Global Clean Energy Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2021

Global Clean Energy Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us” or “our”) is a U.S.-based integrated agricultural-energy biofuels company that holds assets across feedstocks and plant genetics, agronomics, cultivation, and regulatory approvals, commercialization, and downstream biorefining and storage. The Company is focused on the development and refining of nonfood-based bio-feedstocks and has an investment in several proprietary varieties of Camelina Sativa (“Camelina”), a fast growing, low input and ultra-low-carbon intensity crop used as a feedstock for renewable fuels. The Company holds its Camelina assets (including all related intellectual property related rights and approvals) and operates its Camelina business through its subsidiary, Sustainable Oils Inc., (“Susoils”) a Delaware corporation.

On May 7, 2020 the Company purchased a crude oil refinery in Bakersfield, California with the objective of retrofitting it to produce renewable diesel from Camelina and other non-food feedstocks (the “Bakersfield Biorefinery”). The Bakersfield Biorefinery is owned by Bakersfield Renewable Fuels, LLC, (“BKRF”) an indirect wholly-owned subsidiary of Global Clean Energy Holdings, Inc. The retrofitting of the refinery commenced promptly after the acquisition and is scheduled to be completed in early 2022. After necessary start-up procedures and testing are complete, we expect production to be approximately 10,000 barrels per day (420,000 gallons per day). Although the Bakersfield Biorefinery will have a nameplate capacity of 15,000 barrels per day, we do not expect to produce more than 10,000 barrels per day for at least the first year of production. The Company has entered into both a product offtake agreement and a term purchase agreement with a major oil company for the purchase by the oil company of all, or substantially all, of the renewable diesel to be produced at the Bakersfield Biorefinery for the first five years of production. See Note B - Basis of Presentation and Liquidity which describes the offtake agreement in more detail

Basis of Presentation

The accompanying condensed consolidated balance sheet of the Company at December 31, 2020, has been derived from audited

consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the

United States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements as of September

30, 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 do

not include all of the information and footnotes required by U.S. GAAP for complete financial statements, and should be read in

conjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the U.S. Securities and Exchange Commission

(“SEC”).

the

opinion 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.

The

unaudited

condensed

consolidated

financial

statements

include

all

material

adjustments

(consisting

all

normal

accruals)

necessary

make the condensed consolidated financial statements not misleading as required by Regulation S-X Rule 10-01. Operating results for

the three months and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the

year

ended

December

31,

2021

any

future

periods.

The accompanying condensed consolidated financial statements include the accounts of Global Clean Energy Holdings, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Acquisition

Acquisitions

On April 15, 2021, the Company acquired Agribody Technologies, Inc., (“ATI”) a private agricultural biotechnology company. The transaction was accomplished by acquiring a 100% controlling interest in ATI in an all-stock transaction for a total

fair

value of approximately $5 million. In consideration for the shares of ATI, the Company issued 830,526 shares of common stock at an approximate fair value of $6.02 per share. The primary reason for the combination was to leverage the expertise of ATI to speed the development of novel camelina varieties for Susoils. The Company hired the founder of ATI and will continue to monetize the pre-acquisition ATI

rev

nue

contracts.

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

Assets	As of April 15, 2021
Cash	$	263,755
Property, plant, and equipment		185,445
Patents		3,450,000
Trade name		90,000
Goodwill		1,355,077
Liabilities
Accounts payable and accrued liabilities		(344,277	)
Total fair value of net assets acquired		5,000,000
Less: Cash acquired		(263,755	)
Total fair value of consideration transferred, net of cash acquired	$	4,736,245

Per Share Information

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

common

shares outstanding and immediately after the stock split the Company had 35,850,089

common

shares outstanding. The Company issued additional

common

shares after the reverse stock split and the outstanding

common

shares as of November 1

, 2021 was 40,063,068.

Restricted Cash

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

Cash and Cash Equivalents; Concentration of Credit Risk

The Company considers all highly liquid debt instruments maturing in three months or less to be cash equivalents. The Company

maintains cash and cash equivalents at high quality financial institutions. However, deposits exceed the federally insured limits. At

September

30,

2021,

the

Company

had

approximately

$42.6

million

uninsured

cash.

Inventories

Inventories currently consist of Camelina seeds, grain, meal, and oil. Inventories are valued at the lower of cost or net realizable value. Cost is determined based on standard cost. There were no lower of cost or market adjustments made to the inventory values reported as of September 30, 2021 and December 31, 2020.

Property and Equipment

Property, Plant and Equipment

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.

wever, the refinery will not begin to be depreciated until its retrofitting has been completed and it is ready for operations. Normal maintenance and repair items are charged to operating costs and are expensed as incurred. The cost and accumulated depreciation of property, plant and equipment sold or otherwise retired are removed from the accounts and any gain or loss on disposition is reflected in the statement of operations. Interest on borrowings related to the retrofitting of the Bakersfield Biorefinery is being capitalized, which will continue until the refinery is available for commercial use. During the three months ended September 30, 2021 and September 30, 2020, $8.2 million and $3.9 million, respectively, of interest was capitalized and is included in property, plant and equipment, net. During the nine months ended September 30, 2021, $20.1 million and $5.5 million, respectively, of interest was capitalized and is included in property, plant and equipment, net, for a total of $30.3 million of capitalized interest for the project.

Long-Lived Assets

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.

Indefinite 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

ATI

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.

Debt Issuance Costs

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 $

7.1

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.

Accounts Payable and Accrued Liabilities

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:

	As of September 30, 2021		As of December 31, 2020
Accounts payable	$	14,845,855	$	9,724,136
Accrued compensation and related liabilities		3,358,408		3,034,688
Accrued interest payable		1,782,358		2,093,649
Accrued construction costs		25,345,484		-
Other accrued liabilities		4,623,331		3,146,478
Current portion of asset retirement obligations		4,478,948		3,716,000
Current portion of environmental liabilities		1,521,918		883,000
	$	55,956,302	$	22,597,951

Asset Retirement Obligations

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. $

13.8

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

	Nine months ended September 30, 2021			Year ended December 31, 2020
Asset retirement obligations - beginning of period	$	21,478,977		$	-
Additions related to acquisition of refinery		-			21,901,977
Disbursements		(1,961,711	)		(135,000	)
Accretion		735,000			652,000
Revised obligation estimates		-			(940,000	)
Asset retirement obligations - end of period	$	20,252,266		$	21,478,977

The amounts shown as of September 30, 2021 and December 31, 2020, include $

4.5

million

d $

3.7

million, respectively, which have been classified as current liabilities and included in accounts payable and accrued liabilities and $

15.8

million and $

17.8

million, respectively which have been classified as long term liabilities as of September 30, 2021 and December 31, 2020, respectively.

Advances to Contractors

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

(“EPC”)

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 $20.1

million 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 $

1.5

million to the contractor advance have been made, resulting in $

16.3

million reflected as advance to contractor as of September 30, 2021.

Income Taxes

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.

The Company has recorded a

100

% valuation allowance against the deferred tax assets as of September 30, 2021 and December 31, 2020.

Revenue Recognition

The Company recognizes revenue in accordance

with ASC 606,

Revenue From Contracts With Customers

, using the following five-step model:

(1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue. The Company recognized $

0.0

million in revenues during the quarter ended September 30, 2021 and had no comparable sales in the quarter ended September 30, 2020. The Company recognized $

0.2

million in revenues during the nine months ended September 30, 2021 and had no comparable sales in the nine months ended September 30, 2020. The Company is engaged in contracting with farmers to grow camelina grain that will be processed into oil for use in Bakersfield Biorefinery. The Company will recognize revenues upon the sale of its patented camelina seed to the farmers and also for the crushed camelina meal that it plans to sell to third party livestock and poultry operators. Based upon the Company’s Product Offtake Agreement (see Note B - Basis of Presentation and Liquidity), the Company expects to recognize revenue from the sale of biofuel beginning in 2022.

Research and Development

Research and development costs are charged to operating expenses when incurred, which were nominal for the three and nine months ended September 30, 2021 and September 30, 2020.

Fair Value Measurements and Fair Value of Financial Instruments

As of September 30, 2021 and December 31, 2020, the carrying amounts of the Company’s financial instruments that are not reported at fair value in the accompanying consolidated balance sheets, including cash, cash equivalents

and restricted cash, accounts receivable, accounts payable, and accrued liabilities, the Senior Credit Facility, and the convertible note payable to the executive officer approximate their fair value due to their short-term nature. The Company’s Class B Units are reported at fair value.

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:

Level 1— Quoted prices for identical instruments in active markets;

Level 2— Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

On December 31, 2019, the Company had a derivative liability of $

24.8

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 $

5.5

million due on April 30, 2020 and six equal payments beginning in October of 2021 totaling $

17.6

million. The Company recognized $

5.5

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 $

512,000

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 $

24.8

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 $

20.3

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 at

September

30,

2021

and

December

31,

2020.

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

	Carrying Value		Total Fair Value		Quoted prices in active markets for identical assets - Level 1		Significant other observable inputs - Level 2		Significant unobservable inputs - Level 3
Liabilities
Class B Units as of September 30, 2021	$	18,054,857	$	18,054,857	$	-	$	-	$	18,054,857

The following is the recorded fair value of the Class B Units as of December 31, 2020:

	Carrying Value		Total Fair Value		Quoted prices in active markets for identical assets - Level 1	Significant other observable inputs - Level 2	Significant unobservable inputs - Level 3
Liabilities
Class B Units as of December 31, 2020	$	5,123,000	$	5,123,000			$	5,123,000

The following presents changes in the Class B Units through the three months and nine months ended September 30, 2021:

	Three months ended September 30, 2021		Nine months ended September 30, 2021
Beginning Balance	$	12,623,420	$	5,123,000
New unit issuances		2,581,864		6,988,372
Change in fair value recognized in earnings		2,849,573		5,943,485
Ending Balance	$	18,054,857	$	18,054,857

The

following

presents

changes

the

Class

Units

through

the

three

months

and

nine

months

ended

September

30,

2020:

		Three months ended September 30, 2020		Nine months ended September 30, 2020
Beginning Balance	$	939,000	$	-
New unit issuances		537,000		1,476,000
Change in fair value recognized in earnings		-		-
Ending Balance	$	1,476,000	$	1,476,000

Estimates

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

ATI

. to the various assets acquired. It is reasonably possible that the significant estimates used will change within the next year.

Income/Loss Per Common Share

Income/Loss per Common Share

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.

The following table presents instruments that were anti-dilutive for the nine months ended September 30, 2021 and September 30, 2020 that were excluded from diluted earnings per share as they would have been antidilutive:

		Nine months ended September 30, 2021		Nine months ended September 30, 2020
Convertible notes and accrued interest	$	7,453,968	$	10,214,164
Convertible preferred stock - Series B		-		1,181,819
Stock options and warrants		19,468,704		19,317,714

Stock Based Compensation

The Company recognizes compensation expenses for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value. However, in the case of awards with accelerated vesting, the amount of compensation expense recognized at any date will be based upon the portion of the award that is vested at that date. The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04,

Reference Rate Reform

(Topic 848). This ASU was issued in response to concerns about structural risks of interbank offer rates, and particularly the discontinuation of the London Interbank Offered Rate (“LIBOR”). These rates are used globally by all types of entities for a variety of purposes. ASU 2020-04 provides guidance to companies with optional expedients for contract modifications under Topics 310, 470, 842, and 815-15, excluded components of certain hedging relationships, fair value hedges, and cash flow hedges, as well as certain exceptions, which are intended to help ease the potential accounting burden associated with transitioning away from these reference rates. ASU 2021-01 clarifies certain optional expedients and exceptions for contract modifications and hedge accounting. Companies have the option to immediately apply the ASU. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact of adopting this new accounting standard, but does not expect it to have a material impact on its consolidated condensed financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08,

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

(Topic 805). This ASU amends ASC 805 to require acquiring entities in a business combination to recognize and measure contract assets and contract liabilities using the revenue recognition guidance under ASC T

opic

606. This differs from current GAAP rules where an acquirer generally recognizes these items at fair value on the date of acquisition. ASU 2021-08 is effective for financial statements issued for fiscal years beginning after December 15, 2022, however early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard, but does not expect it to have a material impact on its consolidated condensed financial statements and related disclosures.

Subsequent Events

The

Company

has

evaluated

subsequent

events

through

the

date

these

condensed

consolidated

financial

statements

were

available

issued.

Where

applicable,

the

notes

to these condensed consolidated financial statements have been updated to discuss all

significant

subsequent

events

which

have

occurred.