CalPlant I, LLC - Electronic Municipal Market Access

CalPlant I, LLC Willows, California

FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS’ REPORT

December 31, 2020 and 2019

CalPlant I, LLC TABLE OF CONTENTS December 31, 2020 and 2019

Page Number

Independent Auditors’ Report 1

Balance Sheets 3

Statements of Income and Expenses 4

Statements of Member’s Equity 5

Statements of Cash Flows 6

Notes to the Financial Statements 8

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors CalPlant I, LLC Willows, California

We have audited the accompanying financial statements of CalPlant I, LLC (the Company), which comprise the balance sheets as of December 31, 2020 and 2019; the related statements of income and expenses, member’s equity, and cash flows for the years then ended; and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

INDEPENDENT AUDITORS’ REPORT (Continued)

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and its income and expenses incurred and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 11 to the financial statements, the Company has experienced significant construction delays and cost overruns, resulting in the Company being in default on both the 2017 Series Bonds and 2019 Subordinate Bonds at December 31, 2020, and has stated that substantial doubt exists about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

April 14, 2021 Chico, California

CalPlant I, LLC BALANCE SHEETS

Page 3

December 31 2020 2019

ASSETS

Current AssetsCash and cash equivalents 34,886,809$ 11,680,056$ Investment in held‐to‐maturity securities ‐ 54,249,331 Accounts receivable 707,877 769,162 Inventories 20,966,079 18,546,135 Prepaid expenses 2,100,546 829,392 Other current assets ‐ 20,000

Total Current Assets 58,661,311 86,094,076

Property, Plant, and EquipmentNet of accumulated depreciation 364,751,418 297,837,131

Intangibles 28,967,339 28,967,339

TOTAL ASSETS 452,380,068$ 412,898,546$

LIABILITIES AND MEMBER'S EQUITY

Current LiabilitiesCurrent portion of long‐term debt 283,071,414$ 25,359$ Current portion of capital leases 109,754 106,745 Interest payable 19,484,707 9,294,494 Accounts payable 2,790,188 1,881,446 Accrued expenses 4,205,999 1,531,645

Total Current Liabilities 309,662,062 12,839,689

Due To Member 247,361 249,205

Related‐Party Payable 8,475,097 ‐

Long‐Term Debt ‐ Net 37,059,774 281,897,613

Capital Leases ‐ Net 104,436 218,240

Total Liabilities 355,548,730 295,204,747

Total Member's Equity 96,831,338 117,693,799

TOTAL LIABILITIES AND MEMBER'S EQUITY 452,380,068$ 412,898,546$

The accompanying notes are an integral part of these financial statements.

CalPlant I, LLC STATEMENTS OF INCOME AND EXPENSES

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Years Ended December 31 2020 2019

ExpensesCompensation 8,768,961$ 5,069,738$ Professional fees 3,002,935 1,073,382 Depreciation expense 435,627 293,423 Other expenses 6,558,556 3,642,437Fire loss 3,744,144 ‐ Interest expense 687,549 12,803

Total Expenses 23,197,772 10,091,783

Other Income

Paycheck Protection Program income 1,562,315 ‐

Loss Before Provision for Income Tax 21,635,457 10,091,783

Provision for income tax 800 800

Net Loss 21,636,257$ 10,092,583$


CalPlant I, LLC STATEMENTS OF MEMBER’S EQUITY

Page 5

Balance ‐ December 31, 2018 98,833,140$

Net loss (10,092,583) Member contributions 28,953,242

Balance ‐ December 31, 2019 117,693,799

Net loss (21,636,257) Member contributions 773,796

Balance ‐ December 31, 2020 96,831,338$


CalPlant I, LLC STATEMENTS OF CASH FLOWS

Page 6


CASH FLOWS FROM OPERATING ACTIVITIESNet loss (21,636,257)$ (10,092,583)$ Adjustments to reconcile net loss to net cashused in operating activities:Depreciation 435,627 293,423 Gain on sale of assets (2,419) (2,938)Inventory loss from fire 2,999,023 ‐ Paycheck Protection Program income (1,562,315) ‐ Changes in operating assets and liabilities:Accounts receivable 61,285 (359,284) Inventories (5,352,945) (7,325,843) Prepaid expenses (259,489) (633,720) Other current assets 20,000 68,300 Due to/from member (1,844) 1,164,384 Interest payable (13,500,105) (17,591,833) Accounts payable 908,742 (1,315,754) Accrued expenses 2,493,541 1,353,900

NET CASH USED IN OPERATING ACTIVITIES (35,397,156) (34,441,948)

CASH FLOWS FROM INVESTING ACTIVITIESMaturity of held‐to‐maturity securities 54,249,331 101,090,244 Purchase of held‐to‐maturity securities ‐ (54,249,331) Purchase of property, plant, and equipment (34,362,904) (105,947,729) Proceeds from sale of assets 19,271 36,566 Purchase of emission reduction credits ‐ (374,249)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 19,905,698 (59,444,499)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of debt 39,254,481 68,602,180 Proceeds from Paycheck Protection Program 1,562,315 ‐ Payment of long‐term debt (502,709) (33,946) Payment of debt issuance costs (2,257,060) (2,073,852) Payment of capital leases (132,612) (121,910) Member contributions 773,796 28,953,242

NET CASH PROVIDED BY FINANCING ACTIVITIES 38,698,211 95,325,714

Net Change in Cash 23,206,753 1,439,267

Cash and Cash Equivalents ‐ Beginning of Year 11,680,056 10,240,789

Cash and Cash Equivalents ‐ End of Year 34,886,809$ 11,680,056$


CalPlant I, LLC STATEMENTS OF CASH FLOWS (Continued)

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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid for interest 14,371,331$ 19,516,433$ Cash paid for income taxes 800$ 800$

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIESTotal property, plant, and equipment additions 67,377,029$ 125,105,339$ Additions in accrued expenses (114,791) ‐ Equipment acquired with debt and capital leases (37,721) (521,637)

Subtotals 67,224,517 124,583,702

Interest capitalized (24,386,516) (18,635,973) Change in related‐party payable (8,475,097) ‐

Cash Paid for Property, Plant, and Equipment 34,362,904$ 105,947,729$

Insurance proceeds 29,534$ ‐$ Cash proceeds ‐ 36,566 Vehicle loan payoff (10,263) ‐

Cash Proceeds From Disposal of Assets 19,271$ 36,566$

Purchase of emission reduction credits ‐$ 467,339$ Prior‐year deposits applied ‐ (93,090)

Cash Paid for Purchase of Emission Reduction Credits ‐$ 374,249$

SUPPLEMENTAL DISCLOSURES OF PROCEEDS FROM ISSUANCE OF DEBTDebt proceeds 43,011,665$ 73,759,742$ Original issue discount (2,100,000) (3,682,776) Underwriter's discount (645,519) (778,170) Debt issuance costs ‐ (621,874) Financed insurance premiums paid direct to lender (1,011,665) ‐ Equipment acquired with debt ‐ (74,742)

Proceeds From Issuance of Debt 39,254,481$ 68,602,180$

SUPPLEMENTAL DISCLOSURES OF FIRE LOSS Inventory loss from fire 2,999,023$ ‐$ Non‐inventory fire‐related expenses 745,121 ‐

Total Fire Loss 3,744,144$ ‐$


CalPlant I, LLC NOTES TO THE FINANCIAL STATEMENTS

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1. NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization CalPlant I, LLC (the Company) is a limited liability company (LLC) that was formed underthe laws of the state of California and is wholly owned by CalPlant I HoldCo, LLC (Holdco). As an LLC, themember’s liability is limited.

The Company was established to manufacture medium‐density fiberboard (MDF) using rice straw as itsprimary component. The Company has not yet commenced planned operations. The Company’sactivities since inception have consisted principally of acquiring debt and equity financing for theconstruction of manufacturing facilities, acquiring patent licenses for the process of producing MDFusing rice straw, contracting with equipment and raw materials suppliers for future production, andobtaining raw materials in the form of rice straw.

In 2017, the Company obtained debt and equity financing for the construction of a manufacturingfacility in Glenn County, California. Construction began in 2017 and is currently expected to becompleted in 2021. In 2018, it was determined the cost of the construction project was significantlyunderbid. In order to ensure sufficient funds were available for the completion of the project, Holdco,the Company’s sole member, obtained debt financing from a private equity firm. In 2019 and 2020, theCompany obtained additional revenue bonds to complete construction of the plant, and Holdcoobtained additional working capital from members to pay off the debt financing obtained from theprivate equity firm. The Company’s activities are subject to significant risks and uncertainties, includingunanticipated cost overruns, the use of new methods to mass produce MDF, and the possibility of failingto provide a quality MDF product that will become popular in the MDF market.

Use of Estimates The preparation of the financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents With the exception of funds held in the Company’s checking account, theuse of all cash and cash and equivalents is restricted. All cash and cash equivalents held by UMB Bankand BOK Financial, a third‐party trustee, consist primarily of money market funds, which have maturitiesof 90 days or less. The Federal Deposit Insurance Corporation (FDIC) insures bank balances up to$250,000. At times, the Company’s bank balances exceed the amount insured by the FDIC.

Investments The Company’s investments consist of treasury notes and commercial paper, whichmanagement intends to hold to maturity, and are recorded at fair value. There were no unrecognizedholding gains on such securities as of December 31, 2020 and 2019. All securities held are short‐termand matured in 2020. The use of all investments is restricted pursuant to the terms of the bonds, andthe investments are held by a third‐party trustee, UMB Bank.

CalPlant I, LLC NOTES TO THE FINANCIAL STATEMENTS (Continued)

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Accounts Receivable Accounts receivable consist of amounts due to the Company from growers for the removal of the growers’ rice straw. The Company utilizes the allowance method of accounting for potential uncollectible accounts receivable. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on historical experience and current economic conditions. Management determined that an allowance of $28,207 and $‐0‐ was necessary as of December 31, 2020 and 2019, respectively.

Fair Value Measurement The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy are described below:

Level 1: Inputs to the valuation methodology are unadjusted, quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

Following is a description of the valuation methodologies used for assets measured at fair value.

Money Market Funds: Assets are valued at the net asset value (NAV), generally $1 per share, and are reported on the active market on which securities are traded.

Treasury Notes: Assets are valued at the NAV reported on the active market on which securities are traded. The treasury notes held by the Company are deemed to be held to maturity. Treasury notes are considered level 1 investments.

Commercial Paper: Assets are valued using broker quotes that utilize observable market inputs and are considered level 2 investments.


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The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Fair Value of Financial Instruments Financial instruments held by the Company include cash and cash equivalents, investments, accounts receivable, accounts payable, and long‐term debt. The book values of cash and cash equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Investments are carried at fair value. The fair values of the borrowings on the long‐term debt approximate the book value based upon consideration of current market rates.

Inventories The Company utilizes the first‐in, first‐out (FIFO) method at the lower of cost or net realizable value for valuing the cost of inventory. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory consists of rice straw to be used as raw materials in the future production of MDF upon completion of the Company’s production facilities, and spare parts for plant machinery.

Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service life, using the straight‐line method for financial reporting purposes. The cost of repairs and maintenance is charged to expense as incurred. Significant renewals and betterments are capitalized. The Company’s capitalization threshold is $5,000. As the Company is currently in the process of constructing the manufacturing facilities to be used in the production of rice straw MDF, substantially all of the Company’s assets have not been placed in service. As such, there has been minimal depreciation expense. The Company expects to complete construction of the manufacturing facilities in 2021.

The Company periodically assesses the recoverability of its property, plant, and equipment. If the carrying amounts are in excess of the fair value of the assets, an impairment loss is recorded. There was no impairment of property, plant, and equipment as of December 31, 2020 and 2019.

Capitalized Interest The Company follows the policy of capitalizing interest as a component of the cost of property, plant, and equipment constructed for its own use. As the bonds are tax‐exempt, interest earned on the proceeds is offset against interest incurred. Total interest expense incurred, interest earned, and capitalized interest are as follows:


Interest incurred 25,074,065$ 20,475,100$ Interest earned ‐ (1,826,324)

Subtotals 25,074,065 18,648,776

Less: Capitalized interest 24,386,516 18,635,973

Interest Expense 687,549$ 12,803$


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Intangible Assets Intangible assets consist of a patent license agreement and other related intellectual property for the process of producing MDF using rice straw, and emission reduction credits. The patent license was contributed by CalAg, LLC, which is a member of the Company’s sole member, CalPlant I Holdco, LLC, and is carried at the contributed cost of $28,500,000. Contributed cost was determined by an independent third party who is considered an expert in the MDF industry. The license does not have a defined date of termination and will be amortized over 15 years. Amortization will begin upon the commencement of the Company’s planned operations. Amortization expense for each of the first five years is expected to be $1,900,000.

The emission reduction credits represent the ability of the Company to emit certain amounts of PM10 emissions from the plant into the atmosphere. These credits are carried at the acquisition cost of $467,339 and do not have an expiration or maturity date. As such, they are considered intangible assets with indefinite lives and are evaluated for impairment on an annual basis. Management determined there was no impairment as of December 31, 2020 and 2019, respectively.

Income Taxes The Company files calendar‐year income tax returns in the U.S. federal and state of California jurisdictions. The Company is not a taxpaying entity for federal income tax purposes; therefore, no federal income tax expense has been recorded in the financial statements. Any items of taxable income or loss pass directly to the Company’s member. The Company pays a California limited liability company tax of $800 and an annual fee based on total revenue.

Advertising Costs The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 2020 and 2019, amounted to $2,270 and $27,010, respectively.

Debt Issuance Costs Debt issuance costs consist of original issue discounts, underwriting, legal, and other direct costs incurred in connection with the issuance of the bonds. Debt issuance costs are amortized as interest expense using the effective interest method over the life of the bonds.

Reclassifications Certain reclassifications have been made to the prior‐year financial statements to conform to the current‐year financial statements.

Evaluation of Subsequent Events Management has evaluated subsequent events through April 14, 2021, the date the financial statements were available to be issued.


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2. CASH, CASH EQUIVALENTS, AND INVESTMENTS

Cash and cash equivalents consisted of the following:

December 31 2020 2019

Cash Held by Company 3,644,329$ 1,972,346$

Cash and Cash Equivalents Held by TrusteeMoney market funds* 31,242,480 9,707,710

Total Cash and Cash Equivalents 34,886,809$ 11,680,056$

* Fair value determined by level 1 inputs

Investments consisted of the following:

December 31 2020 2019

Investments Held by TrusteeCommercial paper ‐ short term† ‐$ 54,249,331$

† Fair value determined by level 2 inputs

The cash, cash equivalents, and investments held in trusts are held by third‐party trustees, UMB Bank and BOK Financial, pursuant to the terms of the bonds.

3. INVENTORIES

Inventories consisted of the following:

December 31 2020 2019

Raw materials 17,785,531$ 18,503,391$ Spare parts 3,180,548 42,744

Totals 20,966,079$ 18,546,135$


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4. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

December 31 2020 2019

Land 5,400,000$ 5,400,000$ Land improvements 1,514,209 1,514,209 Buildings and improvements 155,988 155,988 Machinery and equipment 755,688 461,496 Autos and trucks 1,340,993 1,271,691

Subtotals 9,166,878 8,803,384

Accumulated depreciation (793,620) (372,593)

Subtotals 8,373,258 8,430,791

Construction in progress 356,378,160 289,406,340

Property, Plant, and Equipment ‐ Net 364,751,418$ 297,837,131$

Depreciation expense for the years ended December 31, 2020 and 2019, amounted to $435,627 and $293,423, respectively.

5. INTANGIBLE ASSETS

Intangible assets consisted of the following:

December 31 2020 2019

Intellectual property license 28,500,000$ 28,500,000$ Emission reduction credits 467,339 467,339

Intangible Assets 28,967,339$ 28,967,339$


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6. LONG‐TERM DEBT

Long‐term debt consisted of the following:

December 31 2020 2019

California Pollution Control Financing Authority, Solid Waste Disposal Revenue Bonds, Series 2017 228,165,000$ 228,165,000$

Unamortized original issue discount (2,796,868) (2,928,515) Unamortized underwriter's discount (2,061,658) (2,152,314) Unamortized debt issuance costs (7,525,582) (7,849,979)

Subtotals 215,780,892 215,234,192

California Pollution Control Financing Authority, Solid Waste Disposal Revenue Bonds, Series 2019, Subordinate Bonds 73,685,000 73,685,000

Unamortized original issue discount (3,567,585) (3,645,875) Unamortized underwriter's discount (1,465,972) (1,499,284) Unamortized debt issuance costs (1,895,897) (1,933,793)

Subtotals 66,755,546 66,606,048

California Pollution Control Financing Authority, Solid Waste Disposal Revenue Bonds, Series 2020 42,000,000 ‐

Unamortized original issue discount (2,100,000) ‐ Unamortized underwriter's discount (645,519) ‐ Unamortized debt issuance costs (2,257,060) ‐

Subtotals 36,997,421 ‐

Auto loan, due in monthly installments of $680, including interest at 7.69%

per annum, through August 2021, secured by a vehicle. ‐ 13,454

Auto loan, due in monthly installments of $798, including interest at 6.49%

per annum, through November 2022, secured by a vehicle. 17,151 25,397

Auto loan, due in monthly installments of $813 through June 2024. The loan

does not bear interest and is secured by a vehicle. 34,130 43,881

Auto loan, due in monthly installments of $629 through November 2025. The

loan does not bear interest and is secured by a vehicle. 37,092 ‐

Note payable to AFCO to finance insurance premiums, due in monthly

installments of $171,054, including interest at 4.95% per annum, through

September 2021. 508,956 ‐

Subtotals 597,329 82,732

Total Long‐Term Debt 320,131,188 281,922,972

Less: Current portion 283,071,414 25,359

Long‐Term Debt ‐ Net 37,059,774$ 281,897,613$


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The Company issued the Series 2017 Bonds as a means to finance construction of, and equipment for, the MDF manufacturing plant in Glenn County, California. The Series 2017 Bonds are secured by substantially all assets of the Company. Interest for each tranche of the bonds is due on January 1 and July 1 of each year, and beginning January 1, 2018. The Series 2017 Bonds are payable in three tranches:

$11,825,000 at 7.00%, term bonds maturing July 1, 2022

$93,405,000 at 7.50%, term bonds maturing on July 1, 2032

$122,935,000 at 8.00%, term bonds maturing July 1, 2039

The 2017 Series Bonds are subject to semi‐annual sinking fund deposits on January 1 and July 1, commencing January 1, 2021. Following are the sinking fund requirements:

Years Ending December 31

2021 5,710,000$ 2022 6,115,000 2023 6,560,000 2024 7,060,000 2025 7,600,000 Thereafter 195,120,000

Total 228,165,000$

In 2019, the Company issued the Subordinate Bonds in the amount of $73,685,000 to supplement the Series 2017 Bonds to complete the MDF manufacturing plant. The Subordinate Bonds mature December 1, 2039, and bear interest at 7.50%. The Subordinate Bonds are secured by substantially all assets of the Company and are subordinate to the Series 2017 and 2020 Bonds. Interest is due on June 1 and December 1 of each year. The Subordinate Bonds do not contain sinking fund requirements.

In 2020, the Company issued the Series 2020 Bonds in the amount of $42,000,000to supplement the Series 2017 Bonds and 2019 Subordinate Bonds to complete the MDF manufacturing plant. The Series 2020 Bonds mature July 1, 2032, and bear interest at 7.50%. The Series 2020 Bonds are secured by substantially all assets of the Company. Interest is due on January 1 and July 1 of each year, starting January, 2021.


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The 2020 Series Bonds are subject to semi‐annual sinking fund deposits on January 1 and July 1, commencing July 1, 2023. Following are the sinking fund requirements:


2021 ‐$ 2022 ‐ 2023 1,810,000 2024 1,825,000 2025 3,655,000 Thereafter 34,710,000

Total 42,000,000$

The bonds contain certain covenants including restrictions on incurring additional indebtedness, raising additional equity contributions, maintenance of reserve cash balances, and future maintenance of certain financial ratios. As of December 31, 2020, the Company was in default on both the 2017 Series Bonds and 2019 Subordinate Bonds. The Company has entered into non‐acceleration agreements with the bond trustees to waive the defaults until October 2021. A total of $301,850,000 of long‐term debt is subject to accelerated maturity after October 2021 and, as such, the bond trustees may, at their option, give notice to the Company that amounts owed are immediately due and payable. As a result, the 2017 Series Bonds and 2019 Subordinate Bonds has been classified as a current liability as of December 31, 2020.

Future maturities of the remaining long‐term debt are as follows:


2021 534,976$ 2022 25,721 2023 17,295 2024 12,420 2025 6,917

Total 597,329$

Amortization of the debt issuance costs and discounts was $696,198 and $583,609 for the years ended December 31, 2020 and 2019, respectively, and was included in interest capitalized in property, plant, and equipment.


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Amortization of the debt issuance costs and discounts over the next five years is expected to be:


2021 1,016,708$ 2022 1,099,241$ 2023 1,034,027$ 2024 1,118,391$ 2025 1,209,643$

7. CAPITAL LEASES

The Company leases certain equipment under agreements that are classified as capital leases. At December 31, 2020 and 2019, the leased equipment is included in autos and trucks within property, plant, and equipment at a cost of $451,877. Accumulated amortization of the leased assets at December 31, 2020 and 2019, was $104,915 and $40,361, respectively. Amortization of assets under capital leases is included with depreciation expense.

The future minimum lease payments required by the leases are as follows:


2021 119,599$ 2022 107,126

Subtotal 226,725

Less: Amount representing interest 12,535

Present Value of Net Minimum Lease Payments 214,190

Less: Current maturities of capital lease obligations 109,754

Capital Lease Obligations ‐ Net of Current Maturities 104,436$

8. PAYCHECK PROTECTION PROGRAM INCOME

In April 2020, the Company qualified for and received a loan pursuant to the Paycheck Protection Program (PPP), a program implemented by the U.S. Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender, for an aggregate principal amount of $1,562,315. The PPP loan bears interest at a fixed rate of 1.0% per annum, has the first six months of interest deferred, has a term of two years, is unsecured, and is guaranteed by the SBA.


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The Paycheck Protection Program Flexibility Act of 2020 extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans. The deferral period was extended to the date that the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The SBA has also issued guidance that the above extension is automatic and a modification to the original loan document is not necessary in order to utilize the extended deferral period. The Company does have the option to request the lender to extend its loan term to a period of five years under the PPP Flexibility Act.

The principal amount of the PPP loan and accrued interest are subject to forgiveness upon the Company’s request, to the extent that the PPP loan proceeds are used to pay expenses permitted by the PPP, including payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company. The Company intends to apply for forgiveness of the PPP loan with respect to these covered expenses. To the extent that all or part of the PPP loan is not forgiven, the Company will be required to pay interest on the PPP loan at a rate of 1.0% per annum, and commencing in August 2021, principal and interest payments will be required through the maturity date in April 2025. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The PPP loan may be accelerated upon the occurrence of an event of default.

For the year ended December 31, 2020, the Company incurred $1,562,315 of permitted expenses under the PPP and maintained headcount and compensation levels. As a result, the Company has recognized $1,562,315 as PPP loan income, which is included in other income in the accompanying statement of income and expenses for the year ended December 31, 2020. All of the PPP loan is expected to be forgiven.

PPP loan forgiveness is subject to audit by the SBA. The possible disallowances by the SBA in the forgiveness cannot be determined until such time if an audit occurs. Therefore, no provision for any potential disallowances that may result from such audits has been made in the accompanying financial statements. Management is of the opinion that disallowances, if any, will not be material to the accompanying financial statements.

9. PENSION PLAN

The Company sponsors a 401(k) profit sharing plan covering substantially all employees. Participants may make salary‐deferred contributions, up to a maximum of 100% of their eligible compensation or the maximum allowed by law. The Company matches 100% of each participating employee’s deferral, up to a maximum of 4% of eligible wages. The Company made matching contributions of $198,902 and $183,945 for the years ended December 31, 2020 and 2019, respectively. Additional contributions to the profit sharing plan are made at the discretion of management of the Company. The Company did not make discretionary profit sharing contributions for the years December 31, 2020 and 2019.


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10. CONCENTRATIONS, CONTINGENCIES, AND COMMITMENTS

The Company has committed to purchase 95% of the estimated resin required in the production of MDF from a single principal supplier. As such, upon commencement of operations, the Company will be dependent on the ability of the supplier to provide the resin on a timely basis. The loss of this principal supplier, or a significant reduction in resin availability from the principal supplier, could have a material adverse effect on the Company. Pricing for the resin will be determined on a monthly basis. If the Company were to develop another resin that works with MDF, this obligation would be obsolete. The Company believes that the relationship with the principal supplier is satisfactory to meet future manufacturing requirements. The supply contract ends December 31, 2023, and is automatically renewed for successive annual periods unless a notice of non‐renewal is delivered by either party by September 30th of the calendar year prior to the year of the renewal term.

In June 2020, the Company entered into a product supply agreement with OrePac Holding Company (OrePac), a manufacturer and distributor of MDF. The agreement was effective as of June 2020 and shall continue for an initial term of two years, with the term beginning on the date that is the first day of the first month during which the Company provided to OrePac at least one million square feet of MDF products (the milestone date). As of each annual period, the term is automatically extended for an additional year. Both parties can terminate the agreement if certain circumstances occur. For each month subsequent to the milestone date, OrePac is required under the agreement to purchase at least 2.75 million square feet of MDF from the Company in every calendar month throughout the term of the agreement. As such, a substantial amount of the Company’s sales will be accounted for by OrePac upon completion of the Company’s manufacturing facilities.

The Company has three contracts with related parties: Siempelkamp Maschinen‐und Anlagenbau GmbH (SICO), which holds a 2.595% interest in CalPlant I Holdco, LLC; and Siempelkamp Contracting, LLC, a wholly‐owned United States subsidiary of SICO. These related parties have been contracted to supply and install machinery and materials for the production of MDF. The total contract price is $133,029,391. The Company has paid $124,554,294 in progress billings related to the SICO equipment supply contract as of December 31, 2020, the total of which has been capitalized as construction in progress. In July 2020, SICO agreed to defer the remaining cash payment of $8,475,097 until February 2022 at an interest rate of 10% per annum. As of December 31, 2020, the amount of interest accrued is approximately $636,000.

The Company has contracted with International Line Builders, Inc. (ILB), to furnish equipment, machinery, and materials for the production of MDF at a total contract price of $16,788,642. The Company has paid $16,088,642 in progress billings related to the ILB equipment supply contract as of December 31, 2020, the total of which has been capitalized as construction in progress. In April 2020, ILB agreed to defer the remaining cash payment of $700,000 until June 2021 at an interest rate of 5.25% per annum. As of December 31, 2020, the amount of interest accrued is approximately $38,000.

The Company has contracted with Phoenix Industrial (Phoenix) to furnish equipment, machinery, and materials for the production of MDF at a total contract price of $25,975,000. The Company has paid the entire balance of progress billings related to the Phoenix construction contract as of December 31, 2020, the total of which has been capitalized as construction in progress.


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In 2017, the Company executed a balance of plant contract for $108 million with Casey Industrial, Inc. (Casey), whereby Casey would act as general contractor for, and manage construction of, the manufacturing facilities. During 2019, the Company significantly reduced the scope of its contract with Casey, which no longer acts as the general contractor or construction manager of the project. The Casey contract amount was reduced to a contract price of $43,384,830, of which the Company has paid Casey $43,271,087 in progress billings as of December 31, 2020; these payments have been capitalized as construction in progress. Concurrently with the reduction in scope of the Casey contract, the Company hired a third‐party construction manager to manage the remainder of the project, and currently expects to complete construction of the manufacturing facilities in 2021.

The Company has a potential dispute with Casey and Casey’s engineer, Evergreen Engineering, regarding the building design and construction of the main manufacturing building at the plant. Design defects have been corrected at the Company’s expense. No litigation is currently filed and the Company is still investigating the extent of its claims against each of these parties. It is too early to determine the exact damages that would be sought or the likelihood of success, but the Company anticipates its total claims will exceed $1 million. In the pendency of this dispute, Casey has recorded a mechanic’s lien against the plant for $206,373. No estimated recovery of costs has been recorded as of December 31, 2020.

The Company is engaged in a payment dispute with BCM Construction (BCM) regarding the scope and quality of its construction work at the plant. Approximately $2 million is in dispute. It is too early to determine the likely financial effect of the resolution, so no liability has been recorded. BCM has recorded a mechanic’s lien against the plant in the amount of $3,146,497.

Related to the BCM dispute, several BCM subcontractors have payment disputes with BCM. These subcontractors have recorded mechanics’ liens against the plant with aggregate claims of $914,331. The Company expects the resolution of its dispute with BCM will resolve the remaining subcontractor claims.

In March 2021, the Company reached a settlement agreement with one of the subcontractors in the amount of approximately $540,000. As part of the agreement, the subcontractor released a $654,564 lien on the plant.

11. GOING CONCERN AND MANAGEMENT’S PLAN TO ALLEVIATE

The accompanying financial statements have been prepared assuming that the Company will continueas a going concern; however, the conditions below raise substantial doubt about the Company’s abilityto do so. The financial statements do not include any adjustments to reflect the possible future effectson the recoverability and classification of assets or the amounts and classifications of liabilities that mayresult, should the Company be unable to continue as a going concern.


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The Company has experienced significant construction delays and cost overruns, resulting in the Company being in default on both the 2017 Series Bonds and 2019 Subordinate Bonds as of December 31, 2020. Agreements on behalf of the bondholders not to accelerate the maturity of the bonds based on the events of default were received by the Company and they expire in October 2021. The Company has also experienced unanticipated difficulties and delays in beginning full‐scale operations at its manufacturing facility. The Company has stated that, depending on how quickly it can begin full‐scale operations and sell product at substantial volumes, the Company may in fact be able to continue as a going concern.

The Company’s default of the loan agreements described above raises substantial doubt about the Company’s ability to continue as a going concern within one year after issuance date of the financial statements. Management has taken, and intends to take, action to ensure cash is available to mitigate the risk of failing to pay obligations as they come due, including: entering into deferred payment agreements with vendors, including related parties; applying for additional bond funding and grants; and negotiating with bond trustees over the release of bond reserve funds. The Company is evaluating other sources of cash, including: raising capital from current ownership; seeking additional investors; and obtaining third‐party debt. However, there can be no assurance that the Company will be successful in achieving its objectives.

12. FIRE LOSS

On August 16, 2020, a portion of the Company’s rice straw inventory was destroyed by a fire caused by a lightning strike. The Company recognized a loss of $3,744,144. As of December 31, 2020, the Company’s insurance claims have been denied, but the Company is further pursuing recoveries of the loss. No insurance recoveries have been received or recognized for the year ended December 31, 2020.

13. COVID‐19 UNCERTAINTY

The ongoing COVID‐19 pandemic has caused an economic downturn on a global scale, disrupted global supply chains, and created significant uncertainty, volatility, and disruption across economies and financial markets.

The COVID‐19 pandemic remains a rapidly evolving situation. The extent of the impact of COVID‐19 on the Company’s business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which the Company operates and the related impact on consumer confidence and spending, all of which are highly uncertain.


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14. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting StandardsUpdate (ASU) 2016‐02, Leases. This ASU will require organizations that lease assets to recognize onthe balance sheet the asset and liability for the right and obligations created by leases with a term ofmore than 12 months. Additional disclosures will also be required in order to provide the users of thefinancial statements with a better understanding of the amount, timing, and uncertainty of cashflows arising from leases. The ASU intends to improve financial reporting about leasing transactions.In July 2018, FASB issued ASU 2018‐11, Leases: Targeted Improvements, which amended ASU 2016‐02to provide an entity with a transition method for implementing the standard. Under this transitionmethod, an entity initially applies this ASU at the adoption date, and recognizes a cumulative‐effectadjustment to the opening balance of retained earnings in the period of adoption. The ASUs areeffective for the periods beginning after December 15, 2021. The Company's management has notyet determined the impact that implementation of these ASUs will have on the Company's financialstatements.

CalPlant I, LLC - Electronic Municipal Market Access

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