NOTE B — BASIS OF PRESENTATION AND LIQUIDITY

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations applicable to its common stockholders of $51.4 million during the year ended December 31, 2021, and has an accumulated deficit of $117.6 million at December 31, 2021. At December 31, 2021, the Company had working capital of negative $83.0 million (which includes current restricted cash of $8.0 million) and a stockholders' deficit of $60.6 million. The Company is progressing its Bakersfield Renewables Fuels Refinery retooling project and is on track to achieve its initial revenues from the production and sale of renewable diesel in the second half of 2022. The Company believes that liquidity provided to BKRF HCB, LLC under the Senior Credit Facility and the Mezzanine Credit Facility, together with the funds available under the Series C Preferred Financing (described further below) should 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. In addition, 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the time the financial statements are issued.

 

Since the Bakersfield Renewable Fuels Refinery will not be operational 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. The Company believes that the funds raised through March 31, 2022 through its Series C Preferred Financing, plus the Company’s other financial resources, and plans that could include refinancing the Company’s fixed payment obligation to defer repayment of this obligation until the refinery’s operations commence, raising additional debt or equity funding, or revising our short-term operating plans, and reducing anticipated investments in Camelina production and in infrastructure improvements, and otherwise reducing operating expenses, along with the start-up of the Bakersfield Renewable Fuels Refinery, at which point the Company expects to begin to generate positive operating cash flow, should be sufficient to fund the Company’s operations and liabilities for one year from the issuance date of these financial statements. Management believes it is probable that those plans can be effectively implemented and are sufficient to mitigate the circumstances resulting in substantial doubt for a period not less than one year from the date the financial statements are issued.

 

GCEH

Renewable Fuels Refinery

Renewable Fuels Refinery

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 - (the “Exxon Funding Event”). 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, 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 “Warrant Commitment Liability”). This warrant was in consideration for i) the consent premium payable from an earlier amendment to the Senior and Mezzanine Credit Facilities, 2) the Bridge Loan, and iii) the assignment of the Mezzanine Credit Facility to GCEH

 as additional creditor fees for forbearance to the Senior Lenders and Mezzanine Lenders.

This warrant was issued on February 23, 2022 to the Senior Lenders and the Senior Lenders purchased $20 million of the Series C Preferred.

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 (5,017,008 issued to settle the Warrant Commitment Liability) 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 Warrants”) 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 33% (19,701,493 shares) 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

ExxonMobil 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.

 

Renewable Fuels Refinery

Renewable Fuels Refinery