SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We describe our significant accounting policies in Note C of the notes to consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2023 (“Annual Report”). During the three months ended March 31, 2024, there were no changes to those accounting policies.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements as of March 31, 2024 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 generally accepted accounting principles accepted in the United States of America (“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, 2023 as filed with the U.S. Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include all material adjustments (consisting of all normal accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X Rule 8-03. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ended December 31, 2024, or any future periods.
Certain reclassifications have been made to prior period information to conform to the current presentation. The reclassifications had no effect on our overall consolidated financial position, results of operations or cash flows.
The accompanying condensed consolidated financial statements include the accounts of GCEH and its wholly-owned subsidiaries. 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.
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. The Company’s estimate of cash flows may change because of the losses being incurred by the Facility, which may be negatively impacted by further delays in commencing operations. During the three months ended March 31, 2024 and 2023, there were no impairment losses recognized on long-lived assets.
Goodwill and Indefinite 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 acquisition and is not amortized, but tested annually for impairment. Note that goodwill is adjusted for the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive loss. Other indefinite lived assets were separately identified intangible assets apart from goodwill and are subject to amortization. Amortization expense for intangible assets was approximately $0.2 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.
Contract Asset
In exchange for the August 5, 2022 amendments to the POA and the TPA, the Company provided consideration to ExxonMobil, in the form of warrants, which was capitalized as a contract asset and that was expected to be amortized over the life of the contracts on a per gallon basis as the underlying product, renewable diesel, is produced and sold under the contracts. The Company was notified during 2023 that the POA had been purportedly terminated on the basis that the Start Date under the POA of June 30, 2023 was not achieved. While the Company disputes this purported termination, such purported termination of the POA has created a condition that raises an uncertainty as to the POA and renewable diesel revenues to be received pursuant to the POA. Consequently, management evaluated the recoverability of the contract asset and determined it to be fully impaired as of December 31, 2023 in accordance with ASC 340-40 impairment considerations
as management reevaluated the amount of consideration that is expected from the POA and the TPA contracts within the context of ASC 606-10.
Fair Value Measurements and Fair Value of Financial Instruments
As of March 31, 2024 and December 31, 2023, the carrying amounts of the Company’s financial instruments that are not reported at fair value in the accompanying condensed consolidated balance sheets, including cash, cash equivalents and restricted cash, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to their short-term nature. There were no changes since December 31, 2023 in the Company’s valuation techniques used to measure fair value.
Class B Units
The Company’s Class B Units are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of the Class B Units are derived from Level 3 inputs. The fair value amount of the Class B Units as of March 31, 2024 and December 31, 2023 is presented in the table below based on a Monte Carlo Simulation and takes the average over 100,000 iterations. This simulation incorporates inputs such as projected cash flows, discount rate, expected volatility, and risk-free interest rate.
The following presents changes in the Class B Units for the three months ending March 31, 2024 and March 31, 2023:
Debt Instruments
The Senior Credit Agreement is a long-term fixed rate debt instrument that has a carrying amount that is approximately at fair value based on recent amendments and a comparison of recently completed market transactions. The warrants issued in relation to the Senior Credit Agreement are reported at fair value at issuance.
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) long-lived asset impairment, (d) the estimated costs to remediate or clean-up the Facility site, and the inflation rate, credit-adjusted risk-free rate and timing of payments to calculate the asset retirement obligations, (e) the estimated costs to remediate or clean-up identified environmental liabilities, (f) estimated contingent liabilities and (g) the estimated future cash flows, which are adjusted for current market conditions and various operational revisions, and the various metrics required to establish a reasonable estimate of the value of the Class B Units issued to certain of the Company’s Senior Lenders under the Senior Credit Agreement. It is reasonably possible that the significant estimates used will change within the next year.
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, 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 tables present instruments that were potentially dilutive for the three months ended March 31, 2024 and 2023 that were excluded from diluted earnings per share as they would have been anti-dilutive:
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