This Management's Discussion and Analysis should be read in conjunction with the
Financial Statements and Supplementary Data included in Item 15 of this Annual
Report, as well as the discussion of the Company's business and risk contained
in Item 1 -
Business
and Item 1A -
Risk Factors.

Overview

The Company has been engaged in the development in its Camelina assets since 2013, and since our acquisition of the Bakersfield Renewable Fuels Refinery in May 2020, has also been engaged in completing the retooling of the Bakersfield Renewable Fuels Refinery into a renewable fuels facility. When complete, the Bakersfield Renewable Fuels Refinery will produce renewable diesel as its primary product to be sold into the transportation sector. The design of the facility indicates that over 90% of the refined products produced at the refinery will be renewable diesel and the balance will be other renewable diesel co-products, such as renewable propane, renewable naphtha, and renewable butane. The primary feedstock for the Bakersfield Renewable Fuels Refinery is expected to be Camelina, a fast-growing, low input crop traditionally grown on fallow land in rotation with wheat and other row crops, allowing farmers to improve total farm economics through better overall asset utilization.

Business and Industry Outlook

During 2022 and the first quarter of 2023, management has been focused on the completion of the Bakersfield Renewable Fuels Refinery, which we believe is the key to our business plan of having a fully integrated farm-to-fuel strategy. Once completed, we intend to immediately commence with the production of renewable diesel. We believe that renewable diesel has a large addressable market. Because renewable diesel is a 100% replacement for petroleum-based diesel, the total addressable market includes the collective consumption of biodiesel, renewable diesel, and petroleum-based diesel. In aggregate, the United States transportation sector consumed 48 billion gallons of these fuels in 2021, with almost 4 billion gallons consumed in California alone. Canada will also represent an important market as it implements its own LCFS program.

We also intend to further develop our Camelina business. For example, when Camelina grain is processed, it is separated into neat plant oil and biomass, the latter of which is a protein rich animal feed supplement similar to canola or soybean meal. An additional benefit of our animal feed is that it is non-GMO. The market for protein meal in the western United States is roughly 4 MMTPY, which is supplied primarily from Midwestern states that grow soybeans for protein and oil extraction. The livestock industry in California's San Joaquin Valley, which has among the largest concentrations of cattle and dairy producers in the United States, imports all its 1 MMTPY of protein meal from out of state, creating a substantial opportunity for our local meal production. Domestic use of protein meal is estimated to be 40 MMTPY.

Results of Operations

Revenues.

Since our acquisition of the Bakersfield Renewable Fuels Refinery in May 2020, we have been engaged in retooling the former crude oil refinery into a renewable fuels refinery and in further developing our Camelina feedstock production and related supply chain. Accordingly, we did not generate any renewable fuel revenues during the fiscal years ended December 31, 2022 and December 31, 2021, however we did generate $2.6 million and $0.2 million in certified seed and meal sales during the fiscal years ended December 31, 2022 and December 31, 2021, respectively. We do not anticipate generating revenues from the Bakersfield Renewable Fuels Refinery until its completion.

General And Administrative Expenses and Facility Expenses. General and administrative expenses consist of expenses relating to corporate overhead functions and operations. Our general and administrative expenses increased by $17.8 million, or 72%, from $25.2 million in fiscal year 2021 to $43.0 million in fiscal year 2022. This increase was due to an increase in personnel for the entire year, share-based compensation, transaction costs, professional fees and general administrative expenses arising from the ownership and integration of our acquired companies and increased activities of the Bakersfield Renewable Fuels Refinery. We expect that our general and administrative expenses will continue to increase in 2023 as the development of the upstream business expands and the Bakersfield Renewable Fuels Refinery is fully operational. Facility expenses primarily consist of maintenance costs to keep the Bakersfield Renewable Fuels Refinery in an operational mode and expenses normally related to the operations of a refinery. The 2022 facility expense was $19.6 million, an increase of $5.1 million as compared to $14.5 million in 2021 and was due primarily to an increase in utility costs, property taxes, professional fees and outside services.




 26

Other Income/Expense . Other income increased by $22.5 million from a negative $8.9 million in fiscal year 2021 to $13.6 million in fiscal 2022. The increase was due primarily to the change in fair value of the Class B Units, which was driven by market changes that impact the future cash projection eligible for distribution to the Senior Lenders, and the change in fair value of the warrant commitment liability. The value of the Class B Units is expected to continue to fluctuate based on various market conditions and refinery operational estimates and assumptions. During fiscal year 2022, the Company incurred a loss of $4 million related to extinguishment of certain debt with no comparable item in 2021, benefited from a $4.5 million change in fair value of a warrant commitment liability compared to a loss of $3.2 million in 2021 and benefited from the change in Class B Unit fair value liability by $12.7 million compared to a loss of $6 million in 2021.

Interest Income/Expense. Our net interest expenses consisted of accrued and paid interest of $3.8 million and $2.9 million, during the fiscal years ended December 31, 2022 and December 31, 2021, respectively. For fiscal year 2021, we had $2.7 million in promissory notes outstanding and had a balance of $337.6 million borrowed from our Senior Credit Agreement. For fiscal year 2022, we had $2.3 million in promissory notes outstanding and had a balance of $397.6 million borrowed under our Senior Credit Agreement. Accordingly, our interest expense increased in fiscal year 2022 by $0.9 million. Applicable construction period interest costs are capitalized into the project under the guidance of the current accounting standards. We expect that our interest expenses will significantly increase as the company begins operations of the Bakersfield Renewable Fuels Refinery and ceases capitalizing construction period interest.

Net losses. For fiscal year 2022 we incurred an operating loss of $64.3 million, an increase of $23.6 million from our operating loss of $40.7 million in fiscal year 2021. Our operating loss increased primarily as a result of the increase in activity related to our retooling of the Bakersfield Renewable Fuels Refinery, higher utility, transaction costs, professional fees and the expansion and related increased activities in our upstream business. We expect to continue to incur losses in 2023 until we begin operations at the Bakersfield Renewable Fuels Refinery.

Liquidity and Capital Resources

General

. As of December 31, 2022 and December 31, 2021, we had approximately $7.5 million and $23.4 million of cash, respectively. Of these amounts, $1.7 million and $20.5 million, respectively, is restricted and can only be spent on the Bakersfield Renewable Fuels Refinery pursuant to the terms of our Senior Credit Agreement. Of the restricted amounts, $0.1 million and $12.5 million as of December 31, 2022 and December 31, 2021, respectively, is considered long-term and is expected to be capitalized into the Bakersfield Renewable Fuels Refinery project. On December 31, 2022 and December 31, 2021 we had negative working capital of $68.6 million and $81.7 million, respectively. This working capital does not consider the long-term restricted cash identified above.

Sources of Liquidity. Our sources of liquidity consist of $5.8 million of unrestricted cash on hand. On January 30, 2023, the Company increased its borrowing capacity under its Senior Credit Agreement by $40 million and as of April 17, 2023 has drawn $31 million and has $9 million remaining to be drawn. We have incurred net losses of $54.1 million and $51.4 million during the years ended December 31, 2022 and 2021, respectively, and as of December 31, 2022, we had an accumulated deficit of $171.8 million. We estimate that we will require approximately $90 million beginning June 1, 2023 to fund completion of the Bakersfield Renewable Fuels Refinery and operations through April 17, 2024 and possibly an additional $40 million to fund the initial feedstock required for operations. In addition, under the Senior Credit Agreement, the Company is required to raise $110 million to refinance a portion of the senior debt, and may require (if not amended) $60 million for cash interest payments related to the senior debt. We do not have any other credit or equity facilities available with financial institutions, stockholders, or third party investors, and as a result will be required to obtain additional debt or equity financing on a best efforts basis. There is no assurance, however, that we can raise the capital necessary to fund our business plan. Failure to raise the required capital will have a material and adverse effect on our operations, and could cause us to curtail operations.

To the extent that we raise additional funds through the issuance of equity securities, our stockholders will experience dilution, and the terms of the newly issued securities could include certain rights that would adversely affect our stockholders' rights. Furthermore, if these new securities are convertible or are accompanied by the issuance of warrants to purchase shares of our common stock, our current stockholders will experience substantial dilution.

Senior Credit Agreement. As of December 31, 2022, we have borrowed $397.6 million under our Senior Credit Agreement. Proceeds from the Senior Credit Agreement have been, and will continue to be used to fund the pre-operational expenses and the capital costs of the Bakersfield Renewable Fuels Refinery.




 27

On August 5, 2022, we entered into an amendment to our Senior Credit Agreement which provided for, among other things, an upsizing of the Tranche B Commitments by $60 million. In addition, the amendment provided for (i) the ability to pay interest in kind (in lieu of a cash payment) for the periods ending September 30, 2022 and December 31, 2022 and (ii) an extension of the date on which Substantial Completion (as defined in the Senior Credit Agreement) must be achieved from August 31, 2022 to March 31, 2023, which such date can be extended for up to 90 days upon the consent of ExxonMobil.



On January 30, 2023, we entered into a separate amendment to our Senior Credit
Agreement, pursuant to which, among other things, the lenders agreed to a series
of Tranche C Commitments under the Senior Credit Agreement in an amount of up to
$40 million, which will be available to be drawn through June 30, 2023.  In
addition, the amendment provided for (i) an increase in the underlying interest
rate on the loans following the effective date of the amendment from 12.5% to
15%, (ii) the ability to pay interest in kind (in lieu of a cash payment) for
the periods ending March 31, 2023 and June 30, 2023, (iii) a change in the
maturity date to December 31, 2025, (iv) an agreement to raise at least $10
million in new capital by March 31, 2023, and $100 million by April 1, 2024, and
(v) certain governance rights, including certain limited rights for the
Administrative Agent to put forth nominees to the Board of Directors of the
Company. The requirement to raise at least $10 million in new capital has been
extended to May 15, 2023. See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Subsequent Events
.

The Senior Credit Agreement contains certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Senior Credit Agreement, failure to comply with covenants within specified time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. As of April 17, 2023, we were in compliance with all of our covenants under the Senior Credit Agreement.

Series C Preferred Stock . On February 23, 2022, we raised $145 million through the sale of shares of our newly created Series C Preferred to ExxonMobil and the senior lenders. The net offering proceeds of the Series C Financing (after payment of $9.3 million of offering expenses and other related fees and costs) were allocated as follows: (i) $20 million to repay an outstanding bridge loan from our Senior Lenders, (ii) $77.4 million to fund the construction of the Bakersfield Renewable Fuels Refinery, (iii) $18 million for a debt service reserve account, and (iv) the balance for use by us as working capital, including the further development of our Camelina feedstock program.

Short Term Commitments . Our financial commitments during the next twelve months includes a fixed payment obligation that arose from the settlement of a derivative contract that we amended on April 20, 2020, which required 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. Since the Bakersfield Renewable Fuels Refinery is not yet operational, effective May 11, 2022 we amended our fixed payment obligation whereby we would begin payments after the Bakersfield Renewable Fuels Refinery is operational and generating revenues for a full month, but no later than January 2023. Payments were to be made beginning in the first month at $1.5 million and escalate monthly to approximately $6.2 million in the sixth and final month. The original obligation was $20.3 million and was amended to $22.8 million. Effective February 27, 2023 we amended our fixed payment obligation whereby we will begin making payments in September 2023 with the first payment of $1.2 million and escalating monthly with the final payment of $6 million scheduled for March 2024. The total amount of the payments is now $26.4 million.

Long Term Commitments . Our long term commitments include the purchase of certain grades of soybean oil as feedstock for production of renewable diesel at the Bakersfield Renewable Fuels Refinery pursuant to a supply agreement, under which the supplier has agreed to supply a maximum volume of 1.2 billion pounds of feedstock over a period of twenty-four months, with such maximum volume being equally allotted between four 6-month segments or periods. The supply agreement may be extended for an additional segment or period to capture any shortfall of purchases during its primary term. A condition to the sale and purchase of the feedstock is the completion and commissioning of the Bakersfield Renewable Fuels Refinery, and until such condition has been satisfied the Company has no obligation to purchase such feedstock under the supply agreement.

Commercial Agreements . Our transition to profitability is dependent upon, among other things, the future commercialization of the renewable fuel products that we intend to produce at the Bakersfield Renewable Fuels Refinery. Pursuant to the Offtake Agreement, ExxonMobil has agreed to purchase a minimum of 135 million gallons per year of renewable diesel from the Bakersfield Renewable Fuels Refinery for a period of 66 months following the date that the Bakersfield Renewable Fuels Refinery commences commercial operations, and 67.5 million gallons of renewable diesel for the final six month period of the initial term (for a total of 742.5 million gallons during the 66 month initial term). The price of the renewable diesel to be sold under the Offtake Agreement is based on a combination of a fixed price and a variable price. We have also entered into the TPA with ExxonMobil under which ExxonMobil has the right to purchase the additional renewable diesel that is not sold to ExxonMobil under the Offtake Agreement. On February 28, 2023, we received notice from ExxonMobil that effective July 1, 2023, ExxonMobil irrevocably terminates the POA without further action upon the failure of the Company's renewable diesel facility to commence operations by June 30, 2023. This would also apply to the TPA. On March 5, 2023, the Company notified ExxonMobil that its purported termination of the POA is ineffective under the terms of the POA.




 28




Inflation

. During the fiscal year ended December 31, 2021, inflation and changing prices had a minimal effect on our continuing operations. However, during the fiscal year ended December 31, 2022 we have experienced increases in prices of products, services and the costs of inputs used in our operations (such as the cost of natural gas, utilities, transportation and labor) throughout our organization. These increases could have a material impact on our operations.

We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain.

The Company's most critical accounting policies and estimates that may materially impact the Company's results of operations include:




Fair Value of Class B Units -
As additional consideration for the senior loans, 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 Agreement. The Company classifies the
Class B units as mandatorily redeemable financial instruments in accordance with
ASC 480,
"
Distinguishing Liabilities From Equity"
("ASC 480")
. The Company has elected to record these financial instruments at fair value
pursuant to the fair value option in ASC 825-10
,
"Financial Instruments"
("ASC 825-10")
.
The Class B Units meet the definition of a mandatorily redeemable financial
instrument under ASC 480,
Distinguishing Liabilities From Equity,
because BKRF HCB, LLC has an unconditional obligation to redeem the Class B
Units by transferring assets at a specified time.
At each borrowing the Company will initially recognize the Class B Unit
liability based on the issuance date fair value with an offset to the discount
on the Senior Credit Agreement. The Company remeasures their Class B Units at
fair value at each reporting date with changes recognized in other
income/expense. The Company uses 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
sensitivity of the fair value calculation to these methods, assumptions, and
estimates could create materially different results under different conditions
or using different assumptions.



 29




Issuance of Series C Preferred Shares and Warrants -
On February 23, 2022, the Company completed a private placement of an aggregate
of 145,000 preferred shares (125,000 and 20,000 shares to ExxonMobil Renewables,
an affiliate of ExxonMobil, and the Senior Lenders, respectively) of Series C
Preferred Stock and warrants exercisable to purchase an aggregate of 18,547,731
(5,017,008 issued to settle the Warrant Commitment Liability to the Senior
Lenders - see Note B in the accompanying consolidated financial statements)
shares of our common stock at an exercise price of $2.25 per share to ExxonMobil
Renewables, and 11 other institutional investors (all of whom are also lenders
under our existing
Senior Credit Agreement
), for an aggregate purchase price of $145 million and the settlement of the
Warrant Commitment Liability (see Note B in the accompanying consolidated
financial statements). A
s a result of the difference between the $20 million received by the Company
from the Senior Lenders for the purchase of the Series C Preferred Stock and the
fair value of the Series C Preferred Stock,
the Company recorded a $9.9 million deemed contribution from the Senior Lenders
to Additional paid-in capital. The Company accounted for the Series C Preferred
in accordance with ASC 480 as the shares are redeemable for cash upon the
occurrence of certain events that are not solely within the control of the
Company and after the fifth anniversary of issuance. The Company accounted for
the warrants also in accordance with ASC 480 and ASC 815 as the warrants are
indexed to the Company's own stock and are contractually settled in shares. The
Company allocated the proceeds from the transaction based on the fair values of
each instrument in accordance with ASC 820. The Company used a Black-Scholes
option-pricing model that incorporated inputs such as the expected volatility,
risk-free interest rate, the effective debt yield, the expected term, and the
fair value of our common stock. The sensitivity of the fair value calculation to
these methods, assumptions, and estimates could create materially different
results under different conditions or using different assumptions.


Valuation of Warrants for Contract with Customer -
As additional consideration for ExxonMobil's investment, we also granted
ExxonMobil Renewables 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 ("SusOil Warrant"). On August 5, 2022, the GCEH Tranche II
Warrants were amended to an exercise price of $2.25 per share and the exercise
period for all of the ExxonMobil warrants were extended to December 23, 2028.
Each of the GCEH Warrants, GCEH Tranche II Warrants and SusOil Warrant 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 (as described
below), that we entered into with ExxonMobil effective April 10, 2019 (as
amended), which did occur on August 5, 2022, or (ii) a change of control, sale,
or the dissolution of the Company. On August 5, 2022, the SusOil Warrant was
amended to an exercise price of $1 million ($0.0507 per share) in consideration
for
amendments to the Company's Product Offtake Agreement and Term Purchase
Agreement
. The Company accounted for the valuation of newly issued warrants and the
modification of existing warrants to a customer as consideration payable to the
customer in accordance with ASC 606.  This amount is reflected initially as a
long-term Contract asset - related party, on the consolidated balance sheets and
will be amortized over the term of the underlying contract as the Company
satisfies its performance obligations. The Company valued this consideration in
accordance with ASC 718, Compensation - Stock Compensation, using the
Black-Scholes option pricing model. This model incorporates inputs such as the
fair value of our common stock, estimated term, the expected volatility, the
discount rate, projected cash flows, the discount for lack of marketability, and
the risk-free interest rate. The sensitivity of the fair value calculation to
these methods, assumptions, and estimates could create materially different
results under different conditions or using different assumptions.

Valuation of Warrants to Settle the Warrant Commitment Liability - On December 20, 2021, the Company executed Amendment No. 6 to the Senior Credit Agreement whereby the Company agreed 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, which was $2.25 per share, upon the completion of the Series C Preferred Stock financing ("Series C Financing") for a term of five years from that date (the "Warrant Commitment Liability") (See Note B

in the accompanying consolidated financial statements ). The Warrant Commitment Liability was in consideration for (i) the 1%, or $4.1 million, consent premium payable from an earlier amendment to the Senior and Mezzanine Credit Facilities, (ii) the Bridge Loan, and (iii) as additional creditor fees for forbearance to the Senior Lenders and Mezzanine Lenders. Such creditor fees were recorded as additional debt discount. The Company recognized a Warrant Commitment Liability as a freestanding instrument that is classified as a liability under ASC 480, as the commitment to issue the warrants represents a variable share settlement where the warrants to be issued vary based on occurrence of a future event. This Warrant Commitment Liability was initially recognized at fair value and is remeasured at fair value at each reporting date until settled with changes in fair value recognized in earnings in other income/expense. The settlement of the Warrant Commitment Liability through the issuance of warrants resulted in a material impact to the Company's consolidated financial statements. The Company used the Black-Scholes option-pricing model to value the issuance of warrants. This model incorporates inputs such as the fair value of our common stock, the expected volatility, the estimated term, and the risk-free interest rate. The sensitivity of the fair value calculation to these methods, assumptions, and estimates could create materially different results under different conditions or using different assumptions.

Recoverability of Long-lived and Intangible Assets - We test for impairment on an annual basis as of December 31, or more frequently if a significant event or circumstance indicates impairment. We also evaluate the estimated remaining useful lives of acquired intangible assets for changes in circumstances that warrant a revision to the remaining periods of amortization. For purposes of assessing potential impairment of goodwill, we estimate the fair value of the reporting unit and compare this amount to the carrying value of the reporting unit. If we determine that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. We have determined that we operate as one reporting unit and may first assess qualitative factors to determine whether the existence of events or circumstances indicate that an impairment test on goodwill is required. The Company internally monitors business and market conditions for evidence of triggering events for long-lived and acquired intangible assets. Such events or changes in circumstances include, but are not limited to, a significant decrease in the fair value of the underlying asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, an accumulation of costs and resources in excess of the original expectation, or a significant change in the operations of the acquired assets or use of an asset or asset group. We use estimates, assumptions, and judgments when assessing the recoverability of long-lived assets and acquired intangible assets. When preparing the expected future cash flows or estimating the fair value of impaired assets, these estimates include future sales volumes, prices, operating costs, discount rates, and capital expenditures, among others. Changes in these estimates and assumptions could materially affect the determination of fair value and impairment for our reporting unit or asset group.




 30




Subsequent Events

On January 30, 2023, we entered into Amendment No. 10 to our Senior Credit Agreement, pursuant to which the lenders agreed to, among other things, a series of Tranche C Commitments in an amount of up to $40 million, which will be available to be drawn through June 30, 2023. In addition, the amendment provides for (i) an increase in the underlying interest rate on the loans following the effective date of the amendment from 12.5% to 15%, (ii) the ability to pay interest in kind (in lieu of a cash payment) for the periods ending March 31, 2023 and June 30, 2023, (iii) a change in the maturity date to December 31, 2025, (iv) an agreement to raise at least $10 million in new capital by March 31, 2023, and $100 million by April 1, 2024, and (v) certain governance rights, including certain limited rights for the administrative agent to put forth nominees to our Board of Directors. The requirement to raise at least $10 million in new capital has been extended to May 15, 2023.

We also agreed to issue to the lenders, as payment of an amendment and upsize premium, warrants to purchase up to 15,000,000 shares of the Company's common stock, exercisable until December 23, 2028 at an exercise price of $0.075 per share.

The Company also agreed to grant to the administrative agent a security interest in all assets of SusOils, pursuant to a pledge and security agreement, dated as of January 30, 2023, by and among the Company, SusOils, and Orion Energy Partners TP Agent, LLC, as the collateral agent (the "Security Agreement"). If prior to June 30, 2025, the principal amount of the loans under the Senior Credit Agreement is below $300 million, or on and after June 30, 2025 the principal amount of loans under the Senior Credit Agreement is below $200 million, then the security interest will automatically terminate. The right to foreclose on the collateral is limited to specific fundamental events of default under the Senior Credit Agreement, including payment defaults and defaults arising from bankruptcy related actions.

See Item 9B - Other Information, for additional information regarding the CTCI EPC Agreement.

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