The accompanying condensed consolidated balance sheet of the Company at December 31, 2020, has been derived from auditedconsolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in theUnited States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements as of September30, 2021 and for the three months and nine months ended September 30, 2021 and 2020, have been prepared in accordance with U.S.GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they donot include all of the information and footnotes required by U.S. GAAP for complete financial statements, and should be read inconjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2020 as filed with the U.S. Securities and Exchange Commission(“SEC”).Intheopinion of the Company’s management, all material adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been made to the unaudited condensed and consolidated financial statements.Theunauditedcondensedconsolidatedfinancialstatementsincludeallmaterialadjustments(consistingofallnormalaccruals)necessarytomake the condensed consolidated financial statements not misleading as required by Regulation S-X Rule 10-01. Operating results forthe three months and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for theyearendedDecember31,2021oranyfutureperiods.

Below is a table that shows the fair value of assets acquired and liabilities assumed by the Company as a result of the transaction:

 

 

On March 26, 2021, the Company effected a one-for-ten reverse stock split. All common stock and per share information (other than par value) contained in these condensed consolidated financial statements and footnotes have been adjusted to reflect the foregoing reverse stock split. Prior to the reverse stock split the Company had 358,499,606 shares outstanding and immediately after the stock split the Company had 35,850,089 shares outstanding. The Company issued additional shares after the reverse stock split and the outstanding shares as of November 1, 2021 was 40,063,068.

 

 

In accordance with the Company’s Senior Credit Facility agreement (see Note E - Debt), the Company is required to advance the calculated interest expense on its borrowings at the time of such borrowings to the estimated commercial operational date of the Bakersfield Biorefinery. This interest is deposited into a designated account and the appropriate amount is paid to the lenders at the end of each quarter. Additionally, the construction funds are deposited into its own designated account and deposited from that designated account into the BKRF account only upon approval by the lenders to pay for specific construction, facility and related costs. These two accounts are restricted and not directly accessible by the Company for general use, although these funds are assets of the Company. The Company estimates how much of this cash is likely to be capitalized into the Bakersfield Biorefinery project in the form of a long-term asset, and classifies this amount as long-term. The Company makes this determination based on its budget, recent and near-term invoicing, and internal projections

 

The Company considers all highly liquid debt instruments maturing in three months or less to be cash equivalents. The Companymaintains cash and cash equivalents at high quality financial institutions. However, deposits exceed the federally insured limits. AtSeptember30,2021,theCompanyhadapproximately$42.6millioninuninsuredcash.

 

Property, plant and equipment are stated at cost. Depreciation of office equipment and transportation equipment are computed using the straight-line method over estimated useful lives of 3 to 5 years. Refinery assets and buildings are depreciated using the straight-line method over estimated useful lives of 5 to 25 years.

 

 

 

In accordance with U.S. GAAP for the impairment or disposal of long-lived assets, the carrying values of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the aggregate of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three and nine months ended September 30, 2021 and 2020, there were no impairment losses recognized on long-lived assets.

 

The Company has two assets, goodwill and trade name, that are indefinite-lived assets. Goodwill represents the excess of the fair value of consideration over the fair value of identifiable net assets acquired. Goodwill is allocated at the date of the business combination. Goodwill is not amortized, but is tested for impairment annually on December 31 of each year or more frequently if events or changes in circumstances indicate the asset may be impaired.  The trade name the Company acquired as part of the transaction with  is an identified intangible asset. Trade names are not amortized and instead are tested annually for impairment, or more frequently if events or circumstances indicate a likely impairment.

 

 

The acquisition of the refinery and the related $365 million of financing to fund the retrofit closed in May 2020. In connection with financing the refinery, we incurred approximately $million of debt issuance costs as of the date of the closing. Debt issuance costs are amortized over the term of the loan as interest: however, as such interest relates to retrofitting of the refinery, these costs are being capitalized as part of the refinery until the refinery is placed in service. The amortization of the debt issuance costs that are not capitalized is recorded as interest expense. At September 30, 2021 and December 31, 2020, unamortized debt issuance costs related to the Senior Credit Facility are classified as a direct deduction from the carrying amount of the credit facility; however, unamortized debt issuance costs related to the Mezzanine Credit Facility are presented on the balance sheets as an asset as there have not been any borrowings on the Mezzanine Credit Facility. See Note E - Debt for more detail on the financing.

 

For presentation purposes, accounts payable and accrued liabilities have been combined. As of September 30, 2021 and December 31, 2020, accounts payable and accrued liabilities consists of:

 

 

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 Bakersfield Biorefinery 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. $million of these obligations relate to the required cleanout of hydrocarbons previously used in the refinery’s pipelines and terminal tanks over the next 4 years. In order to determine the fair value of the obligations management must make certain estimates and assumptions including, among other things, projected cash flows, timing of such 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.

 

We estimate our escalation rate at 3.33% and our discount factor ranges from 3.62% in year one to 7.26% in year twenty, with the weighted average discount rate being 5.0%. See Note H - Commitments and Contingencies for more detail on environmental liabilities, which are accounted for separately from asset retirement obligations.

 

The following table provides a reconciliation of the changes in asset retirement obligations for the nine months ended September 30, 2021 and the year ended December 31, 2020

 

4.5

million

3.7

15.8

17.8

 

 

Upon the acquisition of the Bakersfield Biorefinery, the Company advanced $20.1 million to its primary construction contractor for invoices to be billed against the Guaranteed Maximum Price for the Engineering, Procurement and Construction  of the Bakersfield Renewable Fuels Project contract (“G-Max Contract”). These funds are credited against future invoices in accordance with an agreed schedule. In May 2021 we replaced our former contractor and entered into a new G-Max Contract with a new contractor. As of June 30, 2021, the $20.1million advanced to the initial primary construction contractor has been reduced to zero and a new advance has been made to the new primary construction contractor in the amount of $17.8 million.  As of September 30, 2021, reductions of $million to the contractor advance have been made, resulting in $million reflected as advance to contractor as of September 30, 2021.

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and the carryforward of operating losses and tax credits, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of general and administrative expense.

  

with ASC 606, , using the following five-step model:

0.0

0.2

 

 

 

 

U.S. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

On December 31, 2019, the Company had a derivative liability of $million related to a forward contract that also included a call option. The notional amount of the forward contract related to gallons of the commodity, Ultra Low Sulfur Diesel. Under the terms of the contract the Company was obligated to pay the equivalent of the notional amount multiplied by the market price of Ultra Low Sulfur Diesel at the settlement dates; however, the call option of the contract capped the market price of Ultra Low Sulfur Diesel.

 

In March of 2020, the Company settled the derivative contract by agreeing to a payment of $million due on April 30, 2020 and six equal payments beginning in October of 2021 totaling $million. The Company recognized $million of income from the decrease in fair value on the derivative contract from January 1, 2020 through March 19, 2020, and also recognized a gain of $on the derecognition of the derivative contract. The derivative forward contract was amended again in April 2020. Under the amendment, the contract was replaced with a fixed payment obligation, whereby the Company agreed to pay the counterparty a total of $million, which included a payment of $4.5 million that the Company paid in June 2020, and six equal installment payments beginning in May 2022 totaling $million.

  

The fair value of the derivative forward contract was primarily based upon the notional amount and the forward strip market prices of Ultra Low Sulfur Diesel, and was reduced by the fair value of the call option. The forward strip market prices are observable. However, to determine the fair value of the call option, the Company used the Black-76 option pricing model, a variation of the Black-Scholes option pricing model. As a result, the contract as a whole is included in the Level 3 of the fair value hierarchy.

 

The Company’s Class B Units are also measured at fair value on a recurring basis. See Note E - Debt for more information

 

The derivative liability discussed herein was derecognized in the first quarter of 2020, and the Company had no derivative liabilities atSeptember30,2021andDecember31,2020.

 

The following is the recorded fair value of the Class B Units as of September 30, 2021:

 

 

 

ThefollowingpresentschangesintheClassBUnitsthroughthethreemonthsandninemonthsendedSeptember30,2020:

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these financial statements include a) valuation of common stock, warrants, and stock options, b) estimated useful lives of equipment and intangible assets, c) the estimated costs to remediate or clean-up the refinery site, and the inflation rate, credit-adjusted risk-free rate and timing of payments to calculate the asset retirement obligations, d) the estimated costs to remediate or clean-up identified environmental liabilities, e) the estimated future cash flows and the various metrics required to establish a reasonable estimate of the value of the Class B Units issued to the Company’s lenders under the credit agreement, and f) the allocation of the acquisition price of . to the various assets acquired. It is reasonably possible that the significant estimates used will change within the next year.

 

Income/Loss per share amounts are computed by dividing income or loss applicable to the common stockholders of the Company by the weighted-average number of common shares outstanding during each period. Diluted income or loss per share amounts are computed assuming the issuance of common stock for potentially dilutive common stock equivalents. The number of dilutive warrants and options is computed using the treasury stock method, whereby the dilutive effect is reduced by the number of treasury shares the Company could purchase with the proceeds from exercises of warrants and options.

 

TheCompanyhasevaluatedsubsequenteventsthroughthedatethesecondensedconsolidatedfinancialstatementswereavailabletobeissued.Whereapplicable,thenotesto these condensed consolidated financial statements have been updated to discuss allsignificantsubsequenteventswhichhaveoccurred.