BASIS OF PRESENTATION AND LIQUIDITY
|12 Months Ended|
Dec. 31, 2021
|Notes to Financial Statements|
|BASIS OF PRESENTATION AND LIQUIDITY||
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.
On May 4, 2020, a group of lenders agreed to provide a $300 million senior secured term loan facility to BKRF OCB, LLC, a wholly-owned subsidiary of
GCEH, to enable that subsidiary to acquire the equity interests of BKRF and to pay the anticipated costs of the retooling of the Bakersfield
Renewable Fuels Refineryowned by BKRF (the “Senior Credit Facility”). Concurrently with the Senior Credit Facility, a group of Mezzanine Lenders also agreed to provide a $65 million secured term loan facility to be used to pay the costs of repurposing and starting up the Bakersfield
Renewable Fuels Refinery, (the “Mezzanine Credit Facility”).
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.
In April 2019, the Company entered into a binding Product Offtake Agreement (the “Offtake Agreement”) with ExxonMobil Oil Corporation (“ExxonMobil”) pursuant to which ExxonMobil has committed to purchase 2.5 million barrels per year of renewable diesel annually from the Bakersfield
Renewable Fuels Refinery(with a right to purchase higher volumes as available), and the Company has committed to sell these quantities of renewable diesel to ExxonMobil. ExxonMobil’s obligation to purchase renewable diesel will last for a period of five years following the date that the Bakersfield
Renewable Fuels Refinerycommences commercial operations. ExxonMobil has the option to extend the initial five-year term. Either party may terminate the Offtake Agreement if the Bakersfield Renewable Fuels Refinery does not meet certain production levels by certain milestone dates following the commencement of the Bakersfield Renewable Fuels Refinery’s operations.
In April 2021, BKRF entered into a Term Purchase Agreement (TPA) with ExxonMobil under which ExxonMobil has the right to purchase additional quantities of renewable diesel from our Bakersfield Renewable Fuels Refinery, and the Company is obligated to sell such additional amounts of renewable diesel to ExxonMobil. Under the Offtake Agreement, signed in 2019, ExxonMobil committed to purchase 2.5 million barrels of renewable diesel per year (the “Committed Volume”) from the Bakersfield Renewable Fuels Refinery. However, the Bakersfield Renewable Fuels Refinery is designed to produce more than the Committed Volume. Under the TPA, ExxonMobil has the exclusive right to purchase all renewable diesel produced in excess of the Committed Volume that we sell to ExxonMobil under the Offtake Agreement. The Company also agreed to transfer title to ExxonMobil of the Renewable Identification Numbers (RINs) allocated to the quantities of renewable diesel purchased under the TPA. In the event that ExxonMobil does not purchase all of the renewable diesel that it can under the TPA and, as a result, our inventory levels exceed certain specified levels, the Company can sell that extra inventory to third parties. ExxonMobil will pay us a price for the renewable diesel purchased under the TPA based on a tiered formula reflecting the margins realized by ExxonMobil from its downstream resales of the TPA renewable diesel. The TPA has a five-year term. ExxonMobil has the option to extend the initial five-year term for a second five-year term if it elects to extend the Offtake Agreement.
Under both agreements, we retain 100% of the co-products, which include renewable propane, renewable naphtha and renewable butane. In February 2022, our BKRF subsidiary entered into an agreement with AmeriGas Propane, a subsidiary of UGI Corporation, whereby Amerigas will purchase all of the renewable propane produced at the Bakersfield Renewable Fuels Refinery. The agreement is at market pricing and the first twelve months of renewable propane to be delivered is estimated to be approximately 13 million gallons. The agreement has an initial term of three years. The Company is pursuing sales contracts for renewable naphtha and renewable butane.