Global Clean Energy Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

SIGNIFICANT ACCOUNTING POLICIES (Policies)

SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2023

Cash and Cash Equivalents; Concentration of Credit Risk

The Company considers all highly liquid investments in money market accounts with an original maturity of three months or less from date of purchase to be cash equivalents. The Company maintains cash and cash equivalents at high-quality financial institutions. However, deposits exceed the federally insured limits. At September 30, 2023, the Company had approximately $3.4 million in uninsured cash.

Inventories

Inventories currently consist of camelina

seeds, grain, meal, and oil. Inventories are valued at the lower of cost or net realizable value. Cost is determined based on standard cost. The Company recognized a loss of $0.7 million and no loss for the three months ended September 30, 2023 and 2022, respectively, and $0.7 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively, due to inventories being adjusted to the lower of cost or net realizable value.

Long-Lived Assets

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. During the three and nine months ended September 30, 2023 and 2022, 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 September 30, 2023 and 2022, respectively, and $0.8 million and $1.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Financing and Debt Issuance Costs

Financing costs were incurred as a result of the Company’s various debt facilities and are presented as a reduction of the carrying amount of outstanding debt (also referred to as a debt discount). Debt discounts incurred by the Company primarily included consideration given directly to the Senior Lenders under the Senior Credit Agreement, which are amortized using the effective interest method and are included as a component of interest expense over the contractual term of the underlying debt. Debt issuance costs include various incremental fees paid to third parties, other than the lender, in connection with the issuance of debt. Debt issuance costs are also presented as a reduction of the carrying amount of debt and are also amortized using the effective interest method. The Company has elected to classify unamortized debt discount and debt issuance costs net of long-term maturities of the respective debt obligations, unless the total debt obligation matures within the next twelve months, which then the remaining unamortized amount would be classified net of current maturities of the respective debt obligations.

Accrued Liabilities

As of September 30, 2023 and December 31, 2022, accrued liabilities consists of:

	As of September 30, 2023		As of December 31, 2022
Accrued compensation and related liabilities	$	6,405,330	$	6,377,251
Accrued interest payable		12,994,762		4,744,937
Accrued construction costs		-		4,551,839
Other accrued liabilities		4,454,079		4,841,668
Current portion of asset retirement obligations		9,090,513		2,849,000
Current portion of environmental liabilities		3,499,842		4,353,564
Deferred revenue		2,980,000		-
	$	39,424,526	$	27,718,259

Contract Asset

In exchange for the August 5, 2022 amendments to the POA and the TPA, the Company provided consideration to Exxon, in the form of warrants, which was capitalized as a contract asset and will 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 construction for the Bakersfield Renewable Fuels Refinery is not yet completed. Accordingly, the Company has not recognized amortization associated with the contract asset. The Company evaluates the contract asset for impairment each reporting period. During the three and nine months ended September 30, 2023 and 2022, there were no impairment losses recognized related to the contract asset.

Research and Development

Research and development costs are charged to operating expenses when incurred, which were

approximately

$1.2 million for both the three and nine months ended September 30, 2023

. Research

and

development costs were nominal for both the three and nine months ended September 30,

2022.

Fair Value Measurements and Fair Value of Financial Instruments

As of September 30, 2023 and December 31, 2022, 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. At December 31, 2022, the carrying amount of the Company's convertible note payable to one of its executive officers, which is a financial instrument that is not reported at fair value in the accompanying condensed consolidated balance sheets, approximates its fair value due to the recent amendments that reflect current market conditions. As of September 30, 2023, the convertible note payable had been converted to common stock (See Note E - Debt). The Class B Units, issued by BKRF HCB, LLC, are reported at fair value. 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.

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.

The following is the recorded fair value of the Class B Units as of September 30, 2023:

	Carrying Value		Total Fair Value		Quoted prices in active markets for identical assets - Level 1		Significant other observable inputs - Level 2		Significant unobservable inputs - Level 3
Liabilities
Class B Units	$	5,421,000	$	5,421,000	$	-	$	-	$	5,421,000

The following is the recorded fair value of the Class B Units as of December 31, 2022:

	Carrying Value		Total Fair Value		Quoted prices in active markets for identical assets - Level 1		Significant other observable inputs - Level 2		Significant unobservable inputs - Level 3
Liabilities
Class B Units	$	12,007,000	$	12,007,000	$	-	$	-	$	12,007,000

The following presents changes in the Class B Units for the three and nine months ending September 30, 2023:

	Three months ended September 30, 2023			Nine months ended September 30, 2023
Beginning Balance	$	11,600,000		$	12,007,000
Change in fair value recognized in earnings		(6,179,000	)		(6,586,000	)
Ending Balance	$	5,421,000		$	5,421,000

The following presents changes in the Class B Units for the three and nine months ending September 30, 2022:

	Three months ended September 30, 2022		Nine months ended September 30, 2022
Beginning Balance	$	8,520,914	$	21,628,689
New unit issuances		3,043,000		3,043,000
Change in fair value recognized in earnings		3,295,086		(9,812,689	)
Ending Balance	$	14,859,000	$	14,859,000

Government Grants

The Company is the primary contractor to a grant award from the United States Department of Agriculture (“USDA”) whereby certain costs incurred by the Company are reimbursed by the USDA. The Company accounts for the USDA grant under a government grant model. GAAP does not address the accounting for government grants received by a business entity that are outside the scope of ASC 740. The Company’s accounting policy is to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting Standards. Under IAS 20, once it is reasonably assured that the entity will comply with the conditions of the grant, the grant money should be recognized on a systematic basis over the periods in which the entity recognizes the related expenses or losses for which the grant money is intended to compensate. The Company recognizes grants once it is probable that both of the following conditions will be met: (1) the Company is eligible to receive the grant and (2) the Company is able to comply with the relevant conditions of the grant. Government grants whose primary condition is the purchase, construction, or acquisition of a long-lived asset are considered asset-based grants and are recognized as a reduction to such asset’s cost basis, which reduces future depreciation. Other government grants not related to long-lived assets are considered income-based grants, which are initially recognized as “Government grants receivable” and are also recognized as a reduction to the related cost of activities that generated the benefit. Proceeds received from asset-based grants are presented as cash inflows from investing activities on the consolidated statements of cash flows, whereas proceeds received from income-based grants are presented as cash inflows from operating activities.

The Company generally accounts for the USDA grant as an income-based grant, however, there is also an asset-based component of the USDA grant where the Company will acquire long-lived assets that have alternative future use to the company with a useful life greater than one year.

Translation and Remeasurement

GCEH present our condensed consolidated financial statements in U.S. dollars as the Company’s reporting currency. As a result, the Company translates the assets, liabilities, revenues and expenses of all our operation into U.S. dollars at applicable exchange rates. Generally, our foreign subsidiaries use the local currency as their functional currency, except those that have been designated a highly inflationary economy under U.S. GAAP. Changes in the carrying of assets and liabilities attributable to fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of AOCI. Income statement accounts are translated using the monthly average exchange rates during the year. If it is determined to be a hyperinflationary currency, then in accordance with U.S. GAAP, local subsidiaries in hyperinflationary economies are required to use the reporting currency as their functional currency and remeasure the monetary assets and liabilities as if the functional currency were the reporting currency, U.S. dollars. All exchange gains and losses resulting from remeasurement are recognized currently in other income (loss), net in the consolidated statements of operations. The Company’s newly commenced operations in Argentina carry this hyperinflationary designation. The hyperinflationary conditions did not have a material impact on the Company’s business during the three and nine months ended September 30, 2023.

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) the estimated costs to remediate or clean-up the refinery site, and the inflation rate, credit-adjusted risk-free rate and timing of payments to calculate the asset retirement obligations, (d) the estimated costs to remediate or clean-up identified environmental liabilities, and (e) 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 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 and nine months ended September 30, 2023 and 2022 that were excluded from diluted earnings per share as they would have been anti-dilutive:

		Three months ended September 30, 2023				Nine months ended September 30, 2023
Stock options and warrants			74,503,336				75,265,442

	Three months ended September 30, 2022		Nine months ended September 30, 2022
Convertible notes and accrued interest		7,600,257		7,600,257
Stock options and warrants		52,726,566		42,683,424

Subsequent Events

The Company evaluated subsequent events, if any, that would require an adjustment to the Company’s condensed consolidated financial statements or require disclosure in the notes to the condensed consolidated financial statements through the date of issuance of the financial statements. Where applicable, the notes to these condensed consolidated financial statements have been updated to discuss all significant subsequent events which have occurred. See Note J - Subsequent Events, for a description of events occurring subsequent to September 30, 2023 not included elsewhere in these condensed consolidated financial statements.