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 nonfood feedstocks (the “Bakersfield Renewable Fuels Refinery''). The Bakersfield Renewable Fuels Refinery 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 the second half of

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

Renewable Fuels Refinery

will have a nameplate capacity of 15,000 , we do not expect to produce more than 10,000 for at least the first year of production.

The accompanying consolidated financial statements include the accounts of GCEH. and its subsidiaries, and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). References to the “ASC” hereafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

During the year ended December 31, 2021, we identified a classification error within the total stockholders’ deficit section of the consolidated balance sheet as of December 31, 2020 the fair value of a call option that was part of our purchase of the Bakersfield refinery asset on May 7, 2020. The option provides for the selling entity to acquire a non-controlling interest, up to 33,333 units of GCE Holdings Acquisitions, LLC (“GCE Acquisitions”) representing up to 33.33% of GCE Acquisitions upon the exercise of this call option. The call option was valued at $5.5 million and the full amount was originally included in additional paid-in capital on our consolidated balance sheet. Upon our review, this amount should be separately identified in the stockholders’ deficit section as non-controlling Interest. This does not impact our valuation, has no effect on our assets liabilities

or total stockholders’ deficit

and has no impact on our consolidated loss for the year ended December 31, 2020. The Company followed ASC 810, , regarding the presentation of the call option in presenting the amount in the consolidated financial statements for the year ended December 31, 2020 and 2021 and the reclassification in the stockholders’ deficit section of the balance sheet was not considered material to any year, including the Company’s quarterly unaudited interim condensed consolidated financial statements. The selling entity holding the call option has not exercised their right as of December 31, 2021.

 

 

 

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 consolidated financial statements and footnotes have been adjusted to reflect the foregoing reverse stock split.

 

In accordance with the Company’s Senior Credit Facility (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 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  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.

 

and cash

 

1

0

 

 

Renewable Fuels Refinery

 

 

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 year ended December 31, 202 and 202, there were no impairment losses recognized on

long-lived assets.

 

The Company’s indefinite lived assets consist of, Goodwill and trade names. 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 other indefinite lived assets were separately identified intangible assets apart from goodwill. These separately identified assets with indefinite lives are not amortized and instead are tested annually for impairment, or more frequently if events or circumstances indicate a likely impairment.

 

 

As of December 31, 2021 and December 31, 2020, 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 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. 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 years ended December 31, 2021 and December 31, 2020.

 

 

 

 

Renewable Fuels Refinery

During

s

s

December 31, 2021

and December 31, 2020

.

 

The Company recognizes revenue in accordance with ASC 606, , using th 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 $0.2 million in revenues during the year ended December 31, 2021 and had no comparable sales in the year ended December 31, 2020. The Company is engaged in contracting with farmers to grow Camelina grain that will be processed into oil for use in Bakersfield . The Company will recognize revenues upon the sale of its i) certified Camelina seed to farmers ii) the crushed Camelina meal that it plans to sell to third-party livestock and poultry operators, and iii) any Camelina oil that is sold outside of the consolidated group. 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 renewable diesel and products  2022.

 

Research and development costs are charged to operating expenses when incurred, which were nominal for the years ended December 31, 2021 and December 31, 2020.

 

 

 

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

The following is the recorded fair value of the Class B Units and the Warrant Commitment as of December 31, 2021 and December 2020:

 

 

 

The following presents changes in the Class B Units for the years ending December 31, 2021 and December 31, 2020:

 

 

The following presents changes in the Warrant Commitment for the years ending December 31, 2021 and December 31, 2020:

 

 

 

 

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, options, and convertible notes and accrued interest 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 dilutive for the years ended December 31, 2021 and December 31, 2020 that were excluded from diluted earnings per share as they would have been :

 

On December 18, 2019, the FASB issued ASU 2019-12, which affects general principles within ASC 740, . The ASU removes the following exceptions: (1) incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The ASU also will make changes to franchise tax recognition, consideration of the tax basis recognition of goodwill related to acquisitions, specify tax allocation to subsidiaries, reflecting a change in tax law in the interim period, annual effective tax rate computation in the period of enactment, and changes to the employee stock ownership plans and investments. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.

In August, 2020, the FASB issued ASU 2020-06, which reduces the complexity of the accounting for convertible debt instruments and its effect on earnings per share calculation. The guidance reduces the number of accounting models used for convertible debt instruments, which will result in fewer embedded conversion features being recognized separately from the original contract. This will also affect the guidance associated with convertible debt for earnings-per-share by requiring the if-converted method rather than the treasury stock method, requiring that potential share settlement be included in the calculation of diluted earnings per share and clarifying that an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted-average share count. For public business entities, the amendments in ASU 2020-06 are effective for fiscal years beginning after December 15, 2021, including interim periods within those years, and early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those years. The Company is evaluating the impact of the guidance on its consolidated financial statements, but does not expect the impact to be material.

 

In October, 2021, the FASB issued ASU 2021-08, which updates the guidance related to the acquisition of revenue contracts in a business combination. The new guidance requires that the acquiring entity recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date the acquirer should recognize the contract assets and liabilities under Topic 606 as they would have been recognized at contract origination rather than at fair value at the time of the acquisition. The intent is to create more comparability of recognition and measurement of the acquired contracts in business combinations. For public business entities, the amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its consolidated finance statements.

 

In November, 2021, the FASB issued ASU 2021-10, which requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance will require business entities to disclose the nature of the transactions, accounting policies used to account for the transactions, and state which line items on the balance sheet and income statement are affected by these transactions and the amount applicable to each financial statement line. Business entities will also have to disclose significant terms and conditions of transactions with a government such as the duration of the agreement, any commitments made by either side, provisions, and contingencies. The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021. Entities may apply the provision either (1) prospectively to all transactions within the scope of ASC 832 that are reflected in the financial statements as of the adoption date and all new transactions entered into after the date of adoption or (2) retrospectively. Early adoption is permitted. The Company is still evaluating the impact of the guidance on its consolidated financial statements.