions (especially nitrogen oxide (“NOx”)) by up to one third, and alleviating engine maintenance issues.

 

RD has a large addressable market. Because RD is a 100% replacement for petroleum-based diesel, the total addressable market includes the collective consumption of biodiesel, RD, and petroleum-based diesel. In aggregate, the United States transportation sector consumed 48 billion gallons of these fuels in 2019, with almost 4 billion gallons consumed in California alone. In 2020, which includes the impacts of the COVID pandemic resulting in reduced mileage driven, there were 3.6 billion gallons consumed in California and 44.5 billion gallons consumed in the United States.

 

 

California consumes the most RD in the United States due to its strong and well-established LCFS program. In 2019, California consumed 618 million gallons (MMGal), which represented over two thirds of total demand in the U.S. Most of the remaining RD was consumed in Oregon through its Clean Fuel Program (“CFP”). In 2019, U.S. demand for RD of 912 MMGal was met by domestic production of 492 MMGal and imports of 420 MMGal. In 2020, demand for RD was 589 MMGal in California and 969 MMGal in the United States. Domestic production was approximately 533 MMGal and imports were approximately 435 MMGal.

 

Propane: An estimated 590 MMGal of propane were consumed in California in 2018, of which, 59.5% originated from refinery production and 40.5% originated from natural gas plants. The majority of this, 334 MMGal, was sourced from refinery production in California. Most of the propane imported to California for consumption was sourced from natural gas plants, 113 MMGal, with over half of the imported volume sourced from Canada. The availability of a consistent supply of renewable propane will be relatively new to the California market.

 

The Renewable Fuel Standard is a national policy requiring a certain volume of renewable fuels to replace or reduce the quantity of petroleum-based transportation fuels, heating oil, or jet fuel. Renewable fuels generate tradeable RINs credits that refineries and importers of diesel (known as obligated parties) are required to purchase to offset their production emissions. RD generates 1.7 D4 biomass-based diesel RINs per gallon, where naphtha generates 1.5 D5 advanced biofuel RINs, and liquified petroleum gas (“LPG”) generates 1.1 D5 advanced biofuel RINs. While RD generates D4 RINs when produced from soy, D5 RINs for coproducts are not generated when produced from soy.

 

LCFS is a market-based incentive program intended to reduce the CI of transportation fuels within the state of California. Rather than a set credit per gallon like the RFS, the CI score of a fuel is assessed individually with one LCFS credit representing one metric ton of CO2. CARB sets a CI benchmark for fuels, which decreases annually, creating compliance requirements. To meet these compliance requirements, obligated parties such as refiners of gasoline, diesel, and jet fuel, purchase tradeable LCFS credits generated by renewable fuels to offset their deficits. RD and its co-products are all eligible to participate in the LCFS program.

 

California’s Cap-and-Trade program is a market-based regulation that is designed to reduce GHGs from multiple sources by setting a firm limit or cap on GHGs. Obligated parties are required to purchase California Carbon Allowances (“CCAs”). RD and its co-product producers are required to purchase next to zero CCAs, increasing their value compared to petroleum-based fuels.

 

 

Originally passed in 2004, qualified producers or blenders are eligible for a federal income tax credit of $1.00 per gallon of pure biodiesel or renewable diesel produced or blended. Since its inception, the BTC has been extended or retroactively applied every year. It is currently active through 2022.

 

Oregon implemented its Clean Fuel Program (“CFP”), which closely mirrors California’s LCFS program, in 2016. Other states are also expected to begin implementing their own transportation fuel policies in the near-term. For example, Washington State recently passed legislation mandating an LCFS program by 2023, while New York, New Mexico, Minnesota, and a number of other Midwest States are evaluating similar programs to help meet their long-term emissions reduction targets. In addition, Canada will also represent an important market as it implements its own LCFS program starting in 2022. Europe also has several established renewable fuels programs.

 

 

 

 

 

 

 

 

 

 

 

 

Our integrated biofuels platform combines our internal plant science research and development programs with collaborations with leading public academic institutions, private researchers, private and public companies, farmers and cooperative partnerships for crop production, and other strategic relationships for product sales and distribution. Our intellectual property rights around feedstock production know-how are primarily held by our three wholly-owned subsidiaries, Sustainable Oils, Inc. (“SusOils”), Agribody Technologies, Inc. (“ATI”) and Camelina Company Espana, S.L. (“CCE”). These three entities provide a full spectrum of Camelina plant science activities including breeding, intellectual property development, defense and protection, crop analysis, carbon intensity tracking, grower engagement, certified seed growing, monitoring, labeling and sales, partner engagement, and infrastructure development.

 

SusOils is a plant science and crop development company with an industry-leading portfolio of intellectual property, regulatory approvals and deployment experience for elite varieties of Camelina. SusOils is engaged in the breeding and development of novel enhanced varieties of Camelina intended to advance key agronomic attributes of the crop. SusOils currently holds four issued U.S. patents, six pending patent applications, and six Plant Variety Protection Certificate applications.

 

ATI, acquired in April 2021, supplements our efforts to improve our proprietary varieties of Camelina and develop only non-bioengineered Camelina varieties. ATI owns 15 issued U.S. patents related to the use of bioengineered and non-bioengineered genome editing technologies to increase yield and other sustainability traits in Camelina and many other crops. ATI was recently issued a key utility patent with broad claims for genome editing specific mutations in a gene present in all plants, including Camelina, to confer higher yield, tolerance to stress, and longer shelf life.

 

CCE, which is headquartered in Madrid, was acquired in December 2021. CCE owns 11 proprietary Camelina varieties and maintains an active plant breeding program with more than 600 Camelina accessions and varieties that enable the sustainable introduction of Camelina in different crop rotations without displacing any primary crops. CCE is Europe’s largest Camelina crop innovator and seed producer. CCE has extensive experience in Camelina production along the complete value chain, having supplied sustainable and certified Camelina oil for aviation biofuel production and Camelina meal.

 

 

GCEH acquired a crude oil refinery in Bakersfield California in May 2020 that is now owned by wholly-owned GCEH subsidiary Bakersfield Renewable Fuels, LLC (“BKRF”). BKRF’s crude oil refinery is being retooled and refurbished into a renewable fuels refinery, which is expected to be completed in the second half of 2022. Once complete, the Bakersfield Renewable Fuels Refinery will produce renewable diesel from both SusOils’ proprietary Camelina as well as a traditional slate of renewable feedstocks such as vegetable oils, waste fats, and greases. When completed, the Bakersfield Renewable Fuels Refinery will be the largest renewable fuels facility in the western United States, the second largest in the United States, and, once Camelina is the primary feedstock, the largest in the country that produces renewable fuels from nonfood feedstocks.

 

 

 On February 23, 2022, we sold 145,000 shares of our newly created Series C Preferred Stock (the “Series C Preferred”) and five-year warrants (the “GCEH Warrants”) to purchase up to an aggregate of 18,547,723 shares of our Common Stock at an exercise price of $2.25 per share to ExxonMobil Renewables LLC, an affiliate of ExxonMobil, and 11 other institutional investors (all of whom are also lenders under our existing Senior Credit Facility) for an aggregate purchase price of $145 million. As additional consideration for ExxonMobil’s investment, we also granted ExxonMobil Renewables LLC additional warrants (the “GCEH Tranche II Warrant”) to purchase up to 6.5 million shares of common stock at an exercise price per share of $3.75 until February 22, 2028, and a warrant to acquire 19,701,493 shares (representing 33%) of our SusOils subsidiary for $33 million ($1.675 per share) until February 22, 2027. The GCEH Warrants and GCEH Tranche II Warrants may be exercised for cash or by means of cashless exercise, however the GCEH Tranche II Warrants cannot be exercised until the earlier of (i) the date on which ExxonMobil extends the term of the five-year Offtake Agreement that we entered into with ExxonMobil effective April 10, 2019 (as amended), or (ii) a change of control, sale, or the dissolution of the Company. Under the Certificate of Designations of the Series C Preferred stock, the holders of the Series C Preferred stock are entitled to receive dividends at a rate of 15%; provided that, until March 31, 2024, we may elect not to pay some or all of the accrued dividends in cash, in which case the unpaid dividends shall accrue and be added to the original issuance price of the shares of Series C Preferred. The shares of Series C Preferred have no voting rights, except as required by law, however Exxon Mobil has the right to appoint two directors to GCEH’s Board of Directors. The Certificate of Designations of the Series C Preferred Stock provides for mandatory redemption upon a Change of Control or Event of Default (as defined therein) and are not convertible into shares of our common stock.

 

 

.  As part of the financing that we obtained in May 2020 to purchase and construct the Bakersfield Renewable Fuels Refinery, BKRF HCB, LLC, the indirect parent of BKRF OCB, LLC, entered into a mezzanine credit facility (“Mezzanine Credit Facility”) with a group of mezzanine lenders (“Mezzanine Lenders”), which, as of  February 23, 2022, BKRF HCB, LLC was entitled to borrow $67.4 million. Prior to February 23, 2022, no mezzanine loans were funded. Loans under the Mezzanine Credit Facility are fully secured by all of the assets of BKRF HCB, LLC and its direct parent company, including, among other collateral the Bakersfield Renewable Fuels Refinery, mature in November 2027, and bear interest at the rate of 15.0%. GCEH assumed all of the rights and obligations of the Mezzanine Credit Facility from the mezzanine lenders and GCEH fully funded the $67.4 million mezzanine loan obligation to BKRF HCB, LLC from the net proceeds of the Series C Preferred offering and, thereby, extinguished such loan with the previous Mezzanine Lenders. Accordingly, any future cash distributions that previously would have been paid to the original third-party Mezzanine Lenders will hereafter be retained by GCEH.

 

.  Since the middle of the last fiscal year, GCEH has added four new members to its Board of Directors. In July 2021 we added Phyllis E. Currie and Susan L. Anhalt. In February 2022 we added Amy K. Wood and E. Nicholas Jones to the Board of Directors, both nominated by ExxonMobil pursuant to the Certificate of Designations of the Series C Preferred. Ms. Currie is the previous Chair of the Board of Midcontinent Independent System Operator, the former General Manager of Pasadena Water and Power, and has held various positions at the Los Angeles Department of Water and Power, including Chief Financial Officer. Ms. Anhalt is a business attorney and the founding attorney of SLAE Inc., a law firm serving technology start-up and growth companies. Ms. Wood is Americas Feed & Product Manager at ExxonMobil and is responsible for supply chain optimization for America’s crude and products, circuit economics, and biofuels business development, while Mr. Jones is the Research & Engineering Process Engineering Division Manager at ExxonMobil and is responsible for technology deployment and technical support to ExxonMobil’s global manufacturing sites for refining technologies, process safety and environmental activities.

 

unregistered

of our common stock

 

  In November 2021, we acquired Entira, Incorporated, an agriculture business and marketing consulting firm (“Entira”), to bolster SusOils’ Camelina production strategy and the roll-out of its Camelina development program. As consideration for the purchase of Entira, we issued a total of 407,150 unregistered shares of our common stock, which were valued at $6.05 per share and assumed liabilities for a total purchase price of approximately $2.5 million. Entira has been integrated into SusOils.

 

USD

($0.8 million USD),

($0.8 million USD)

common stock

($6.7 million USD).

 

Our strategy is to control the vertical integration of our supply chain, from development and cultivation of lower cost, 

nonfood-based feedstock, to the production of ultra-low carbon finished renewable fuel products. Key elements of our forward strategy include the following:

 

 

 

 

 

 

 

 

 

 

 

   SusOils has been the leader in the development and regulatory approval of Camelina for over a decade. In 2013, Camelina was approved as an advanced biofuel feedstock and was granted a pathway under the EPA RFS program enabling it to produce D4 or D5 RINs from biodiesel, renewable diesel, jet fuel, heating oil, naphtha and LPG. The EPA’s evaluation confirmed Camelina, and its co-products met the emissions reduction thresholds prescribed in 40 CFR§80.1426 of the RFS. As a result of the approval, Camelina is at a competitive advantage over other oilseed crops with an RFS pathway.

 

In March 2015, CARB approved a first-of-its-kind feedstock-only pathway for SusOils’ Camelina oil derived from its three patented Camelina varieties to qualify under the LCFS. The pathway only applies to SusOils’ U.S. Patent and Trademark Office-registered seed varieties. No other Camelina seed or oil can be used to produce LCFS compliant fuel. GCEH believes its newly developed patented varieties will also be approved by CARB.

 

 

A key element of our domestic and international business plan is to control the development and production of the underlying base materials, or feedstock, required to produce renewable diesel. In the U.S., production will be directed to our Bakersfield Renewable Fuels Refinery. Our goal is to use the feedstock oil produced from our enhanced proprietary varieties of Camelina as a significant component of the Bakersfield Renewable Fuels Refinery’s feedstock. In order to leverage available cultivation assets, we contract with numerous farmers for the planting of our certified Camelina seed, which will be used for Camelina grain production for either the current or future crop years. As of March 30, 2022, we have produced enough certified Camelina seed to plant over 220,000 acres in the U.S. utilizing our proprietary varieties of Camelina, and have certified seed for another 140,000 acres of seed outside the U.S. Although farmers in six Western U.S. states have commercially produced Camelina, our principal focus in the near term has been on the production of Camelina in Montana and Kansas.

 

           In November, 2021 we relocated our SusOils headquarters to Great Falls, Montana, which is at the southern portion of the rich farming area known as the Golden Triangle. This location is expected to provide agronomy support to our growers in Montana and to further research and development activities on our proprietary Camelina development. We have historically outsourced various agronomic and grower research and development efforts. However, we have recently brought our Camelina development and grower support efforts in-house. Our acquisition of ATI has allowed us to accelerate our plant development efforts, and we have also hired a research and development team at our Montana facility, which has the expertise to fully engage in additional Camelina breeding and elite variety development. In November 2021, we also acquired Entira, an agriculture business and marketing consulting firm, to lead our Camelina agronomy team and to support SusOils’ efforts in plant science and grower development, education and support. Entira represented SusOils for several years prior to its acquisition.

 

Our strategy for contracting more acres for Camelina production is a cost-based model. We view our contracted growers (or farmers) as partners and it is our goal to incentivize them to grow our proprietary Camelina seed. Since our seed is grown on fallow acres (or acres that can be double-cropped, but would not normally be double-cropped), planting Camelina will not displace the cultivation of other crops, and any additional economic benefits from growing Camelina will add revenues to these contracted growers. Camelina is a fast-growing (around 100 days) dryland crop that does not degrade the soil for the next crop – attributes which are very beneficial to the growers. The equipment required for planting, monitoring, harvesting and storing the grain (in the short term) is the same equipment used for other small-seeded grains and, therefore, is already owned or controlled by the grower. Growing Camelina typically does not require additional capital investments by the grower. We believe our value proposition for contracted growers will benefit them through crop diversification, allow them to convert idle acres into productive acres, and provide them with long-term sustainable economics. We believe this will also have a positive economic multiplier effect in these rural communities. We use our personnel and strategic partners to communicate with, and educate potential growers about the benefits of growing our elite Camelina varieties. Our team also provides agronomy support from planting to harvesting and is focused on increasing the number of growers and the overall acreage under production.

 

 

Montana experienced extreme heat and drought in 2021, which reduced the yields of most crops, including Camelina. Despite severe weather conditions, our Camelina varieties fared better than most other crops in Montana. We believe the harsh 2021 growing season in Montana has demonstrated the sturdiness and stress tolerance of our proprietary Camelina varieties, and is an indication of the economic viability of the crop even under such harsh conditions. We targeted Montana and Kansas for our first phase of commercial Camelina production because of our prior operating history there and because there are an estimated 13 million acres of farmland that can potentially grow Camelina in these two states.

 

We are actively broadening our outreach to new growers in other states. Camelina is also currently being grown for us by  farmers in Colorado, Idaho, Oregon and Washington. These states represent a potential for 4 million Camelina  acres  in the future.

 

Through our subsidiaries, we currently hold patents and Plant Variety Protection certificates to 20 elite Camelina varieties.These include six new Camelina varieties, which are covered by both the utility patent applications that were filed in 2020 with the United States Patent and Trademark Office (“USPTO”), and by applications filed in 2021 under the Plant Variety Protection Act. We continue our traditional breeding, genomics and genome editing Camelina research and development programs in an effort to improve the yields, oil composition, stress and herbicide tolerance, and other important agronomic characteristics of our elite Camelina varieties. Under current yields and normal weather patterns, we expect that the certified seed produced from one acre of our certified Camelina can plant between 200 to 230 acres of our enhanced varieties of Camelina grain. Based on our ongoing Camelina research and development efforts that both increase the yield and improve cultivation efficiencies, we expect that yields per acre will increase in the future, and that more Camelina oil will be extracted from its grain. Accordingly, although we have based our production estimates on the existing yields, we believe our Camelina yield conversion ratios will continue to improve over the next several years as new varieties are commercially released.

 

 

In 2020, SusOils commenced its commercial Camelina crop production and produced enough Camelina grower (certified) seed for the 2021 planned Camelina plantings. In 2020, SusOils also expanded its research acreage to approximately 1,500 acres. In 2021, SusOils had approximately 13,000 and 1,100 acres under commercial grain and seed production, respectively, and has enough certified seed for over 220,000 acres for future production. As of March 31, 2022, commercial production of Camelina grain is ongoing in Montana, Kansas, Colorado and Washington.

 

Through CCE, we now have additional certified seed inventory in Spain to support another 140,000 acres of grain production in Europe or South America. CCE has a pilot project utilizing Camelina as a summer double crop in France comprising over 6,000 acres in 2022. We are also pursuing ways to launch commercial grain production in South America in 2022 and are considering acquiring infrastructure assets in South America to accelerate Camelina production and handling in that continent. Our efforts in Europe and South America are aimed at developing an overall farmer strategy to accelerate deployment in Camelina grain production.

 

The number of pounds of Camelina grain that can be produced per acre of U.S. farmland will vary based on a number of factors (including the variety of SusOils or CCE Camelina that is planted), and under normal circumstances can range from an estimated 1,500 pounds per acre to 2,500 pounds per acre. In drought or stressful conditions, the average yield per acre could be significantly reduced. We anticipate that the yields in South America will be lower than those achieved in the U.S. due to soil conditions and farming practices. The following table is an approximation of the expected average amount of oil, meal, renewable diesel equivalents, and other renewable products that can be produced per acre based on the number of pounds of Camelina grain that an acre produces.

 

 

 

 

 

, and

expect

Conversion

contractor

delay in ordering certain materials and unanticipated turnover

and

and specialty firms

 

We continue to evaluate various facility improvements and related investments that can lower our overall carbon intensity and/or costs in our operations. We are working with our utility provider to add a 10MW solar facility on site to improve our economics and to lower our carbon footprint, and we expect construction on the solar facility to begin later in 2022. We are currently evaluating constructing certain agricultural processing facilities at our Bakersfield site after the renewable fuels refinery is fully operational. Co-locating these processing units on the same site as the renewable fuels refinery equipment will provide us with more control over our feedstock processing costs and improve the scheduling of our feedstock deliveries. Being able to deliver and handle shuttle or unit-trains (which consists of approximately 110 to 120 rail cars) will improve efficiency and lower costs. Our midstream aggregation facilities are located along mainline BNSF railway lines that connect the Camelina growing regions with the Bakersfield Renewable Fuels Refinery.

 

The Bakersfield Renewable Fuels Refinery is being developed to process up to approximately 15,000 BPD (630,000 gallons) of renewable feedstock into renewable diesel. Upon completion, the Bakersfield Renewable Fuels Refinery is expected to initially produce an estimated 10,000 BPD of renewable diesel (420,000 gallons per day). At design capacity, the refinery is capable of producing approximately 210 million gallons per year of renewable diesel as well as other renewable co-products. We will need to make additional upgrades to the renewable fuels refinery in order to produce product at the maximum design capacity, as we will be hydrogen limited at initial startup. We are reviewing our options to increase the hydrogen capacity on site. Additionally, it is anticipated that the renewable fuels refinery can be expanded to increase the nameplate volume, and we expect to size any hydrogen expansion capacity to a higher nameplate volume.

  

 

On May 7, 2020 we acquired an existing crude oil refinery in Bakersfield, California (the “Renewable Fuels Refinery Acquisition”) and are retooling and refurbishing the facility as described above. In order to finance the costs of the Renewable Fuels Refinery Acquisition and the development, construction, and operation of the refinery, we entered into two credit facilities for an aggregate of $365 million of financing (the “Financing Transaction”). Since the Financing Transaction, the lenders have increased the combined credit facilities by an additional $40 million to a total of $405 million. Our Senior Credit Facility is fully utilized at $337.6 million and our Mezzanine Credit Facility is fully funded by GCEH at $67.4 million to BKRF HCB, LLC, a wholly-owned subsidiary of GCEH.

 

 

The Renewable Fuels Refinery Acquisition and Financing Transaction were completed through various subsidiaries of GCEH, each of which is currently directly or indirectly a wholly-owned or majority-owned subsidiary of GCEH. Our primary subsidiary, GCE Holdings Acquisitions, LLC (“GCE Acquisitions”), owns the Bakersfield Renewable Fuels Refinery through certain special purpose financing subsidiaries.

 

  

“Financing Transactions,

nder the Call Option Agreement, until the expiration of the option, GCE Acquisitions has agreed to not transfer the ownership of any of its subsidiaries other than those contemplated by the Credit Agreements entered into with the Senior Lenders and the Mezzanine Lenders, or to modify or amend the certain material terms of such Credit Agreements.

th

 

In order to fund the acquisition and retooling of the Bakersfield Renewable Fuels Refinery, on May 4, 2020 through our newly formed special purpose subsidiaries we entered into a Senior Credit Facility with a group of Senior Lenders and a Mezzanine Credit Agreement with a group of Mezzanine Lenders. The Senior Credit Facility provided us with a $300 million senior secured term loan facility, which had been increased to $337.6 million as of December 20, 2021. The Senior Credit Facility bears interest at the rate of 12.5% per annum, payable quarterly, is secured by all of the assets of the borrowing subsidiaries (and by the equity interests and assets of the Bakersfield Renewable Fuels Refinery), and matures on November 4, 2026. As of December 21, 2021, the full amount of $337.6 million had been funded to BKRF OCB, LLC.

 

On December 20, 2021 GCEH entered into a binding memorandum of understanding (“MOU”) with ExxonMobil whereby ExxonMobil would purchase $125 million of contemplated preferred shares by January 31, 2022. In conjunction with the MOU, the Senior Lenders expressed interest to also purchase $20 million of the contemplated preferred shares on the same terms as ExxonMobil. Additionally, the Senior Lenders committed to fund an additional $20.0 million, (the “Bridge Loan”) under equivalent borrowing terms as the Senior Credit Facility, until the financing transaction contemplated under the MOU was completed. On December 21, 2021, the Senior Lenders funded $12.0 million of the Bridge Loan and on January 7, 2022 the balance of $8.0 million was funded. The Series C Preferred offering, which was delayed past January 31, 2022, closed on February 23, 2022 with ExxonMobil and the Senior Lenders, and concurrently the Bridge Loan, and accrued interest, was paid in full.

 

The Mezzanine Credit Facility, as amended, consists of a $67.4 million secured term loan facility. Borrowings under the Mezzanine Credit Facility bear interest at the rate of 15.0% per annum on amounts borrowed, payable quarterly, provided that we may defer interest to the extent we do not have sufficient cash to pay the interest. In addition, as additional consideration for the senior and mezzanine loans, we have granted the Senior Lenders and the Mezzanine Lenders an additional financial interest by issuing to them non-voting membership interests in BKRF HCB, LLC, our borrowing subsidiary. The borrowings under the Mezzanine Credit Facility mature in November 2027. On February 23, 2022, the Mezzanine Lenders assigned their rights and obligations to GCEH, and GCEH extinguished the loan with the previous Mezzanine Lenders. GCEH then funded, to BKRF HCB, LLC, the full amount of the mezzanine availability of $67.4 million. GCEH funded this from the net proceeds from the sale of Series C Preferred stock on February 23, 2022 and this is an intercompany debt obligation. Accordingly, GCEH currently is the mezzanine lender, and any future cash distributions that previously would have been paid to the third-party Mezzanine Lenders will hereafter be paid to, and retained by GCEH. For additional information regarding the senior and Mezzanine Credit Facility, see “” below.

 

 

On April 30, 2020, GCE Acquisitions entered into an Engineering, Procurement and Construction Agreement with a national engineering firm pursuant to which this firm agreed to provide services for the EPC start-up and testing of the Bakersfield Renewable Fuels Refinery. The agreement was assigned by GCE Acquisitions to BKRF OCB, LLC, one of our indirect subsidiaries. BKRF OCB, LLC is the borrower under the Senior Credit Facility and BKRF HCB, LLC is the borrower under the Mezzanine Credit Facility and, combined, are the owners of the Bakersfield Renewable Fuels Refinery. The EPC contract with the original contractor was terminated, and on May 18, 2021 BKRF OCB, LLC and CTCI Americas, Inc., a Texas corporation (“CTCI”), entered into a new Turnkey Agreement with a Guaranteed Maximum Price for the EPC of the Bakersfield Renewable Fuels Project (the “CTCI EPC Agreement”). CTCI Americas is a worldwide leading provider of reliable engineering, procurement and construction services, including for the refinery market. Under the CTCI EPC Agreement, CTCI has agreed to provide services to complete the engineering, procurement, construction, pre-commissioning, commissioning, start-up and testing of our renewable diesel production facility under construction in Bakersfield, California. Under the CTCI EPC Agreement, the construction of the Bakersfield Renewable Fuels Refinery had to be completed by no later than January 22, 2022. Thereafter, CTCI will be obligated to make certain payments to us. The obligations of CTCI have been guaranteed by CTCI Corporation, the Taiwanese parent company of CTCI.

 

 

 

Effective October 24, 2018, GCE Acquisitions entered into a ten-year, non-exclusive, non-transferable license agreement with Haldor Topsoe A/S, a company established in Denmark that owns certain proprietary rights relating to processes, catalysts, and equipment designs for the hydroprocessing of natural and synthesized hydrocarbons. GCE Acquisitions licensed these rights in order to produce renewable diesel from organically derived feedstocks at the Bakersfield Renewable Fuels Refinery. Concurrently with entering into the license agreement, on October 24, 2018, GCE Acquisitions also entered into an engineering agreement with the U.S. affiliate of Haldor Topsoe to have the hydroprocessing unit designed and built at the Bakersfield Renewable Fuels Refinery, and a catalyst supply agreement for the purchase of the catalyst, with a design capacity of up to 15,000 BPD, to be used in the hydroprocessing unit. These agreements have been assigned to BKRF. The Haldor Topsoe license gives the Bakersfield Renewable Fuels Refinery the right to hydroprocess fats, oils and greases into renewable diesel, renewable propane and butane, and renewable naphtha. This license is a one-time fee for up to 15,000 BPD of production, and is approximately $1.8 million, of which $1.4 million has been paid as of March 31, 2022.

 

 

. Our BKRF subsidiary is a party to the Offtake Agreement with ExxonMobil pursuant to which ExxonMobil has committed to purchase 2.5 million barrels of renewable diesel per year (“Committed Volume”), and we will be obligated to sell these quantities of renewable diesel to ExxonMobil. The price of the renewable diesel to be sold to ExxonMobil under the contract is based on a combination of both a fixed price and variable price. ExxonMobil’s obligation to purchase renewable diesel will last for a period of five years following the date that the Bakersfield Renewable Fuels Refinery commences operations. ExxonMobil has the option to extend the initial five year term for a second five year term. Either party may terminate the Offtake Agreement if the Bakersfield Renewable Fuels Refinery does not meet certain production levels by certain milestone dates following the commencement of the Bakersfield Renewable Fuels Refinery’s operations.

 

.  Our BKRF OCB, LLC subsidiary is a party to a Term Purchase Agreement (“TPA”) with ExxonMobil under which ExxonMobil has the right to purchase additional quantities of renewable diesel from our Bakersfield Renewable Fuels Refinery, and we are obligated to sell such additional amounts of renewable diesel to ExxonMobil. Renewable diesel sold to ExxonMobil under the TPA may be resold by ExxonMobil to third parties or used or consumed by ExxonMobil or any of its affiliates. ExxonMobil will pay us a price for the renewable diesel purchased under the TPA based on an agreed formula and additional payments based on ExxonMobil’s realized margin for downstream resales of the TPA renewable diesel based on a tiered formula that is subject to a floor. ExxonMobil has agreed to ensure that all such resales are consummated at fair market prices. The TPA has a five-year term. ExxonMobil has the option to extend the initial five-year term for a second five-year term. ExxonMobil’s exercise to extend the term of the TPA must be concurrently exercised with the extension for the Offtake Agreement. 

 

On February 23, 2022 BKRF and ExxonMobil entered into amendments to both of these agreements. The Offtake Agreement and the TPA were amended to conform certain provisions, such as the nomination procedures for volumes of renewable diesel and the dispute procedures. The Offtake Agreement was amended to provide that, if at the end of a contract year we have not delivered the contracted amounts of fuel available for delivery (other than as excused thereunder), then any undelivered amounts will be rolled forward for delivery in the following year (although the deficient amounts will not be available to be sold under the TPA).

 

.  Our BKRF subsidiary entered into an agreement with AmeriGas Propane, a subsidiary of UGI Corporation, to purchase all of the renewable propane produced at the Bakersfield Renewable Fuels Refinery. The agreement is at market pricing and the first twelve months of renewable propane to be delivered is estimated to be approximately 13 million gallons. The agreement has an initial term of three years.

 

 

In order to operate and manage the Bakersfield Renewable Fuels Refinery, we formed GCE Operating Company, LLC, a wholly-owned subsidiary of GCEH. On May 4, 2020, the Bakersfield Renewable Fuels Refinery entered into a Control, Operation and Maintenance Agreement (“COMA”) with GCE Operating Company, whereby GCE Operating Company agreed to provide all necessary services required to supervise the construction of the Bakersfield Renewable Fuels Refinery and, after the completion of construction, to operate and maintain the Bakersfield Renewable Fuels Refinery. The COMA may be terminated by either party at any time for any reason. GCE Operating Company is reimbursed for its services under the COMA. On February 23, 2022 the COMA was terminated and replaced with a simplified agreement.

 

 

Renewable diesel is made from the same feedstocks as biodiesel, but a variety of favorable qualities distinguish it as a superior fuel, causing it to carry a price premium to biodiesel. To make renewable diesel, feedstocks such as Camelina, used cooking oil, tallow, or various vegetable oils, are hydrotreated and isomerized to produce a fuel chemically identical to fossil diesel but with less contaminants. Since renewable diesel is chemically identical to fossil diesel, it can utilize the same infrastructure and can function as a drop-in, 100% replacement for fossil diesel. Renewable diesel does not need to be blended like biodiesel for use in modern engines on the road today. Also, renewable diesel does not experience the cold weather performance, water absorption, or microbial growth issues of biodiesel. Finally, because of lower levels of contaminants, renewable diesel burns cleaner than fossil diesel, reducing emissions (especially by up to 85%, as well as reducing engine maintenance issues.

ITEM 1A     RISK FACTORS

 

Construction of most of the Bakersfield Renewable Fuels Refinery has been outsourced to CTCI under the CTCI EPC Agreement, but certain other contractors have also been engaged by us to, among other things, construct and refurbish railroad tracks through the Bakersfield Renewable Fuels Refinery and to install underground pipelines. Our business strategy is highly dependent on our contractors’ performance under their agreements with us. Our contractors’ ability to perform successfully under their contracts is dependent on a number of factors, including their ability to:

 

 

 

 

 

 

 

 

While the EPC contract provides for liquidated damages if the contractor fails to perform in the manner required with respect to certain of its obligations, the events that trigger a requirement to pay liquidated damages may delay or impair the operation of our Bakersfield Renewable Fuels Refinery, and any liquidated damages that we receive may not be sufficient to cover the damages that we suffer as a result of any such delay or impairment. Furthermore, we may have disagreements with our contractors about different elements of the construction process, which could lead to them asserting rights and remedies under their contracts and potentially increase our costs or result in a contractor’s unwillingness to perform further work on the project. If any contractor is unable or unwilling to perform according to the terms of its respective agreement for any reason or terminates its agreement, we would be required to engage a substitute contractor, which would likely result in significant project delays and increased costs.

 

Our business is affected by global economic and political conditions which impact our production costs, the markets for our products, and the sales prices of our various products. Recent events and conditions that have affected, and may continue to materially affect our operations include the severe drought and extreme weather conditions that exist in our primary Camelina cultivation regions, global geopolitical instability (such as the current conflict between Russia and Ukraine and economic and other retaliatory measures taken by the United States, European Union and others), fluctuating interest and foreign currency rates, fluctuating fuel and other energy costs, fluctuating commodity prices, increases in farming costs, and general uncertainty regarding the overall future economic environment. In addition, recent inflationary pressures have increased the cost of raw materials and other operating costs and may adversely affect our results of operations. These conditions have materially affected the ability of our contracted farmers to produce Camelina, the cost of producing and transporting Camelina, the cost at which we currently expect to produce our renewable fuel products, and the market for renewable fuel products. In challenging and uncertain economic environments such as the current one, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our common stock.

 

 

The ongoing COVID-19 pandemic has negatively impacted the global economy and certain aspects of our operations, and the extent to which the COVID-19 pandemic may adversely impact our business depends on future developments, including any potential resurgence of COVID-19, which are highly unpredictable.

 

We cannot predict the degree to, or the time period over which our sales and operations will be affected by this outbreak, and the effects could be material. The impacts include, but are not limited to:

 

 

 

 

 

 

 

 

 

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain, as information is evolving with respect to the duration and severity of the pandemic and the possible emergence of new variants. In addition, new coronavirus mutations and variants, such as Delta and Omicron, which may be more contagious or deadly than the original virus, continue to appear. These new mutations or variants may, directly or indirectly, impact our operations in the future in ways we cannot anticipate. We cannot reasonably estimate the duration and severity of the COVID-19 pandemic, or its impact, which may be significantly harmful to our operations and profitability.

 

 

As part of our business plan, we intend to acquire businesses that enhance or supplement our renewable fuels refinery and Camelina production operations. In 2021, we acquired three companies that added Camelina specific patents, agronomy support and/or Camelina-experienced personnel. We may face significant challenges in integrating these businesses or any other businesses or facilities, including other refineries, that we acquire, and we may not realize the benefits anticipated from such acquisitions. Our integration of acquisitions involves a number of risks, including:

 

 

 

 

 

 

 

 

 

 

We are also considering acquiring entities or businesses outside the United States. Any such foreign acquisitions will, in  addition to the foregoing risks, also be subject to a number other risks, including:

 

 

 

 

 

 

 

 

 

 

Our Bakersfield Renewable Fuels Refinery operations and Camelina feedstock businesses involve complex operations spanning a variety of disciplines that require a management team and employee workforce that is knowledgeable in the many areas necessary for our operations. While we have been successful in attracting certain experienced, skilled professionals to our company, we will have to identify, attract and retain a significant number of additional employees once the Bakersfield Renewable Fuels Refinery is operational and the Camelina cultivation expands to our projected levels. Our inability to hire necessary qualified employees could affect the operations and future profitability of our Bakersfield Renewable Fuels Refinery and our Camelina operations. We are also heavily dependent upon certain current senior executives and certain key independent contractors and advisors for supervising the construction of the Bakersfield Renewable Fuels Refinery, the operations of the Bakersfield Renewable Fuels Refinery, and the implementation of our Camelina cultivation and production plan. Loss of such key employees and contractors could have a significant detrimental impact on the development and initial operations of the Bakersfield Renewable Fuels Refinery, on our Camelina research and development program, and on the implementation of our Camelina cultivation operations. Hiring, training and successfully integrating qualified personnel into our operation is a lengthy and expensive process. The market for qualified personnel is very competitive because of the limited number of people available with the necessary skills to operate a renewable diesel refinery, to successfully source feedstock, to continue our camelina development program, and to commercialize the renewable fuels that the Bakersfield Renewable Fuels Refinery is designed to produce. If we are not able to attract and retain necessary personnel to achieve our business objectives, we may experience staffing constraints that will adversely affect our future operations.

 

 

An important element of our Bakersfield Renewable Fuels Refinery operations is the use of Camelina oil that is derived from our patented varieties of Camelina as one of the principal feedstocks at the Bakersfield Renewable Fuels Refinery. We currently have three issued U.S. utility patents for varieties of Camelina as well as another issued U.S. utility patent directed to methods for improving the Camelina oil. We have also filed seven additional utility patent applications, including a patent application directed to methods for improving Camelina oil, and applications for another six Camelina plant varieties (which varieties are also covered by six applications that we have filed under the Plant Variety Protection Act (“PVPA”)). We have acquired patents in our acquisition of ATI and CCE, and certain of those patents can enhance our existing intellectual property for Camelina. Interpreting the scope and validity of patents and success in prosecuting patent applications involves complex legal and factual questions, and the issuance, scope, validity and enforceability of a patent cannot be predicted with any certainty. Patents issued to us may be challenged, invalidated or circumvented. Accordingly, we cannot be certain that any of our patent applications will result in issued patents, or if issued, we cannot be certain of the validity and/or enforceability of any newly issued patents. Moreover, we cannot be sure that any of our patent rights will be broad enough in scope to provide commercial advantage and prevent circumvention, nor do our patents give us the exclusive right to cultivate other varieties of Camelina. Our patents do not limit the right of others to use the oil from other Camelina varieties as a biofuels feedstock. No assurance can be given that other biofuel producers will not imitate our business plan and use Camelina as a biofuel feedstock, nor do our existing patent rights prevent others from competing with us and developing substantially similar business plans.

 

 

We do not own or control any farms or farmland on which we can grow our patented varieties of Camelina. Accordingly, we are wholly dependent upon farmers to plant, cultivate, harvest and store the Camelina that we plan to use as feedstock for the production of renewable diesel at the Bakersfield Renewable Fuels Refinery, and possibly elsewhere. Our ability to obtain the amount of Camelina that we propose to use as feedstock at the Bakersfield Renewable Fuels Refinery therefore is dependent upon our ability to recruit a sufficient number of farmers to grow Camelina for us, to enter into mutually acceptable financial and other arrangements with the farmers that we recruit, and for those farmers to successfully grow, harvest and deliver that Camelina to us. While we have identified a number of farmers and several farm cooperatives that have expressed an interest in producing Camelina in accordance with our proposed arrangements, as of the date hereof we have not entered into a sufficient number of agreements with farmers for the production of the amount of Camelina grain that we have planned for in the Bakersfield Renewable Fuels Refinery. Accordingly, no assurance can be given that we will be able to develop and thereafter maintain the farming, storage and delivery arrangements necessary to produce the quantities of Camelina that we plan to use at the Bakersfield Renewable Fuels Refinery. In addition to the risks associated with enrolling farmers in our proposed Camelina production operations, the results of those farming operations may be adversely affected by numerous factors over which we have little or no control and that are inherent in farming, including adverse weather (e.g., floods and storms, severe heat, frost, and hail), changes in growing conditions, crop diseases or pest infestations. Extreme drought conditions have recently occurred across much of the Western U.S., including in the states in which our Camelina is planted and is expected to be planted. These conditions may negatively impact our ability to produce the amount of Camelina that we are currently planning to produce for our Bakersfield Renewable Fuels Refinery. Changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters and have created additional uncertainty. The recent conflict between Russia and Ukraine has significantly increased the cost of fertilizer and other inputs used to grow Camelina, which may further negatively impact our camilina operations. Our Camelina operations will also be subject to any new government regulations regarding farming and the marketing of agricultural products.

 

 

 

We may engage in other capital projects based on forecasted project economics and return on capital to be employed in the project. Large-scale projects take many years to complete, and market conditions can change from our forecast. Thus, we may be unable to fully realize our expected returns, which could negatively impact our financial condition, results of operations, and cash flows.

 

 

If additional volumes of advanced biofuel RIN production come online and the EPA does not increase the renewable volume obligation (“RVO”) under the RFS2 in accordance with the increased production, the volume of advanced biofuel RINs generated could exceed the volume required under the RFS2. In the event this occurs, biomass-based diesel and advanced biofuel RIN prices would be expected to decrease, potentially significantly, harming demand for our products and our profitability.

 

According to the EPA, in 2018, 4.1 billion gallons per year of biomass-based diesel production capacity in the United States was registered under the RFS2 program. This amount far exceeds both historic consumption of biomass-based diesel in the United States and required consumption under the RFS2.

 

Further, due to economic incentives available, several petroleum refiners have started or may soon start to produce co-processed renewable diesel (“CPRD”). CPRD uses the same feedstocks to produce biomass-based diesel and it generates an advanced biofuel RIN. CPRD may be more cost-effective to produce than biomass-based diesel.

 

If production of competitive advanced biofuels increases significantly as a result of utilization of existing excess production capacity or new capacity, competition for feedstocks would increase significantly, harming margins. The increase in the demand for non-Camelina feedstock could negatively impact the availability of resources and facilities needed to grow, store and crush Camelina. Furthermore, if supply of advanced biofuels exceeds demand, prices for renewable diesel and for RINs and other credits may decrease significantly, harming profitability and potentially forcing us to reduce or otherwise limit our production.

 

 

The financial results of most renewable diesel producers are affected by the relationship, or margin, between their product prices and the prices for oil, soybean, canola, and other feedstocks. Since refining margins have historically been volatile, the cost to acquire feedstocks and the price at which the renewable diesel producers can ultimately sell their products may depend upon several factors beyond their control, including regional and global supply of and demand for oil, soybean, canola, other feedstocks, gasoline, diesel, other refined petroleum products, and renewable products. These in turn depend on, among other things, the availability and quantity of imports, the production levels of U.S. and international suppliers, levels of product inventories, productivity and growth (or the lack thereof) of U.S. and global economies, U.S. relationships with foreign governments, political affairs, and the extent of governmental regulation. Refining and renewable diesel margins also can be significantly impacted by additional conversion capacity through the expansion of existing facilities or the construction of new refineries or plants. Worldwide refining capacity expansions may result in refining production capability exceeding refined petroleum product demand, which would have an adverse effect on future refining margins.

 

Under the TPA, ExxonMobil has the right to purchase the Bakersfield Renewable Fuels Refinery renewable diesel that is not sold to ExxonMobil under the Offtake Agreement at a market-based formula price. Accordingly, we will be subject to the risks related to fluctuating prices for all renewable diesel and other products that we sell to ExxonMobil under the TPA. Since the Camelina that we intend to use at our renewable fuels refinery is grown specifically for us at pre-established costs, we have attempted to mitigate the risks from the market/pricing volatility that exist with market-based feedstocks. However, there is no assurance that the Camelina that is produced for us can be produced at a favorable cost/price to us, or that it can be produced in sufficient quantities to materially reduce or control our feedstock risks. 

 

 

 

Low-carbon fuel policies, blending credits, and stricter fuel efficiency standards to help reach lower greenhouse gas emission targets help drive demand for our renewable fuels. Any changes to, a failure to enforce, or a discontinuation of any of these policies, goals, and initiatives could have a material adverse effect on our renewable fuels business. Similarly, new or changing technologies may be developed, consumers may shift to alternative fuels or alternative fuel vehicles (such as electric or hybrid vehicles) other than the renewable fuels we produce, and there may be new entrants into the renewable fuels production industry that could meet demand for lower-carbon transportation fuels and modes of transportation in a more efficient or less costly manner than our technologies and products, which could also have a material adverse effect on our renewable fuels businesses.

 

 

Upon its completion, our Bakersfield Renewable Fuels Refinery will be our principal operating asset. As a result, our operations could be subject to interruption if it were to experience a major accident or mechanical failure, be damaged by severe weather, natural or other disaster, such as an act of terrorism, or otherwise be forced to shut down in the future. Our Bakersfield Renewable Fuels Refinery is also subject to risks associated with earthquakes since it is located in Bakersfield, California, which is considered to be an earthquake zone. While the Bakersfield Renewable Fuels Refinery has recently experienced several moderate earthquakes that have not impacted the refinery, a major earthquake at the Bakersfield Renewable Fuels Refinery could result in significant additional costs, including loss of revenues due to unplanned temporary or permanent shutdown of the refinery, loss of the ability to transport products or increased costs to do so, cleanup costs, liability for damages or injuries, increased insurance expenses, and legal and reconstruction expenses. The incurrence of significant additional costs would harm our results of operations and financial condition.

 

 

We currently do not use commodity derivative instruments, although we may do so in the future. If the instruments we use to hedge our exposure to various types of risk are not effective, we may incur losses. In addition, we may be required to incur additional costs in connection with future regulation of derivative instruments to the extent it is applicable to us.

 

 

Our operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, and natural catastrophes. As protection against these hazards, we maintain insurance coverage against some, but not all, potential losses and liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies could increase substantially. Therefore, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, coverage for terrorism risks includes very broad exclusions. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position, results of operations, and liquidity.

 

Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deterioration in the financial condition of many financial institutions, including insurance companies. We can give no assurances that we will be able to obtain the full amount of our insurance coverage for insured events. Although we intend to maintain insurance at levels that we believe are appropriate for our business and consistent with industry practice, we will not be fully insured against all risks. In addition, pollution, environmental risks and the risk of natural disasters generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our financial condition and results of operations.

 

 

A key element of our business strategy relies on our ability to produce feedstock from our proprietary varieties of Camelina. We have developed and patented three varieties of Camelina that, we believe, have traits that make them more suitable and productive for biofuel feedstock purposes. In addition, we have recently developed several other new varieties that, we believe, will significantly improve the productivity and sustainability of these varieties of Camelina. In connection with our acquisition of CCE in 2021, we acquired rights to additional proprietary varieties of Camelina. We believe our ability to produce Camelina from our proprietary varieties will provide us with a significant competitive advantage in the biofuels market. Accordingly, we attempt to protect our Camelina-related intellectual property through a combination of intellectual property rights, including through patents, PVPA filings and as trade secrets. However, the patents on our Camelina varieties and our related patents for altering/improving traits of Camelina have only been issued in the United States, although we have filed patent applications for certain of our patents in select foreign countries. We are currently considering expanding our Camelina production activities to South America, and intellectual property rights, particularly those related to the protection of agricultural commodities, may provide less protection, and may be more difficult to enforce in foreign jurisdictions. The loss of our rights in one or more of our proprietary Camelina varieties could materially impact our competitiveness. 

 

 

It may be difficult to protect and enforce our intellectual property and litigation initiated to enforce and determine the scope of our proprietary rights can be costly and time-consuming. Adverse judicial decision(s) in any legal action could limit our ability to assert our intellectual property rights, limit our ability to develop new products, limit the value of our Camelina varieties or otherwise negatively impact our business, financial condition and results of operations.

 

A competitor could seek to enforce intellectual property claims against us. Defending intellectual property claims asserted against us, regardless of merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty payments. Further, a third-party claim, if successful, could secure a judgment that requires us to pay substantial damages or that could otherwise limit our operations. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (which may not be available on acceptable terms or at all) or to pay damages and cease making or selling certain products. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing or selling our products and thereby materially adversely affect our business, result of operations and financial condition.

 

 

We are, or may become a party to various lawsuits, claims and loss contingencies arising in the ordinary course of business and general liability claims, assertions by certain regulatory and governmental agencies related to permitting requirements and/or air, wastewater and storm water discharges from our Bakersfield Renewable Fuels Refinery. We also may, from time to time, become subject to litigation involving tort, contract, statutory, labor, employment, tax matters, and other claims. The outcome of litigation, particularly class action lawsuits, and regulatory proceedings is difficult to assess or quantify. Plaintiffs (including governmental agencies) in these types of lawsuits and proceedings may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits or proceedings may remain unknown for substantial periods of time. The costs of responding to or defending future litigation or regulatory proceedings may be significant and any future litigation or regulatory proceedings may divert the attention of management away from our strategic objectives. There may also be adverse publicity associated with litigation or regulatory proceedings that may decrease customer confidence in our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation or regulatory proceedings may have a material adverse effect on our business, results of operations and financial condition.

 

 

We rely upon our information systems and networks in connection with a variety of business activities, and we collect and store sensitive data. After our Bakersfield Renewable Fuels Refinery becomes operational, the operations of that facility, as well as our transportation, processing and storage activities will be heavily dependent upon our computer systems and network. Accordingly, security threats to our computer and information systems pose a risk to our future operations and to the security, confidentiality, availability and integrity of our data. While we attempt to mitigate these security vulnerabilities, there can be no assurance these measures will be sufficient to avoid cyberattacks. If any security breaches were to occur and we were unable to protect our production and delivery facilities and systems, our operations could be negatively impacted, and even halted, until the security breaches are remedied. In addition, if any sensitive data of our partners or customers were to be breached, our relationships with our business partners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation and possible significant liability.

 

The State of California enacted the California Consumer Privacy Act of 2018, or CCPA, effective on January 1, 2020. Our business partners’ or contractors’ failure to fully comply with the CCPA and other laws could lead to significant fines and require onerous corrective action. In addition, data security breaches experienced by us or our business partners or contractors could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personally identifiable information (including sensitive personal information) of our employees, customers, suppliers, contractors and others.

 

 

Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.

 

We believe we currently hold the requisite regulatory approvals to construct and thereafter operate the Bakersfield Renewable Fuels Refinery. Although we have implemented environmental and safety procedures for the operation of the Bakersfield Renewable Fuels Refinery and the disposal of waste products to comply with these laws and regulations, we cannot be sure that our environmental and safety measures are capable of eliminating the risk of accidental injury or contamination from the use, generation, manufacture or disposal of hazardous materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our insurance coverage. There can be no assurance that violations of environmental, health and safety laws will not occur as a result of human error, accident, equipment failure or other causes.

 

Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present or future laws could result in the imposition of fines, regulatory oversight costs, third-party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production or a cessation of operations. Environmental laws could become more stringent over time, requiring us to change our operations, impose greater compliance costs, and increase risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business. Similarly, our business may be harmed if existing initiatives to further reduce emissions of greenhouse gasses, which improve the competitiveness of renewable fuels relative to petrochemicals, do not become legally enforceable requirements, or if existing legally enforceable requirements relating to greenhouse gasses are amended or repealed in the future. The costs of complying with environmental, health and safety laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future could have a material adverse effect on our financial condition or operating results.

 

Furthermore, the loss of or failure to obtain necessary federal, state, provincial or local permits and registrations at our Bakersfield Renewable Fuels Refinery or any future facility could halt or curtail operations, which could result in impairment charges related to such facility and otherwise adversely affect our future operating results. In addition, our failure to comply with applicable rules, regulations and guidance, including obtaining or maintaining required operating certificates or permits, could subject us to administrative penalties and injunctive relief; civil remedies, including fines, injunctions and product recalls; and adverse publicity. There can be no assurance that we will not incur material costs and liabilities in connection with any such non-compliance.

 

 

The U.S. Congress could repeal, curtail or otherwise change the RFS2 program in a manner adverse to us. Similarly, the EPA could curtail or otherwise change its administration of the RFS2 program in a manner adverse to us, including by not increasing or even decreasing the RVO, by waiving compliance with the RVO or otherwise. In addition, while Congress specified RFS2 volume requirements through 2022 (subject to adjustment in the rulemaking process), beginning in 2023 required volumes of renewable fuel will be largely at the discretion of the EPA (in coordination with the Secretary of Energy and Secretary of Agriculture). We cannot predict what changes, if any, will be instituted or the impact of any changes on our business, although adverse changes could seriously harm our revenues, earnings and financial condition.

 

We are exposed to the volatility in the market price of RINs, LCFS credits, and other credits. We cannot predict the future prices of RINs, LCFS credits, or other credits. Prices for RINs, LCFS credits, and other credits are dependent upon a variety of factors, including, as applicable, EPA regulations, regulations of other countries and jurisdictions, the availability of RINs, LCFS credits, and other credits, and transportation fuel production levels, which can vary significantly each quarter.

 

 

 

Federal and state tax incentives have assisted the renewable diesel industry by making the price of renewable diesel more cost competitive with the price of petroleum-based diesel fuel to the end user. The expiration or termination of federal and/or state governmental incentives could have a material adverse impact on the cost of our products, on the price at which we sell our products, and on the other financial incentives that affect the commercial value of our renewable diesel and our operations.

 

The most significant tax incentive program has been the federal biodiesel mixture excise tax credit, referred to as BTC. Under the BTC, the first person to blend pure biomass-based diesel with petroleum-based diesel fuel receives a $1.00 per gallon refundable tax credit. The BTC was established on January 1, 2005 and has lapsed and been reinstated retroactively and prospectively several times. Most recently in December 2019, the BTC was retroactively reinstated for 2018 and 2019 and is in effect from January 2020 through December 2022. Unlike the RFS2 program, the BTC has a direct effect on federal government spending and changes in federal budget policy could result in its elimination or in changes to its terms that are less beneficial to us. We cannot predict what action, if any, Congress may take with respect to the BTC after 2022. There is no assurance that the BTC will be reinstated, that it will be reinstated on the same terms or, if reinstated, that its application will be retroactive, prospective or both. Any adverse changes in the BTC can be expected to harm our results of operations and financial condition.

 

We are a development stage company with no revenues and no operations other than those related to the construction of the Bakersfield Renewable Fuels Refinery and to the development of our Camelina cultivation operations. We do not expect to generate material revenues until the Bakersfield Renewable Fuels Refinery has commenced commercial operations, which is currently scheduled to occur in the second half of 2022. We will incur significant net losses and significant capital expenditures through the commercial completion of the Bakersfield Renewable Fuels Refinery. Any delays beyond the expected construction completion date for the Bakersfield Renewable Fuels Refinery would prolong, and could increase the level of, our operating losses.

 

 

 

 

Under our Senior Credit Facility and Mezzanine Credit Facility agreements we have borrowed an aggregate of $405 million. The Senior Credit Facility bears interest at the rate of 12.5% per annum, and the Mezzanine Loans bear interest at the rate of 15.0% per annum on amounts borrowed. Effective February 23, 2022, GCEH replaced the mezzanine lenders by assuming and funding the $67.4 million mezzanine loan on February 23, 2022 to BKRF HCB, LLC on the same financial terms as in effect for the original mezzanine lenders. Accordingly, all future payments that would otherwise have been made to the third party mezzanine lenders will now be paid to GCEH by BKRF HCB, LLC. However, the Senior Credit Facility remains outstanding with third party lenders, and the terms of that credit facility will continue to significantly limit the amount of cash available to the Company and its stockholders. The Senior Credit Facility matures in November 2026. In addition to the loan repayment obligations under the Senior Credit Facility, BKRF HCB, LLC, our borrowing subsidiary, has issued membership interests to both the Senior Lenders (Class B Units) and to GCEH (Class C Units) in its capacity as the new mezzanine lender. The Class B Units provide the holders of the Class B Units with preferential right to 25% of cash distributions available from the operations of the Bakersfield Renewable Fuels Refinery, which distributions have priority over the Class A Units and Class C Units owned by GCEH. Under the two Credit Agreements and the limited liability agreement of the financing subsidiary, any excess cash from operations that the Bakersfield Renewable Fuels Refinery generates will first be used to make the debt service payments under the Senior Credit Facility and Mezzanine Credit Facility, and then any excess cash available after making those loan payments will be allocated among the holders of the Class A, Class B and Class C Units. The holders of the Class B Units are entitled to receive quarterly distributions of 25% of the Bakersfield Renewable Fuels Refinery’s free cash flow until the Senior Lenders have received (collectively, from these cash distributions plus principal and interest on the Senior Credit Facility) an amount equal to a 2.0x multiple of invested capital (“MOIC''), or two times the amount of the Senior Credit Facility. Since the Senior Lenders have fully funded their $337.6 million loan obligation, the Senior Lenders will have preferential rights to receive a total of $675 million, and under certain circumstances for a limited period, an additional 5% of the free cash flow. Accordingly, until November 2027, the amount of cash available for distribution to GCEH and our stockholders from the operation of the Bakersfield Renewable Fuels Refinery will be significantly reduced by terms of the senior credit agreement and the Class B Units.

 

 

The amount of cash that will be available to the Company and our stockholders will be further reduced by the terms of the Series C Preferred. On February 23, 2022, we raised $145 million through the sale of 145,000 shares of Series C Preferred. Under the terms of the Series C Preferred, the holders of the Series C Preferred are entitled to receive dividends at a rate of 15%, compounded quarterly, which payments are applied to the “Corporation Redemption Price.” If we redeem the shares of Series C Preferred by the second anniversary of issuance, the Corporation Redemption Price is an amount equal to 1.85 times the initial purchase price, as adjusted, and if we redeem the shares of Series C Preferred after the second anniversary of issuance, the Corporation Redemption Price is an amount equal to two times the initial purchase price, as adjusted. The payments of the 15% dividend and the Corporation Redemption Price will significantly reduce the amount of cash available to the Company while the Series C Preferred shares are outstanding for its operational and expansion needs, and for possible distributions to its stockholders.

 

.

 

The obligations under the $337.6 million Senior Credit Facility are secured by a security interest in all of the assets of the Bakersfield Renewable Fuels Refinery, and by all of the assets and securities issued by the limited-purpose, wholly-owned indirect subsidiaries of the Company that are parties to the Senior Credit Facility loan. The credit agreement of the Senior Credit Facility, as amended to date, contains certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Senior Credit Facility, failure to comply with covenants within specified time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. On several occasions in the past we have failed to fully comply with all of the requirements of the Senior Credit Facility, as amended. While the Senior Lenders have not previously declared an event of default and have waived our prior non-compliance with certain of the senior credit facility covenants, no assurance can be given that we will be able to fully comply with all of the senior credit agreement provisions in the future, or if we fail to remain in compliance, that the senior lenders will not declare an event of default. A breach of any of the covenants under the Senior Credit Facility credit agreement could permit the senior lenders to declare an event of default. Upon the occurrence of an event of default under the credit agreement, the senior lenders could elect to declare the entire outstanding balance of the Senior Credit Facility to be immediately due and payable, we could be forced to enter into unfavorable amendments to the senior credit agreement, could be required to pay additional fees and costs, and the secured lenders could foreclose against all of the Bakersfield Renewable Fuels Refinery’s assets and the ownership interests of the various subsidiaries. A foreclosure could result in the loss of our refinery and our refining business, and we could be forced into bankruptcy or liquidation.

 

 

The shares of Series C Preferred that we sold to ExxonMobil and certain other institutional investors in the February 2022 private placement were issued under a Certificate of Designations of Series C Preferred Stock (the “Certificate of Designations”) that we filed with the Delaware Secretary of State. The Certificate of Designations contains numerous restrictions on us, such as our ability to amend our charter documents, to incur certain additional indebtedness, to issue certain securities, to hire or terminate certain executive officers, to adopt or modify annual operating budgets, or to increase the size of our Board. If we breach any of the terms of the Certificate of Designations, or if we fail to redeem all of the shares of the Series C Preferred by the fifth anniversary of the issuance of those shares, provided that ExxonMobil still owns any shares of Series C Preferred, ExxonMobil will have the right to appoint a majority of the directors on our Board of Directors. Accordingly, if a violation of the Certificate of Designation occurs, including our failure to redeem the Series C Preferred, ExxonMobil will have the ability to control this Company.

 

 

We have incurred significant cash payment obligations under our various outstanding loans, and we have significant cash payment obligations under the terms of our outstanding Series C Preferred, all of which could have a material adverse effect on our business and on returns to our stockholders. We cannot guarantee that our business will generate sufficient cash flow from operations once the Bakersfield Renewable Fuels Refinery commences operations and the camelina cultivation operations commence to enable us to make the required payments on both our outstanding indebtedness and on our Series C Preferred. Furthermore, we may not have sufficient cash available after making all payments to our lenders and to the holders of the Series C Preferred in order to fund our working capital and other liquidity needs, to make necessary future capital expenditures or to pursue other business opportunities. The agreements and related documents that govern our indebtedness and our Series C Preferred contain covenants that place restrictions on us and our subsidiaries. The credit agreements and the Series C Preferred Certificate of Designations restrict among other things, us and our subsidiaries’ ability to:

 

 

 

 

These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. In addition, these covenants could restrict our ability to optimize our capital structure with asset-level debt or equity financings.

 

 

If our stock does not continue to meet the requirements of the OTCQX Best marketplace, we could be removed from that marketplace, whereby our stock could trade on the OTCQB marketplace or the Pink Sheets.

 

 

We have applied to have our common stock to be listed on the Nasdaq Capital Market. However, we cannot assure you that we will be able to meet the initial listing standards of that stock exchange and that our application will be approved. We do not currently comply with certain Nasdaq listing standards, including in particular the minimum stockholder’s equity requirements. Further, there can be no assurances that, if listed on the Nasdaq Capital Market, we will be able to remain in compliance with the Nasdaq Stock Market LLC’s listing standards or if we do later fail to comply and subsequently regain compliance with Nasdaq’s listing requirements, that we will be able to continue to comply with the applicable listing standards. If we are unable to maintain compliance with these Nasdaq requirements, our common stock will be delisted from the Nasdaq Capital Market.

 

 

We are a “smaller reporting company,” as defined in the Regulation S-K of the Securities Act of 1933, as amended, which allows us to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, and (ii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. In addition, we are only required to provide two years of audited financial statements in our SEC reports. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting until we are no longer a “smaller reporting company.” We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.

 

 

 

If our common stock trades at a price of less than $5.00 per share while we are still traded on a market other than a national exchange, our common stock will be subject to the SEC’s penny stock rules. Penny stocks generally are equity securities with a price of less than $5.00. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

 

 

Effective internal controls are necessary for us to provide reliable financial reports and to effecively prevent fraud. As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

As of December 31, 2021, we had several material weaknesses in our financial reporting, these consisted of (i) ineffective controls over period end financial disclosure and reporting processes, including not timely performing certain reconciliations and completeness and accuracy of those reconciliations, lack of effectiveness of controls over accurate accounting and financial reporting and reviewing the underlying financial elements, and lack of approval of adjusting journal entries, (ii) insufficient controls around the identification and review of certain technical accounting matters and related entries performed by insufficient staffing of adequate accounting resources and without appropriate technical knowledge and expertise, iii) inadequate segregation of duties in various key processes including the information technology control environment, iv) lack of documentation of policies and procedures and insufficient controls and reviews related to cybersecurity, security access and configuration including user access, and change management around the information technology control environment, and v) have not performed a risk assessment and mapped our accounting processes to control objectives.

 

We are in the process of implementing changes to our system of internal control over financial reporting. However, we cannot assure you that, when fully implemented, our policies and procedures will adequately mitigate our existing weaknesses or that we will not, in the future, identify other areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

 

 

The market price of our common stock may be highly volatile because, among other reasons, investors are unfamiliar with our operations and financial condition. You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. In addition, if the market for shares of companies in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management. Lastly, we acquired the Bakersfield Renewable Fuels Refinery in May 2020 and are currently retooling and converting the former crude oil refinery into a renewable fuels refinery. Since we will not generate revenues until the construction of the Bakersfield Renewable Fuels Refinery is completed, which we anticipate in the second half of 2022, our stock price will not be based on quantifiable investment criteria used by certain investors in valuing shares. As a result, the uncertainty of our future operations and profitability could result in investor speculation and in increased volatility in our stock price.

 

 

which could hinder our ability to enter into certain transactions.

 

 

 

This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the common stock which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 

 

Our Certificate of Incorporation authorizes the issuance of up to 50,000,000 shares of Preferred Stock, substantially all of which is available for issuance by our Board of Directors. Subject to the limitations contained in the Certificate of Designations of the Series C Preferred, additional series of preferred stock may be issued with such designations, rights and preferences as our Board of Directors may from time to time determine. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any additional shares of Preferred Stock, there can be no assurance that the Company will not do so in the future.

 

 

We do not intend to pay any cash dividends to the holders of our common stock for the foreseeable future, and we are prohibited from doing so under the Certificate of Designations of the Series C Preferred and our credit facilities. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

 

 

As of December 31, 2021, we had outstanding, immediately exercisable options, warrants and convertible promissory notes for the issuance of approximately 26,299,000 additional shares of common stock. In addition, we also had outstanding unvested options for the purchase of approximately 804,000 additional shares of common stock. Future issuances of shares of our common stock, or the perception that these sales may occur, could depress the market price of our common stock and result in dilution to existing holders of our common stock. Also, to the extent outstanding options to purchase shares of our common stock are exercised or options or other stock-based awards are issued or become vested, there will be further dilution. The amount of dilution could be substantial depending upon the size of the issuances or exercises. Furthermore, we may issue additional equity securities that could have rights senior to those of our common stock. As a result, purchasers of our common stock bear the risk that future issuances of debt or equity securities may reduce the value of our common stock and further dilute their ownership interest.

 

 

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts may in the future publish about us or our business or industry. We do not control these analysts. If any analyst who covers us downgrades our stock or our industry, or the stock of any of our competitors, or publishes inaccurate or unfavorable research about our business or industry, the price of our stock could decline. If any analyst ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

 

 

Shares of our common stock are equity interests and do not constitute indebtedness. As such, the shares of common stock will rank junior to all of our indebtedness, including our trade debt, and to other non-equity claims on us and our assets available to satisfy claims on us, including claims in a bankruptcy, liquidation or similar proceedings. In addition, our common stock is junior to the outstanding shares of Series C Preferred with respect to funds available upon the liquidation of our company.

 

 

Not applicable.

 

 

We own our Bakersfield Renewable Fuels Refinery and lease four offices through which we conduct our operations. In addition, we own an undeveloped parcel in Havre, Montana, on which we intend to build a grain storage and rail loading facility. 

 

. We lease our corporate offices at 2790 Skypark Drive, Suite 105, Torrance, California 90505. These offices, consisting of approximately 1,296 square feet, are leased under a lease that expires on July 31, 2022.

 

. The address of the Bakersfield Renewable Fuels Refinery is 6451 Rosedale Highway, Bakersfield, California. The site has hosted a crude oil refinery for approximately 85 years. The Bakersfield Renewable Fuels Refinery, consisting of three areas designated as Areas 1, 2 and 3, has a total acreage of approximately 607 acres. Areas 1 and 2 are contiguous and can be accessed from Rosedale Highway, while Area 3 (approximately 83 acres) is located about two miles north of Areas 1 and 2. The Bakersfield Renewable Fuels Refinery is located primarily within Area 2, and the Westside Parkway abuts the south side of Area 2. Area 3 is currently not in use as part of the renewable fuels refinery project. Rail tracks pass through Areas 1 and 2. The Bakersfield Renewable Fuels Refinery is adjacent to a major highway that provides access to the interstate highway system. The renewable fuels refinery is also connected to the existing pipeline network in the San Joaquin Valley.

 

  Effective November 1, 2021, SusOils has leased two facilities located at 4401 Innovation Street and 2301 Great Bear Avenue, Great Falls, Montana, for a five-year period. The facilities, consisting of a total of approximately 23,164 square feet of office space, research facilities, and warehouse space, contain the executive offices of SusOils and include a state-of-the art research facility at which we conduct our crop development research. The lease provides for monthly lease payments of $18,531, which amounts will increase by 3% annually, and grants SusOils an option to purchase the facility for $4,500,000 less all net lease and option payments SusOils has made prior to the option exercise date. In order to maintain the purchase option, SusOils will have to make annual option payments of $186,000.

 

  The offices of CCE are located at  Camino de la Carrera, 11-nave 11, 28140 Fuente el Saz, Madrid, Spain. CCE rents its offices, consisting of approximately 7,000 square feet of office, warehouse and research & development space. The lease, which can be terminated by either party on three months’ notice, requires CCE to make monthly lease payments of euro 2,100 (plus VAT). In addition to these offices, CCE also rents three nearby warehouses that it uses to store and clean its Camelina seeds. The aggregate monthly rent for these three other facilities is euro 3,600 per month (plus VAT). 

 

San Diego, California

12526 High Bluff Dr #300-20, San Diego, California, with an annual lease for a rent of $1,500 per month.

 

  In November 2021, SusOils purchased a 45 acres undeveloped parcel of land in Havre, Montana for future infrastructure expansion.  The site is located adjacent to other grain storage facilities and a BNSF railroad spur. 

 

 

For a discussion of our material legal proceedings, see Note J of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not have a material adverse effect on our financial position, results of operations, or cash flows.

 

 

Not applicable.

 

 

 

GCEH’s common stock (“Common Stock”) is traded on the OTCQX Best Market under the symbol “GCEH”.

 

On March 26, 2021, GCEH effected a 1-for-10 reverse stock split of its Common Stock. As a result of the reverse stock split, each ten shares of outstanding Common Stock were automatically combined and converted into one share of Common Stock. As of December 31, 2021, GCEH had 1,560 holders of record of our Common Stock (excluding stockholders who hold shares in “Street name”). In addition, as of March 31, 2022, we had twelve holders of record who owned shares of our Series C Preferred Stock.

 

We have never declared or paid any cash dividends on our Common Stock or any other securities. We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of the board of directors after considering various factors, including our financial condition, operating results, current and anticipated cash needs.

 

We currently have outstanding 145,000 shares of Series C Preferred, each of which was issued at an original issuance price of $1,000 per share. Under the terms of the Series C Preferred, we may not declare any dividends or make any distributions to any class or series of capital stock, including our Common Stock, until all shares of the Series C Preferred have been redeemed in full. 

 

The holders of the Series C Preferred are entitled to receive cash dividends at a rate of 15%, payable quarterly; provided, however, until March 31, 2024 we may elect not to pay some or all of the accrued dividends in cash, in which case the unpaid dividends shall accrue and be added to the original issuance price of the shares of Series C Preferred. In the event that we fail to pay the quarterly dividend or otherwise default under the terms of the Series C Preferred, the dividend rate will increase to 20%.

 

The following table contains information regarding our equity compensation plans as of December 31, 2021:

 

 

 

The following is a list of all issuance of unregistered securities since December 31, 2021 that have not previously been reported in a Current Report on Form 8-K or a Quarterly Report on Form 10-Q. Each issuance of the shares listed below was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the act applicable to a transaction by an issuer not involving a public offering of securities. No underwriter was involved in the issuance of the shares.

a.             During June, 2021, the Company issued 53,723 shares of common stock in full payment of five separate notes, both principal and accrued interest, for a combined value of approximately $308,943 or $5.75 per share.

 

b.             On June 12, 2021, the Company issued 50,000 shares of Common Stock to a director of GCEH upon the exercise of a non-qualified stock option.

 

c.       

  

We did not repurchase any of our shares during the fiscal years covered by this report.

 

 

 

This Management’s Discussion and Analysis should be read in conjunction with the Financial Statements and Supplementary Data included in Item 15 of this Annual Report, as well as the discussion of the Company’s business and risk contained in Item 1 — and Item 1A — ,

 

The Company has been engaged in developing its Camelina assets since 2013. Between July 2018, the date that we entered into a letter of intent for the purchase of the Bakersfield Renewable Fuels Refinery, and the closing of the purchase of the Bakersfield Renewable Fuels Refinery in May 2020, we were exclusively engaged in completing the purchase of the refinery and in obtaining the financing necessary to purchase and retool the Bakersfield Renewable Fuels Refinery into a renewable fuels facility. Accordingly, our principal expenses in 2020 until we purchased the Bakersfield Renewable Fuels Refinery in May 2020 consisted of general and administrative expenses and costs incurred to obtain the financing required to purchase and retool the Bakersfield Renewable Fuels Refinery. After the purchase of the Bakersfield Renewable Fuels Refinery on May 7, 2020, both our operating expenses and our capital expenditures increased significantly.

 

Since all of our resources were dedicated to the purchase and financing of the Bakersfield Renewable Fuels Refinery, we did not generate any operating revenues in either 2020 nor 2021 other than a minimal amount of Camelina seed sales in 2021. In order to fund our operating expenses prior to May 2020, we obtained $10 million under a derivative contract (the “Derivative Contract”) that we entered into with a commodity trading company late in October 2018 and modified in October 2019. The Derivative Contract was further amended in 2020 and replaced by a fixed payment obligation that requires the Company to make total payments of $24.8 million, consisting of the $4.5 million payment we made in June 2020, and six equal monthly installment payments that are due beginning in May 2022. The cash that we received from the Derivative Contract was used to fund our operating costs, our due diligence costs, our pre-acquisition costs, the purchase price down payment/deposit for the Bakersfield Renewable Fuels Refinery, our consulting and legal fees associated with the acquisition, and our payments to key vendors and suppliers.

 

In May 2020 we completed the purchase of the Bakersfield Renewable Fuels Refinery. The total amount of cash consideration paid for the refinery was $40 million and the total amount of all consideration and assumed liabilities was $89.4 million. In order to fund the purchase price of the Bakersfield Renewable Fuels Refinery and the currently on-going conversion of the facility into a renewable diesel refinery, in May 2020 we also entered into a $300 million Senior Credit Facility and a $65 million Mezzanine Credit Facility. The Senior Credit Facility and Mezzanine Credit Facility have been amended so that the credit available under the Senior Credit Facility now is $337.6 million and the credit available under the Mezzanine Credit Facility between GCEH and BKRF HCB, LLC is now is $67.4 million. We are currently converting the Bakersfield Renewable Fuels Refinery from a crude oil refinery into a renewable fuels refinery, and we do not expect to commence our proposed renewable fuels refinery operations until the second half of 2022. Therefore, we do not anticipate generating revenues from the operations of the Bakersfield Renewable Fuels Refinery until later in 2022. Through December 31, 2021,we have invested approximately $350 million in the acquisition and retooling of the renewable fuels refinery.

 

During 2021 the Company further expanded its operations by acquiring three new subsidiaries, Agribody Technologies, Inc. (ATI) in order to enhance its plant science development capabilities, Entira, Incorporated to supplement its agriculture marketing and development capabilities, and Camelina Company Espana, S.L. (“CCE”) to launch its international Camelina operations. The Company also opened a new office and research facility in Great Falls, Montana, and acquired an undeveloped parcel of land in Havre, Montana, on which the Company plans to build a grain storage and rail loading facility. These changes affected the Company’s operations and financial condition in 2021 and will continue to impact the Company’s future operations and financial results.

 

 

In order to finance the costs of the Refinery Acquisition and the development, construction, completion, ownership and operation of the renewable fuels refinery, our newly formed special purpose subsidiaries (collectively, “Loan Parties”) entered into two credit facilities, the terms of which will materially impact our future cash flow and results of operations.

 

On May 4, 2020 we entered into a senior credit agreement with a group of lenders (the “Senior Lenders”) pursuant to which the Senior Lenders agreed to provide us a $300 million senior secured term loan facility to enable us to acquire the equity interests of BKRF and to pay the costs of the retooling of the Bakersfield Renewable Fuels Refinery. The Senior Lenders consist of Orion Energy Partners, L.P., GCM Grosvenor and Voya Investment Management. Orion Energy Partners TP Agent, LLC acts as administrative agent for the Senior Lenders. The Senior Lenders have revised the terms of the Senior Credit Facility to increase the amount available thereunder to $337.6 million as of December 20, 2021 and as of December 21, 2021, we had borrowed the full $337.6 million. On December 20, 2021, GCEH entered into a binding Memorandum of Understanding (“MOU”) with ExxonMobil whereby ExxonMobil would purchase $125.0 million of Series C Preferred.  Concurrently, the Senior Lenders committed to make an additional Bridge Loan of $20.0 million 

to us, under equivalent borrowing terms as the Senior Credit Facility, until the financing transaction contemplated under the MOU was completed. On December 21, 2021, the Senior Lenders funded $12.0 million of the Bridge Loan and on January 7, 2022 the balance of $8.0 million was funded. The Series C Preferred offering closed on February 23, 2022 with ExxonMobil and the Senior Lenders, and concurrently, the Bridge Loan, and accrued interest, was paid in full. Also, on December 20, 2021, the Company entered into an amendment to the Senior Credit Facility whereby GCEH agreed to issue to the Senior Lenders five-year warrants covering 5,017,008 shares of common stock of GCEH at the closing of the Series C Financing (Warrant Commitment Liability”). The Warrant Commitment Liability was in consideration for i) the 1%, or $4.1 million, consent premium payable from an earlier amendment to the Senior and Mezzanine Credit Facilities, ii) the Bridge Loan, and iii) as additional creditor fees for forbearance to the Senior Lenders and Mezzanine Lenders. The warrants have an exercise price of $2.25 per share and were issued on February 23, 2022 to the Senior Lenders, and the Senior Lenders purchased $20 million of the Series C Preferred.

 

The Senior Credit Facility bears interest at the rate of 12.5% per annum, payable quarterly. The principal of the Senior Credit Facility is due at maturity, provided that we must offer to prepay the senior loans with any proceeds of asset dispositions, borrowings other than permitted borrowings, proceeds from damage or losses at the refinery, and excess net cash flow. We have the right to prepay the senior loan in whole or in part with the payment of a prepayment premium. As additional consideration for the senior loans, certain of the Loan Parties issued membership interests to the Senior Lenders, which membership interests may provide the Senior Lenders with certain limited cash distributions (see below).

 

The Senior Credit Facility is secured by all of the assets of the applicable Loan Parties (including its membership interests in BKRF and the Bakersfield Renewable Fuels Refinery). The senior loans mature on November 4, 2026. The Senior Lenders have a right to accelerate the maturity date of the senior loans if, among other reasons, the retooling and repurposing of the Bakersfield Renewable Fuels Refinery is not substantially complete by August 31, 2022 (subject to extension for up to 90 days under certain circumstances), and the Bakersfield Renewable Fuels Refinery’s production does not meet certain project milestones by dates specified under the Senior Credit Facility.

 

On May 4, 2020 we also entered into a second credit agreement, dated May 4, 2020, with certain mezzanine lenders (the “Mezzanine Lenders”) pursuant to which the Mezzanine Lenders agreed to provide us with a $65 million secured term loan facility to be used to pay the costs of repurposing and starting up the Bakersfield Renewable Fuels Refinery. The Mezzanine Credit Facility has been amended to provide $67.4 million of credit available to us as of February 23, 2022. The Mezzanine Lenders, for whom Orion Energy Partners TP Agent, LLC acts as administrative agent, consist of Orion Energy Partners, L.P., GCM Grosvenor and Voya Investment Management. On February 23, 2022, the Mezzanine Lenders assigned the Mezzanine Credit Facility and its rights to the Class C Units (see below) to GCEH, and GCEH subsequently fully funded the $67.4 million mezzanine loan. Accordingly, as of February 23, 2022 all Mezzanine Lenders have been replaced by GCEH, and GCEH hereafter is entitled to all of the payments required to be made under the mezzanine loans and all of the distributions payable to the holder of the Class C Units.

 

The Mezzanine Credit Facility bears interest at the rate of 15.0% per annum, payable quarterly, provided that we may defer interest to the extent we don’t not have sufficient cash to pay the interest, such deferred interest being added to principal. As additional consideration for the mezzanine loans, we have agreed to issue membership interest to the Mezzanine Lenders, now GCEH, in BKRF HCB, LLC, which interests were issued on February 23, 2022 upon the full funding of $67.4 million.

 

The mezzanine loans mature in November 2027. Principal of the mezzanine loans is due at maturity, provided that we must offer to prepay the loan with any excess net cash flow. We have the right to prepay the loan in whole or in part with the payment of a prepayment premium. The mezzanine loans are secured by the assets of the applicable Loan Parties.

 

BKRF HCB, LLC

as evidence of

were

drew

were

upon the funding of

 

Until the later of (i) five years from the commercial operations date of the Bakersfield Renewable Fuels Refinery and (ii) the date the Senior Lenders have received two times the loan amount under the credit facility (the “Termination Date”), the Senior Lenders, as holders of the Class B Units, are entitled to receive quarterly distributions of 25% of the free cash flow until the Senior Lenders have received (collectively, from these cash distributions plus principal and interest on the senior loans) an amount equal to a 2X multiple of invested capital (“MOIC”), or two times the amount of the senior loans, for a total of up to $674.8 million, and, if the Termination Date has not occurred, thereafter quarterly distributions of 5% of the free cash flow until the Termination Date. See Note E to the consolidated financial statements for additional details regarding the credit facility.

 

On February 23, 2022 GCEH replaced the original Mezzanine Lenders both as the lender of the mezzanine loan and as the holder of the Class C Units. Accordingly, under the BKRF Mezz Borrower LLC Agreement, as holders of the Class C Units GCEH is entitled to receive out of the distributions by BKRF Mezz Borrower not paid to the Class B Members, the following:

 

 

 

 

 

The Senior Credit Facility and the Mezzanine Credit Facility were entered into on May 4, 2020 in order to fund the acquisition, development and construction of the Bakersfield Renewable Fuels Refinery. Since the two credit agreements were entered into, the scope of the Bakersfield Renewable Fuels Refinery has both changed and expanded to include additional capabilities and equipment, which changes have affected certain of the assumptions made regarding the cost of installing, developing and constructing the Bakersfield Renewable Fuels Refinery. Accordingly, the two Credit Agreements were amended on several occasions, and the amount of credit available under both the Senior Credit Facility and Mezzanine Credit Facility was increased to $337.6 million and $67.4 million, respectively.

On February 23, 2022, Amendment No. 8 modified a provision whereby the Bakersfield Renewable Fuels Refinery needs to achieve Substantial Completion, as defined under the Senior Credit Facility, no later than August 31, 2022, or an event of default occurs and the Senior Lenders have the right to accelerate the loan for immediate payment of all principal and interest accrued to that date. However, the Substantial Completion date of August 31, 2022 can be extended on a day-for-day basis depending on the number of days that the ExxonMobil Offtake Agreement commercial target date of October 15, 2022 is also extended, up to a total extension of 90 days.  The amendment also requires a quarterly principal prepayment amount to achieve an agreed-upon end-of-quarter targeted debt balance designed to meet the full payment of the Senior Credit Facility by November 4, 2026. The Company is only obligated to pay this quarterly principal amount to achieve these targeted debt balances to the extent there is available cash under the specific calculations required in the Senior Credit Facility. Irrespective of the cash available from the Bakersfield Renewable Fuels Refinery operations, the full amount of the loan matures and is due on November 4, 2026. Additionally, the $35 million reserve requirement from Amendment No. 3 was eliminated by Amendment No. 8 in conjunction with the Series C Preferred Financing.

 

Effective as of February 23, 2022, the Senior Credit Facility was further amended to permit the Loan Parties to defer up to 3.50% per annum of the interest until the earlier of September 30, 2022 and the final completion of the retooling of the Bakersfield Renewable Fuels Refinery, with all deferred interest being added to principal. In addition, effective as of February 23, 2022, the parties agreed to various amendments to the representations and warranties, affirmative and negative covenants and events of default in the senior loan facility, including (i) the Company’s loan subsidiaries may enter into working capital facilities in an amount of up to $125 million without the Senior Lenders’ consent, and the Company agreed to use its commercially reasonable efforts to enter into a permitted working capital facility on or before June 30, 2022; (ii) the retooling of the Bakersfield Renewable Fuels Refinery must be substantially complete by August 31, 2022 (subject to extension for up to 90 days as described above); and (iii) the final completion of the retooling of the Bakersfield Renewable Fuels Refinery must be achieved by January 31, 2023.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain.

 

The Company’s most critical accounting policies and estimates that may materially impact the Company’s results of operations include:

 

- The Company recognizes liabilities which represent the fair value of a legal obligation to perform asset retirement activities, including those that are conditional on a future event, when the amount can be reasonably estimated. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the liability’s fair value.

 

We have asset retirement obligations with respect to our refinery due to various legal obligations to clean and/or dispose of these assets at the time they are retired. However, the majority of these assets can be used for extended and indeterminate periods of time provided that they are properly maintained and/or upgraded. It is our practice and intent to continue to maintain these assets and make improvements based on technological advances. We also have obligations related to the required cleanout of the pipeline and terminal tanks

 

In order to determine fair value, management must make certain estimates and assumptions including, among other things, projected cash flows, a credit-adjusted risk-free rate and an assessment of market conditions that could significantly impact the estimated fair value of the asset retirement obligations. We believe the estimates selected, in each instance, represent our best estimate of future outcomes, but the actual outcomes could differ from the estimates selected.

 

The Company accrues environmental and clean-up related costs of a non-capital nature when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Environmental liabilities represent the current estimated costs to investigate and remediate contamination at sites where we have environmental exposure. This estimate is based on assessments of the extent of the contamination, the selected remediation methodology and review of applicable environmental regulations, typically considering estimated activities and costs for 15 years, and up to 30 years if a longer period is believed reasonably necessary. Such estimates require judgment with respect to costs, time frame and extent of required remedial and clean-up activities. Accruals for estimated costs from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and include, but are not limited to, costs to perform remedial actions and costs of machinery and equipment that are dedicated to the remedial actions and that do not have an alternative use. Such accruals are adjusted as further information develops or circumstances change. We discount environmental liabilities to their present value if payments are fixed or reliably determinable. Expenditures for equipment necessary for environmental issues relating to ongoing operations are capitalized.

 

Changes in laws and regulations and actual remediation expenses compared to historical experience could significantly impact our results of operations and financial position. We believe the estimates selected, in each instance, represent our best estimate of future outcomes, but the actual outcomes could differ from the estimates selected.

 

 

 The Company classifies the Class B units as mandatorily redeemable financial instruments in accordance with ASC 480. The Company has elected to record these financials at fair value pursuant to the fair value option in ASC 825-10.  At each borrowing the Company will initially recognize the Class B Unit liability based on the issuance date fair value with an offset to the discount on the Senior Credit Agreement. The Company remeasures their Class B Units at fair value at each reporting date with changes recognized in other income/expense.

 

Fair Value of Warrant Commitment Liability -

The Company recognized a Warrant Commitment Liability as a freestanding instrument that is classified as a liability under ASC 480, as the commitment to issue the warrants represents a variable share settlement where the warrants to be issued vary based on occurrence of a future event.

  

Recoverability of Goodwill and Intangible Assets

Recognized goodwill pertains in part to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets may include, but are not limited to, future expected cash flows from acquired customers acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. It is possible that the judgments and estimates described above could change in future periods.

 

We use estimates, assumptions, and judgments when assessing the recoverability of goodwill and acquired intangible assets. We test for impairment on an annual basis as of December 31, or more frequently if a significant event or circumstance indicates impairment. We also evaluate the estimated remaining useful lives of acquired intangible assets for changes in circumstances that warrant a revision to the remaining periods of amortization. For purposes of assessing potential impairment of goodwill, we estimate the fair value of the reporting unit, based on our market capitalization, and compare this amount to the carrying value of the reporting unit. If we determine that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. We have determined that we operate as one reporting unit and may first assess qualitative factors to determine whether the existence of events or circumstances indicate that an impairment test on goodwill is required. The Company internally monitors business and market conditions for evidence of triggering events for goodwill and acquired intangible assets. Such events or changes in circumstances include, but are not limited to, a significant decrease in the fair value of the underlying asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, an accumulation of costs and resources in excess of the original expectation, or a significant change in the operations of the acquired assets or use of an asset or asset group. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for our reporting unit.

 

As discussed above, until May 7, 2020 our activities were devoted solely to the acquisition and financing of the Bakersfield Renewable Fuels Refinery. Since our acquisition of the Bakersfield Renewable Fuels Refinery on May 7, 2020, we have been engaged in converting and repositioning the former crude oil refinery into a renewable fuels refinery and in further developing our Camelina feedstock production supply chain. Accordingly, in fiscal 2020 and the fiscal year ended December 31, 2021 (“fiscal 2021”) we did not engage in any activities that generated current revenues, except for a minimal amount of certified seed sales, and, as a result, we had no operating revenues in fiscal 2021 or fiscal 2020 from the renewable fuels refinery operations. The Bakersfield Renewable Fuels Refinery currently is being retooled and converted from a crude oil refinery into a renewable fuels refinery and is not expected to commence operations until the second half of 2022. Therefore, we do not anticipate generating revenues from the operations of the Bakersfield Renewable Fuels Refinery until that time.

 

General and administrative expense consists of expenses generally involving corporate overhead functions and operations. Our general and administrative expenses increased by $17.2 million, or 215%, from $8.0 million in fiscal 2020 to $25.2 million in fiscal 2021. This increase was due to higher payroll costs (we have hired over 60 new employees in 2021, many of whom are engaged in the construction and operations of the Bakersfield Renewable Fuels Refinery), higher accounting and professional fees, higher insurance, information technology services and general office expenses arising from the ownership of the Bakersfield Renewable Fuels Refinery. We expect that our general and administrative expenses will continue to increase in 2022 as the development of the refinery progresses, and expenses will further increase once the Bakersfield Renewable Fuels Refinery is fully operational. Facility expenses primarily consist of maintenance costs to keep the Bakersfield assets, purchased in May 2020, in an operational mode and expenses normally related to the operations of a refinery. The 2021 facility expense was $14.5 million, an increase of $11.2 million as compared to $3.3 million in 2020. General and administrative expenses also increased in part as a result of the additional corporate and facility expenses related to the two new subsidiaries (ATI and CCE) that the Company acquired in 2021, and to the new corporate office and research facility that SusOils leased in Great Falls, Montana, in 2021.  These additional general and administrative expenses will increase in 2022 as these expenses are borne for an entire year.

 

Our net fiscal 2020 and fiscal 2021 interest expenses consisted of accrued and paid interest of $2.8 million and $2.9 million, respectively. In fiscal 2020 we had $2.1 million of promissory notes outstanding as well as $151.5 million borrowed under our Senior Credit Facility.  For fiscal 2021, we had $2.7 million in promissory notes outstanding and had a balance of $337.6 million borrowed from the Senior Credit Facility. Accordingly, our interest expense for these years represent interest accrued and paid on these amounts borrowed. We expect that our interest expenses will significantly increase as the company utilizes mezzanine financing to continue the construction of the Bakersfield Renewable Fuels Refinery. Applicable construction period interest costs will be capitalized into the project under the guidance of the current accounting standards.

 

. In October of 2018 we entered into the Derivative Contract and made amendments through 2020. As part of the Derivative Contract, we recorded a gain from the change in fair value of the derivative of $5.5 million in 2020 as it was converted to a fixed payment. In May 2020 we entered into a Senior Credit Facility whereby we issued equity units in a subsidiary. We record these units at their fair value when they are issued or become issuable, and we remeasure the fair value of these units at the end of each reporting period. As of December 31, 2021 we determined that the fair value of the liability of the mandatorily redeemable instruments to be $21.6 million, which was an increase in fair value of $6.1 million, which was charged to other expenses. This compared to a charge of $2.0 million in 2020 for these equity units. In 2021, we also recognized a charge of $3.2 million related to our obligation to issue warrants to our Senior Lenders. The fair value of these warrants increased by $3.2 million from December 20, 2021, the date of our obligation, to December 31, 2021. We had no comparable change in fair value in 2020.

 

For 2021 we incurred an operating loss of $40.7 million, an increase of $29.0 million from our operating loss of $11.7 million in 2020. Our operating loss increased because of the substantial increase in our general and administrative expenses (including facilities costs), the costs related to the retooling of the Bakersfield Renewable Fuels Refinery, and our activities in developing the Camelina farming operations and feedstock program. Our total net loss for the year 2021 was $51.4 million, an increase of $40.8 million or 385% compared to the $10.6 million loss in 2020. Our net loss for 2021 increased over 2020 primarily due to our full year work effort retooling the refinery and our expanded activities at the refinery, our expanding feedstock program, acquisition integration efforts and increased charges from the change in fair value of both our Class B units and Warrant Commitment Liability for an increased charge of $7.3 million. We expect to continue to incur losses in 2022 until we begin operations at our renewable fuels refinery which we expect in the second half of 2022.

 

As of December 31, 2021, we had approximately $23.4 million of cash on hand, of which $2.9 million was short-term unrestricted cash, $8.0 million was short-term restricted cash and $12.5 million was long-term restricted cash.  As of December 31, 2020 we had approximately $39 million of cash, of which $3.4 was short-term unrestricted cash, $12.9 million was short-term restricted cash and $22.7 million was long-term restricted cash. Long-term restricted cash represents cash that we expect to spend on the construction of the Bakersfield Renewable Fuels Refinery and which expenditures will be capitalized, and such amount cannot be used for general corporate purposes.  Short-term restricted cash represents cash that we expect to spend on the operations of the Bakersfield Renewable Fuels Refinery and which expenditures will not be capitalized, and such amount cannot be used for general corporate purposes. On December 31, 2021 we had working capital of negative $81.7 million compared to negative working capital of $5.8 million at the end of fiscal 2020.

 

 

The Bakersfield Renewable Fuels Refinery is currently being retooled and converted from a crude oil refinery into a renewable fuels refinery. The construction of the Bakersfield Renewable Fuels Refinery is expected to be completed, and production of renewable fuel products at the Bakersfield Renewable Fuels Refinery is expected to commence in the second half of 2022. Based on our existing agreements for the sale of renewable diesel and other renewable products that the Bakersfield Renewable Fuels Refinery will produce, once the Bakersfield Renewable Fuels Refinery becomes fully operational, we anticipate that we will generate sufficient cash to fund all of our operating expenses. However, until the Bakersfield Renewable Fuels Refinery commences production, we will continue to incur material operating expenses without generating any refinery operating revenues and, accordingly, we will continue to incur significant negative cash flow.

 

In order to fund the cost of acquiring the Bakersfield Renewable Fuels Refinery, converting the existing refinery into a renewable refinery, and paying all operating expenses during the preoperational period, in 2020 our BKRF OCB, LLC subsidiary entered into the secured Senior Credit Facility with the Senior Lenders under which, as of December 31, 2021, we have borrowed $337.6 million.  Also, in 2020 our BKRF HCB, LLC subsidiary entered into a secured Mezzanine Credit Facility with the Mezzanine Lenders under which we most recently had the ability to borrow up to $67.4 million. On December 20, 2021, our Senior Lenders agreed to provide a Bridge Loan of up to $20 million, of which $12 million was funded as of December 31, 2021, to provide working capital until our contemplated preferred share financing with ExxonMobil and the Senior Lenders could be completed. On February 23, 2022 GCEH assumed all of the rights and obligations of the Mezzanine Lenders under the Mezzanine Credit Facility, and accordingly loaned $67.4 million to BKRF HCB, LLC as the lender under the Mezzanine Credit Facility. Accordingly, GCEH now is the mezzanine lender to BKRF HCB, LLC.  The proceeds from the Senior Credit Facility and the Mezzanine Credit Facility have been, and will continue to be used to fund the pre-operational expenses and the capital costs of the Bakersfield Renewable Fuels Refinery.   

 

The Senior Credit Facility bears interest at the rate of 12.5% per annum, payable quarterly. Principal payments are required to be made under the Senior Credit Facility beginning after the Bakersfield Renewable Fuels Refinery has commercial operations. The Senior Credit Facility matures on November 4, 2026. The Mezzanine Credit Facility bears interest at the rate of 15.0% per annum, payable quarterly, provided that BKRF HCB, LLC may defer up to 2.5% interest to the extent BKRF HCB, LLC does not have sufficient cash to pay the interest (any deferred interest will be added to principal). Borrowings under the Mezzanine Credit Facility are due at maturity in November 2027. As additional consideration, the Senior Lenders were issued Class B Units. The Class B Units represent membership interest in our subsidiary, BKRF HCB, LLC and entitle the holders thereof to preferential cash distributions. The Class B Units will not affect our liquidity until the Bakersfield Renewable Fuels Refinery commences operations, which is expected in the second half of 2022. However, since the holders of the Class B Units will be entitled to certain priority cumulative cash distributions, if any, that may be made in the future from the operations of the Bakersfield Renewable Fuels Refinery, distributions made on behalf of the Class B Units will reduce the amount of distributions that we may be entitled to receive in the future from the operations of the Bakersfield Renewable Fuels Refinery.

 

On December 20, 2021 GCEH entered into the MOU with ExxonMobil whereby ExxonMobil agreed to purchase $125 million of a new series of preferred shares by January 31, 2022. In conjunction with the MOU, the Senior Lenders expressed interest to also purchase $20 million of the contemplated preferred shares on the same terms as ExxonMobil. Additionally, the Senior Lenders committed to fund an additional Bridge Loan of $20.0 million, under equivalent borrowing terms as the Senior Credit Facility, until the financing transaction contemplated under the MOU was completed. On December 21, 2021, the Senior Lenders funded $12.0 million of the Bridge Loan and on January 7, 2022 the balance of $8.0 million was funded. The Series C Preferred offering, which was delayed past January 31, 2022, closed on February 23, 2022, and concurrently the Bridge Loan, and accrued interest, was paid in full. Also, on December 20, 2021, the Company entered into an amendment to the Senior Credit Facility whereby GCEH committed to the Senior Lenders to issue warrants covering 5,017,008 shares of common stock of GCEH at an exercise price to be determined based on a market pricing mechanism upon the completion of the Series C Financing for a term of five years from that date (the “Lender Warrant Commitment”). The Warrant Commitment Liability was in consideration for i) the 1%, or $4.1 million, consent premium payable from an earlier amendment to the Senior and Mezzanine Credit Facilities, ii) the Bridge Loan, and iii) as additional creditor fees for forbearance to the Senior Lenders and Mezzanine Lenders. The Warrant Commitment Liability was settled on February 23, 2022 through the issuance of five-year warrants (the “GCEH Warrants”) to purchase up to an aggregate of 5,017,008 shares of our Common Stock at an exercise price of $2.25 per share. Additionally, on February 23, 2022, the Senior Lenders purchased $20 million of the Series C Preferred.

 

On February 23, 2022, we raised $145 million from the sale of shares of our newly created Series C Preferred to ExxonMobil and the Senior Lenders.  The net offering proceeds of the Series C Preferred offering (after payment of $9.3 million of offering expenses and other related fees and costs) were allocated as follows:  (i) $20 million to repay the Bridge Loan, (ii) $77.4 million (which includes $67.4 million funded under the Mezzanine Credit Facility) to fund the construction of the Bakersfield Renewable Fuels Refinery, (iii) $18 million for a debt service reserve account, and (iv) the balance for use by us as working capital, including the further development of our Camelina feedstock program.

 

Based on our construction budget (including the purchase orders we have issued for the required equipment) and on our projections of our future operating expenses, we anticipated that the $405 million provided to BKRF HCB, LLC under the Senior Credit Facility and the Mezzanine Credit Facility, together with the funds available under the Series C Financing would be sufficient to fund our projected capital expenditures and operating expenses at the Bakersfield Renewable Fuels Refinery until the Bakersfield Renewable Fuels Refinery becomes operational.  However, because of the uncertainty around the cost of change orders to the refinery, the impact of the loss of revenues from the refinery arising from the unexpected delay in the completion of construction, and the amount and timing of certain credits due to us, we now believe that we will need additional capital to fund certain of our liquidity requirements.

 

A portion of the net proceeds from the Series C Preferred financing are being used to fund our corporate operating expenses.  However, the completion of the construction of the Bakersfield Renewable Fuels Refinery has been delayed, and production at the refinery is now not expected to commence until the second half of 2022. The delay in the commencement of production at the Bakersfield Renewable Fuels Refinery will result in a loss of anticipated revenues. As a result, we currently expect that we will need additional funds to meet the Company’s projected commitments over the next twelve months. Our financial commitments during the next twelve months include a fixed payment obligation that arose from the settlement of a derivative contract that we amended on April 20, 2020, which requires us to pay $20.2 million in six equal monthly payments of $3.375 million beginning in May 2022 from the cash generated by the refinery’s operations. Since the Bakersfield Renewable Fuels Refinery will not be operational and we will not generate revenues when the payments under the derivative contract are required to begin in May 2022, we have initiated discussions with the holder of this unsecured obligation to defer the repayment of this obligation until the refinery’s operations commence. No assurance can be given that we will be able to renegotiate this obligation on terms acceptable to us, or at all.

 

In order to bridge the anticipated cash shortfall resulting from the delayed commencement of the Bakersfield Renewable Fuels Refinery, we intend to pursue raising additional debt or equity funding.  Although we have identified possible sources for some or all of the additional capital, we do not currently have commitments from any third parties to provide us with the additional capital.  In the event that we do not obtain the necessary additional bridge financing, we will have to revise our short-term operating plans, reduce our anticipated investments in camelina production and in infrastructure improvements, and otherwise reduce our operating expenses.  No assurance can be given that these short-term cash flow adjustments will be successful.

 

Our transition to profitability is dependent upon, among other things, the future commercialization of the renewable fuel products that we intend to produce at the Bakersfield Renewable Fuels Refinery. In order to ensure that we have a buyer for the renewable diesel produced at our renewable refinery, we have entered into the Offtake Agreement with ExxonMobil under which ExxonMobil has agreed to purchase a minimum of 105 million gallons per year of renewable diesel from the Bakersfield Renewable Fuels Refinery for a period of five years following the date that the Bakersfield Renewable Fuels Refinery commences commercial operations. The price of the renewable diesel to be sold under the Offtake Agreement is based on a combination of a fixed price and a variable price.  We have also entered into the Term Purchase Agreement with ExxonMobil under which ExxonMobil has the right to purchase the additional renewable diesel that is not sold to ExxonMobil under the Offtake Agreement. The revenues we expect to receive under the Offtake Agreement once the Bakersfield Renewable Fuels Refinery is fully operational, together

with our other projected sources of revenues, are expected to fund our anticipated working capital and liquidity needs.

Once completed, the Bakersfield Renewable Fuels Refinery will be able to produce renewable diesel from various renewable feedstocks, such as Camelina oil produced from our patented Camelina varieties, soybean oil, used cooking oil, inedible animal fat, and other vegetable oils. We believe that one of our strategic advantages is that a significant portion of the feedstock expected to be used at our renewable refinery will be Camelina oil derived from the Camelina grain produced for the Bakersfield Renewable Fuels Refinery using our patented Camelina varieties. However, we anticipate that we will need additional funding for general corporate purposes, to grow our certified Camelina seeds, to enter into agreements with farmers, and to otherwise ramp up the cultivation and production of Camelina. In addition, we will also have to purchase significant amounts of feedstock from which we will produce renewable diesel, which purchase price we may have to pay in advance.  Our goal is to fund the foregoing feedstock purchase and production costs through a feedstock supply credit line we expect to obtain from one or more commercial financial institutions.  Based on our current Camelina production expectations and the projected costs of purchasing feedstock, we expect that we will have to obtain a line of credit for $100 million to $125 million. Any such line of credit is expected to be secured by the feedstock that we purchase and by the accounts receivables generated from our renewable diesel sales.

 To the extent that we raise additional funds through the issuance of equity securities, our stockholders will experience dilution, and the terms of the newly issued securities could include certain rights that would adversely affect our stockholders’ rights. Furthermore, if these new securities are convertible or are accompanied by the issuance of warrants to purchase shares of our common stock, our current stockholders may experience substantial dilution. There can be no assurance that we will be successful in raising debt or equity funding or that any such financing will be available, available on favorable or acceptable terms, or in the amounts needed. Additionally, while the potential economic impact brought on by the current geopolitical developments, including the Russian invasion of Ukraine and the continuing impacts of the coronavirus pandemic are difficult to assess or predict, the significant impact that these developments have had on the global financial markets, on the costs of raw materials we need, and on our own stock trading price, could reduce our ability to access additional capital, which would negatively impact our short-term and longer-term liquidity.

We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.

 

Inflation and changing prices have had minimal effect on our continuing operations over our two most recent fiscal years.

 

 

Not applicable to a “smaller reporting company.”

 

 

Financial Statements are referred to in Item 15, listed in the Index to Financial Statements as a part of this Annual Report on Form 10-K, and are incorporated herein by this reference.

 

 

None.

 

 

 

Effective controls and procedures (as defined in Exchange Act Rule 13a-15(e))  are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer (the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosures.

 

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Annual Report on Form 10-K, management, under the supervision and with the participation of our Certifying Officers, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, the Certifying Officers have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective because of the material weaknesses described below under “Management’s Report on Internal Control over Financial Reporting.” We are taking the additional remedial steps to address the material weaknesses in our disclosure controls and procedures as set forth below under “Management’s Plan for Remediation of Material Weaknesses.”

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as such term is defined in Rule 13a-15(f) of the Exchange Act.

 

Because of its inherent limitations, ICFR may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Management has evaluated the effectiveness of the Company’s ICFR as of December 31, 2021. Management based its assessment on the framework set forth in Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013) in conjunction with SEC Release No. 33-8810 entitled “Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities and Exchange Commission” (17 CFR PART 241). Because of the material weaknesses described below, management concluded that the Company’s ICFR was not effective as of December 31, 2021:

 

 

 

 

 

 

Management believes that the material weaknesses arose because the Bakersfield Renewable Fuels Refinery had minimal controls in place when it was purchased in May 2020, and as of December 31, 2021 the Company had not completed its implementation of all the internal controls and procedures. The Company is taking measures to remediate these deficiencies.

 

The material weaknesses and other matters impacting the Company’s internal controls may cause it to be unable to report its financial information on a timely basis and thereby subject it to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange or quotation service listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in the Company and the reliability of its financial statements. Confidence in the reliability of the Company’s financial statements may suffer due to the Company’s reporting of material weaknesses in its internal controls over financial reporting. This could materially adversely affect the Company and lead to a decline in the price of its Common Stock.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm as such attestation is not required for non-accelerated filers such as this company pursuant to applicable SEC rules.

 

The Company is in the process of taking, or plans to take, the following actions, and continues to be engaged in, making necessary changes and improvements to its internal control system to address the material weaknesses in ICFR described above. These actions include:

 

 

 

 

 

During the fourth quarter of fiscal 2021, we enhanced the reporting structure of our accounting system, and began the implementation of other financial reporting tools. Other than these changes, there were no other changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 Not applicable.

 

 

Not applicable.

 

The information required to be disclosed by this item will be contained in our Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC no later than April 30, 2022 and is incorporated herein by reference.

 

 

The information required to be disclosed by this item will be contained in our Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC no later than April 30, 2022 and is incorporated herein by reference.

The information required to be disclosed by this item will be contained in our Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC no later than April 30, 2022 and is incorporated herein by reference.

 

 

The information required to be disclosed by this item will be contained in our Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC no later than April 30, 2022 and is incorporated herein by reference.

 

 

The information required to be disclosed by this item will be contained in our Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC no later than April 30, 2022 and is incorporated herein by reference.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

None.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Richard Palmer and Ralph Goehring, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue thereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

 

 

 

 

 

 

 

We obtained an understanding and evaluated the appropriateness of management’s technical accounting conclusions related to the Warrant Commitment iability in conformity with accounting principles generally accepted in the United States of America. Our evaluation included consultation with our national office.

We utilized an internal valuation specialist to evaluate management’s estimate of the fair value of the Warrant Commitment Liability as of the date of Amendment No. 6 and as of December 31, 2021. These procedures included:

Understanding the Monte-Carlo simulation valuation methodology used and whether it was an acceptable model to value the Warrant Commitment Liability and if it was being applied correctly by performing independent calculations, and

Testing the appropriateness of the assumptions and inputs including stock price, volatility percentage, and risk-free rate by performing independent calculations

We understood the qualification of the third-party valuation specialist engaged by the Company based on their credentials and experience.

We evaluated the reasonableness of management’s forecasted financial results by:

Assessing the reasonableness of management’s forecast of future projected results by comparing such items to industry projections and conditions found in industry reports, and

Testing forecasted revenues and expected future cash flows by comparing forecasted amounts to contractual agreements and market data

We utilized an internal valuation specialist to evaluate:

The Monte-Carlo simulation valuation methodology used and whether it was an acceptable model to value the Class B Units and if it was being applied correctly by performing independent calculations, and

The appropriateness of the assumptions and inputs including the volatility percentage, risk-free rate, and cost of equity by performing independent calculations

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM