|9 Months Ended|
Sep. 30, 2021
|Disclosure Text Block [Abstract]|
NOTE E – DEBT
On May 4, 2020, in order to fund the purchase of BKRF, BKRF OCB, LLC, a subsidiary of the Company, entered into the Senior Credit Facility with a group of lenders (the “Senior Lenders”) pursuant to which the Senior Lenders agreed to provide a $300 million senior secured term loan facility to BKRF OCB (which was increased to $313.2 million in November 2020) to pay the costs of the retooling the Bakersfield Biorefinery. The Senior Credit Facility bears interest at the rate of 12.5% per annum, payable quarterly, provided that the borrower may defer up to 2.5% interest to the extent it does not have sufficient cash to pay the interest, with such deferred interest being added to principal. The principal of the Senior Credit Facility matures in November 2026, provided that BKRF OCB, LLC must offer to prepay the Senior Credit Facility with any proceeds of such asset dispositions, borrowings other than permitted borrowings, proceeds
from condemnation, damages, or other events of loss, andexcess net cash flow. BKRF OCB, LLC may also prepay the Senior Credit Facility in whole or in part with the payment of a prepayment premium. As additional consideration for the Senior Credit Facility, the Senior Lenders are issued Class B Units in BKRF HCP, LLC, an indirect parent company of BKRF OCB, LLC, as the Company draws on the Senior Credit Facility. As of September 30, 2021, 284.8 million Class B Units have either been issued or are issuable, and the aggregate fair value of such units on the date of their issuances totaled approximately $10.1 million which were recorded as debt discount. The aggregate fair value of the earned units as of September 30, 2021 was approximately $18.1 million. The fair value of such units is remeasured at each new issuance and at each quarter end. The fair value of these Class B units on the date of issuance is recorded as a liability with an offsetting adjustment to debt discount. During the nine months ended September 30, 2021, $3.1 million of these costs were recognized. It is expected that the fair value will change based on relevant factors influencing future cash flows. The Senior Credit Facility is secured by all the assets of BKRF OCB, LLC (including its membership interests in BKRF), all the outstanding membership interest in BKRF OCB, LLC, and all the assets of BKRF. In March 2021, the Company and the Senior Lenders amended the credit agreements to address and remedy certain covenants of which the Company was not in full compliance, thereby bringing the Company into full compliance with all covenants as of the amendment date. As part of that amendment, the Company agreed to pay the Senior Lenders a 1% fee of the total available credit available under the Senior Credit Facility and the Mezzanine Credit Facility. Based on the credit available under the two facilities, the fee was $3.8 million and may be paid in common stock.
Effective March 26, 2021, the Company and its Senior Lenders entered into Amendment No. 3 to the Credit Agreement to, among other things, establish a contingency reserve account to fund the costs of the additional capabilities and equipment and to fund possible cost overruns at the Bakersfield Biorefinery. Concurrently, the Company and the Mezzanine Lenders entered into Consent No. 2 and Amendment No. 2 to Credit Agreement to amend the $65 million Mezzanine Credit Facility. Under these two amendments we agreed to establish a cash reserve of at least $35 million, which cash reserve would be used at the direction of the agent for the lenders to fund project costs of the Bakersfield Biorefinery to the extent that such costs exceed the amounts available under the two credit agreements. Funds remaining in the contingency reserve account after the completion of the Bakersfield Biorefinery will, with the approval of the lenders’ agent, be used to first make a $5 million principal payment on the Senior Credit Facility, and any remaining funds will be returned to us. In order to fund the new $35 million contingency cash reserve, the two amendments to the credit agreements required that we raise no less than $35 million in a public or private financing transaction by July 31, 2021 and that we deposit, by that date, at least $35 million into the new Bakersfield Biorefinery cash reserve account. As consideration for the amendments to the two credit agreements, we agreed to pay each Senior Lender and Mezzanine Lender an amendment and consent premium equal to 1.00% of the aggregate commitments and loans of such lenders. On July 29, 2021 the time period for funding the $35 million contingency reserve was extended to September 15, 2021 and has been further extended to November 19, 2021.
On May 4, 2020, BKRF HCB, LLC, the indirect parent of BKRF OCB, LLC, entered into a the Mezzanine Credit Facility with a group of Mezzanine Lenders who agreed to provide a $65 million secured term loan facility to be used to pay the costs of repurposing and starting up the Bakersfield Biorefinery. As of September 30, 2021, BKRF HCB, LLC has not drawn down on the Mezzanine Credit Facility. The Mezzanine Credit Facility bears interest at the rate of 15.0% per annum on amounts borrowed, payable quarterly, provided that the borrower may defer up to 2.5% interest to the extent it does not have sufficient cash to pay the interest. Such deferred interest is added to principal. As additional consideration for the Mezzanine Credit Facility, the Mezzanine Lenders will be issued Class C Units in BKRF HCP, LLC at such times as advances are made under the Mezzanine Credit Facility. The Mezzanine Credit Facility will be secured by all of the assets of BKRF HCP, LLC, including all of the outstanding membership interest in BKRF HCB, LLC. The Mezzanine Credit Facility matures in November 2027.
On May 18, 2021 certain of our subsidiaries, including BKRF, entered into Amendment No. 4 to our Credit Agreement with the Senior Lenders. The Amendment was entered into primarily to consent to the replacement of the original EPC firm and agreement with the new EPC firm and agreement. See Note H - Commitments and Contingencies.
On July 29, 2021, the Company entered into an amendment to each of its Senior Credit Facility and Mezzanine Credit Facility with its lenders to extend the date of funding the $35 million contingency reserve to September 15, 2021, to increase the availability under the credit agreements by an aggregate of $5 million, and to convert its 1% fee payable under a prior amendment from a cash payment to a warrant to purchase $3.8 million in value of the Company's common stock. As of September 30, 2021, the warrant has not been issued, and subsequent to September 15, 2021 the date of funding for the $35 million contingency reserve has been extended to November 19, 2021.. The number of shares to be issued upon exercise of the warrant is to be determined based on the price at which the Company issues shares of its common stock in its next additional capital raise, which is defined as a minimum of $35.0 million..
Fixed Payment Obligation
As described in Note A, under “Fair Value Measurements and Fair Value of Financial Instruments”, the Company amended a derivative forward contract during the quarter ended March 31, 2020, with the counterparty. The amendment terminated the derivative forward contract and replaced it with a fixed payment obligation. Under the terms of the fixed payment obligation, the Company agreed to pay the counterparty a total of $23.1 million, which included a payment of $5.5 million in April 2020, and six equal installment payments in 2022 totaling $17.6 million. Under the subsequent revised terms of the fixed payment obligation in April 2020, the Company agreed to pay the counterparty a total of $24.8 million, which included a payment of $4.5 million in June 2020 (which was paid), and six equal monthly installment payments beginning in May 2022. For financial reporting purposes, the fixed payment obligation has been recorded at the present value of future payments, using a discount rate of 14.8%.
Other Notes Payable
Included in “other notes” as of September 30, 2021, in the above table, is a note, that is due upon demand related to the Company’s business activities prior to 2019, in the principal amount of $1.3 million and an interest rate of 18% per annum. Also, included in other notes above, is a note payable that was used to finance the Company’s insurance policies. Upon the
acquisition of the Bakersfield Biorefinery in May 2020, the Company purchased numerous insurance contracts to cover its corporate, ownership and construction risks primarily to provide financial protection against various risks and to satisfy certain lender requirements. The Company paid 35% of the total premiums and financed the balance at 3.8% annual interest
rate. The Company is obligated to make seventeen equal monthly payments totaling approximately $
4.5million beginning in July 2020. The insurance policies cover various periods from 12 to 60 months beginning in May 2020. As of September 30, 2021, the Company had six payments remaining for a total of $1.8 million. In May, 2021, the Company entered into new insurance policies to replace the policies that were expiring in May 2020. The Company paid 8.5% of the total premiums and financed the balance at a
3.85% annual interest rate. The Company is obligated to make 11 equal monthly payments totaling approximately $0.5 million beginning in June 2021. In March, 2021, the Company received a SBA Paycheck Protection Program loan for $0.6 million at a 1% interest rate. The loan matures in March 2026, and the Company may have the opportunity to have the loan forgiven under the government program.
Convertible Note Payable to Executive Officer
On October 16, 2018, Richard Palmer, the Company’s Chief Executive Officer and President, entered into a new employment agreement with the Company and concurrently agreed to defer $1 million of his accrued unpaid salary and bonus for two years. In order to evidence the deferral, the Company and Mr. Palmer entered into a $1 million convertible promissory note (the “Convertible Note”). The Convertible Note accrues simple interest on the outstanding principal balance of the note at the annual rate of five percent (5%) and became due and payable on October 15, 2020, its maturity date. Under its existing credit agreements, the Company is restricted from repaying Mr. Palmer’s loan and, accordingly, is currently in default under the Convertible Note. The Company accrued interest expense of $12,500 and $37,500 on this note in each quarter and nine months respectively, ended September 30, 2021 and 2020. The Company had recorded accrued interest payable of approximately $148,000 and $110,000 as of September 30, 2021 and December 31, 2020 respectively. Under the Convertible Note, Mr. Palmer has the right, exercisable at any time until the Convertible Note is fully paid, to convert all or any portion of the outstanding principal balance and accrued and unpaid interest into shares of the Company’s Common Stock at an exercise price of $0.154 per share.
Convertible Notes Payable
The Company had several notes that were convertible into shares of the Company or the Company’s subsidiaries at different prices: ranging from $0.30 per share into the Company’s stock and up to $1.48 per share into Susoils’s common stock. These notes have passed their original maturity date and they continue to accrue interest at varying rates, from 8% to 10%. On March 26, 2021, we issued 1,586,786 shares of the Company’s common stock to the holder of a convertible promissory note upon the conversion of the entire outstanding balance, principal and accrued interest, for that note. During the quarter ending June 30, 2021, the Company paid the remaining notes and the accrued interest either by an agreed cash settlement or through the issuance of common shares at an agreed price of $5.75 per share. As of September 30, 2021, there are no remaining convertible notes payable to third parties.
The following table summarizes the minimum required payments of notes payable and long-term debt as of September 30, 2021:
Class B Units
As described above, during the year ended December 31, 2020 and through September 30, 2021, the Company issued or had issuable 151.5 million and 284.8 million, respectively, Class B Units of its subsidiary, BKRF HCB, LLC, to its Senior Lenders. To the extent that there is distributable cash, the Company is obligated to make certain distribution payments to holders of Class B Units, and after the distributions reach a certain limit the units will no longer require further distributions and will be considered fully redeemed. The Class B unit holders may receive a portion of the distributable cash, as defined under the Senior Credit Facility, available to BKRF HCB, LLC, but generally only up to 25% of the available cash after the required interest and principal payments, operating expenses and ongoing capital requirements have been paid. Such payments commence once the Bakersfield Biorefinery begins operations and will continue through the later of five years after operations of the refinery begins or until the cumulative distributions reach a certain threshold defined in the operating agreement of BKRF HCB, LLC. The aggregate total payments (including distributions to the Class B Units, all interest and principal payments) to the Senior Lenders cannot exceed two times the amount of the borrowings under the Senior Credit Facility, or approximately $635 million. As of September 30, 2021, 284.8 million Class B Units have either been issued or are issuable, and the aggregate fair value of such units on the date of their issuances totaled approximately $10.1 million which were recorded as debt discount. The aggregate fair value of the earned units as of September 30, 2021 was approximately $18.1 million. The fair value of such units is remeasured at each new issuance and at each quarter end. It is expected that the fair value will increase as the Company continues to de-risk the project through ongoing retooling activities. The fair value is largely based on the present value of the expected distributions that will be made to the Class B Unit holders, which consider various risk factors, including a market risk premium, project size, the uniqueness and age of the refinery, the volatility of the feedstock and refinery inputs, operational costs, environmental costs and compliance, effective tax rates, illiquidity of the units, etc. As completion of retrofitting the refinery progresses, the fair value is expected to increase, and further increases in fair value are expected when the refinery becomes operational and begins generating revenues. For accounting purposes, these Class B Units are considered to be mandatorily redeemable and have been classified as liabilities in the accompanying balance sheets and are remeasured at fair value at the end of each reporting period.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef