UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCWashington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Form 10-K
(Mark One)
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For the fiscal year ended December 31 2017, 2023
or
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OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35073
GEVO, INC.
Gevo, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 87-0747704 | |
(State or
| organization) | (I.R.S. Employer Identification No.) |
345 Inverness Drive South, Building C, Suite 310 Englewood, CO | 80112 | |
(Address of | (Zip Code) |
(303)
(303) 858-8358
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which Registered | |
Common Stock, par value $0.01 per share | |
| | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of common equity held by non-affiliates of the registrant was approximately As of DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K incorporates certain information by reference from the registrant’s proxy statement for the GEVO, INC. FORM 10-K—ANNUAL REPORT
TABLE OF CONTENTS
Forward-Looking Statements This Unless the context requires otherwise, in this Report the terms “Gevo,” “we,” “us,” “our” and “Company” refer to Gevo, Inc. and its
3 Risk Factors Summary Our business is subject to a
4
5
Items 1 and 2.Business and Properties. Company Overview
We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as SAF, with the potential to achieve a “net-zero” greenhouse gas (“GHG”) footprint. We believe that this addresses the global need of reducing GHG emissions with “drop in” sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (the “GREET Model”) to measure, predict and verify GHG emissions across the life cycle of our products. Our “net-zero” concept means the production of drop-in hydrocarbon fuels and chemicals by using sustainably grown feedstocks (e.g., low till, no-till and dry corn cultivation, or other carbohydrate sources); renewable, substantially decarbonized energy sources; and process technologies to lower GHG emissions, resulting in an expected net-zero carbon footprint from the full life cycle of the fuel measured from the capture of renewable carbon through the burning of the fuel. Our primary market focus, given current demand and growing customer interest, is hydrocarbon fuels, and SAF in particular. We believe that SAF from carbohydrates to alcohol is the most economically viable approach for carbon abatement. We also have commercial opportunities for other renewable hydrocarbon products, such as RNG; hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. Global fuel consumption by commercial airlines continues to remain strong, with global fuel consumption at more than 100 billion gallons per year (“BGPW”) and growing. 6 We believe that there is a growing and significant market demand for SAF production generally based on a number of factors, including:
We believe that we possess the ability to convert various carbohydrate feedstocks through a fermentation process into alcohols and then transform the alcohols into renewable fuels and materials, through a combination of licensing of technology and engineering from third parties, and our own proprietary technology, know-how, and engineering. While we expect our major capital deployments to focus on the production of SAF, we recognize there are opportunities to operate in several different renewable fuels and materials markets and we will Our SAF production process uses carbohydrates as a feedstock. Carbohydrates are plant matter that result from photosynthesis. Photosynthesis is the natural process by which carbon dioxide is captured from the air by plants, which are very efficient at capturing carbon dioxide from the atmosphere. The carbon in carbohydrates is renewable because its source is carbon dioxide from the atmosphere. The carbohydrates are fermented to produce alcohol intermediate products (e.g., ethanol or isobutanol). The alcohol-based intermediates are then chemically processed to make renewable hydrocarbons. To achieve net-zero carbon intensity (“CI”) across the whole life cycle of the products, we believe:
We believe sustainably grown industrial field corn (i.e., corn that is grown with precision agricultural techniques and low-till or no till cultivation to conserve nutrients, prevent water runoff, and erosion) is the best feedstock to commercialize our SAF with initially because:
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We believe that utilizing sustainable agriculture practices to help solve GHG problems is a breakthrough that addresses the problem of GHGs without compromising sustainability or food supply. We also believe that it will be Building Out Production Capacity to Meet Demand We believe that we will be able to develop the marketplace, customers and production capacity to achieve at least 1 billion gallons of sales in the next decade. Two approaches will be required to achieve this objective. The first approach, the development of greenfield sites (i.e., the development of a project on an undeveloped site), allows us to optimize production and the integration of technology. The second approach, leveraging installed alcohol production capacity, has the advantage that the fermentation capacity already exists via existing ethanol plants. Those existing ethanol plants would need to be decarbonized and hydrocarbon production capacity would need to be installed. Our concept of “Net-Zero Projects” is a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. The concept of a Net-Zero Project is to convert renewable energy (such as, photosynthetic, wind, renewable natural gas, and biogas) from a variety of sources into energy dense liquid hydrocarbons that when burned in traditional engines, have the potential to achieve net-zero GHG emissions across the life-cycle of the liquid fuel based on the GREET Model, the pre-eminent science-based life-cycle analysis model. The GREET Model takes into account emissions and impacts cradle-to-cradle for renewable resource-based fuels including inputs and generation of raw materials, agriculture practices, chemicals used in production processes of both feedstocks and Using sustainably grown corn or low CI corn as an input at a Net-Zero Project would comprise the following steps: (i) process the corn kernels to produce protein, oil and carbohydrate; (ii) ferment the carbohydrate into an alcohol; and (iii) convert the alcohol to SAF and other renewable hydrocarbon products. The combination of renewable carbon obtained from the carbohydrates, plus the reduction/elimination of fossil-based energy creates the advantage in driving the CI score to achieve net-zero. In addition to those practices, there is potential to sequester renewable carbon in the soil during corn production, and from capturing the CO2 from the production process, which should cause the CI scores to become negative across the whole life cycle of the product as measured by the GREET Model. Greenfield Projects Our initial greenfield Net-Zero Project, Net-Zero 1 (“NZ1”), is expected to be located in Lake Preston, South Dakota, and is designed to produce approximately 65 million gallons per year (“MGPY”) of total hydrocarbon volumes, including 60 MGPY of SAF. The plant is expected to be powered by wind-based electricity. The liquid hydrocarbons, when burned, are expected to have a net-zero GHG footprint. Along with the hydrocarbons, NZ1 is expected to produce approximately 695,000 tons per year of high-value protein products for use in the food chain and more than 34 million pounds per year of corn oil. Our products will be produced in three steps: the first step is milling the corn to produce the carbohydrates needed for the production of SAF while simultaneously enabling the production of protein and oil; the second step produces alcohols using carbohydrate-based fermentation; and the third step is the conversion of the alcohols into hydrocarbons. 8 We completed the value engineering on our NZ1 project and are proceeding with detailed engineering, modularization design, and capital costs updates. We are currently refining project cost estimates with engineering, procurement, and construction (“EPC”) partners to identify cost saving opportunities, and currently expect to finance the construction of NZ1 at the subsidiary level using a combination of Company equity and third-party capital, to include non-recourse debt. The Company expects to have invested a cumulative total of $236 to $286 million of cash equity in the project at financial close. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in NZ1 under this expected financing structure. The use of project debt and third party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Net-Zero Projects to enable growth of SAF production to meet demand for SAF. We have substantially completed the engineering design of NZ1. We have substantially completed value engineering and we are now focusing on detail engineering with our EPC partners, to reduce and contractually finalize a negotiated lump-sum, fixed price agreement whereby the EPC partners will build and deliver the plant. This detail engineering work is focused specifically on increasing the modularization of component parts on the NZ1 plant design, which means that we expect that the process equipment would be built into modules at a factory, then the modules would be assembled onsite at NZ1, with the goal of minimizing specialized field work typical in plant construction of this type. This approach is expected to lower the risk and cost of, and access to, skilled labor at the site and reduce the supply chain constrictions for some of our long-lead equipment. Increasing the modularization of the plant design is also expected to reduce our spend in advance of securing third-party equity and debt financing for NZ1 and increase the certainty of construction schedule for those counterparties. In order to achieve full construction financing for NZ1, we need to secure third-party equity and debt. Upon receiving an invitation from the U.S. Department of Energy (“DOE”), we submitted a Part II Application for a DOE loan guarantee for a direct lending from Federal Financing Bank. In August 2023, Gevo was invited to enter the due diligence and term sheet negotiation phases with DOE. Given the current interest rate environment and general macroeconomic conditions, a DOE-guaranteed loan is our most attractive debt option and is expected to offer the lowest cost of debt for the project. We expect that obtaining a DOE-guaranteed loan will have the benefit of reducing the overall amount of equity required to finance NZ1 and should result in higher project equity returns for investors which should increase the likelihood of Gevo successfully financing NZ1. The DOE loan application process is expected to be complete in 2024. We expect that our NZ1 plant start-up date will occur twenty-four to thirty months after the financing of NZ1 closes, the timing of which is uncertain. In parallel with the DOE-guaranteed loan process, we continue to explore debt financing for NZ1 without the benefit of the DOE-guaranteed loan. We are also working to secure CCS access at the site. We are evaluating and performing early site development work at several sites in the U.S. for other greenfield sites. These sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market. In addition, we are pursuing potential Net-Zero Projects with several existing ethanol plant sites. Existing ethanol plants need to be decarbonized with renewable energy or de-fossilized energy and/or carbon sequestration. Gevo has developed a preferred list of potential partners and sites with decarbonization in mind and is engaged in preliminary feasibility and development discussions with several of these potential partners. We plan to give priority to existing industrial plant sites that have attractive potential economics and high predictability of timeline for decarbonization. Leveraging Existing Alcohol Production Capacity Based upon what we have learned as we develop and engineer NZ1, we believe that it should be possible, practical and financially attractive to convert existing ethanol plants to allow for the production of SAF and other renewable hydrocarbon products. In order to accomplish this conversion, three critical things are required: (i) the energy for the converted plant needs to be de-fossilized to achieve the CI scores required for the market; (ii) a hydrocarbon production plant needs to be built; and (iii) the plant needs to have access to carbon capture and sequestration (“CCS”). We believe that there are several existing ethanol plants that could be attractive for an alcohol-to-jet (“ATJ”) plant that would be largely copied from our NZ1 Project. 9 Renewable Natural Gas Our RNG and biogas projects generate incremental profit and create a long-term option to potentially supply RNG to our Net-Zero Projects as part of our long-term strategy to decarbonize SAF and other hydrocarbon fuels. We finished the development and construction of our first RNG facilities in northwest Iowa in 2022. RNG has value in markets such as California as well as in our hydrocarbon production process by helping us achieve carbon negative GHG emissions on our renewable hydrocarbon products. The end products resulting from such a decarbonization process have lower CI scores and increased market value, in addition to The Gevo was granted registration approval by the U.S. Environmental Protection Agency (“EPA”) in 2022, allowing us to participate in its Renewable Fuel Standard Program (“RFS Program”) to receive renewable identification numbers (“RINs”). During the first quarter of 2023, we received approval for a temporary pathway under California’s Low Carbon Fuel Standard (“LCFS”) program. We realized substantial sales for our environmental attributes of both LCFS credits and RINs in 2023. We believe the trust and reputation we have attained in the RNG industry, in combination with our understanding of the various and complex environmental attributes, gives us a competitive advantage. We intend to leverage our relationships to identify and execute new project opportunities. Typically, new development opportunities come from our existing relationships with dairy owners who value our reputation in the industry. We exercise financial discipline in pursuing projects by targeting attractive risk-adjusted project returns, whether selling RNG into the markets or using it to lower CI scores at our Net-Zero Projects. We will monitor biogas supply availability across our portfolio and seek to maximize our production by expanding operations when economically feasible. Competitive Advantages We believe that our vertically integrated set of technologies and business systems (including our extensive portfolio of several hundred patents and patent applications, trade-secrets, and proprietary production technologies) creates competitive advantage through (i) access to multiple opportunities to drive the CI score of our products down, (ii) opportunities to address needs in the chemicals, food, feed, plastics and materials markets, (iii) to drive production costs very low to maximize margins, (iv) deploy production technology that is readily scalable and robust from an operating point of view, (v) through Verity Tracking, and (vi) modular design of production facilities which can help to facilitate rapid deployment of production assets. The vertical business systems enable Gevo to capture value from selling protein and vegetable oil, capturing biogenic carbon, and generating carbon value at state and federal levels. 10 Carbohydrates as Feedstocks Carbohydrate feedstocks exceed all other potential renewable carbon feedstock sources by several orders of magnitude on a worldwide basis. In the Midwest region of the U.S. corn is an ideal feedstock for multiple reasons. On a per acre basis, field corn (not food corn) is one of the most productive crops to produce protein and oil, as well as carbohydrates. The non-carbohydrate co-products from the field corn kernel represent the majority of the nutritional value of the kernel and could be delivered into the food chain. By selling the protein, oil and animal feed into the food chain markets, it would offset a portion of the cost of acquiring the corn. We believe about 50% of the cost of corn can be offset by manufacturing valuable products for the food chain. The remaining carbohydrates are used as a feedstock for fermentation. We believe that in the U.S., carbohydrates produced from corn are the most sustainable and lowest cost renewable carbon source that can be used as feedstock for alcohol to hydrocarbon processes to produce hydrocarbon fuels. In the future, we expect to evaluate the commercial use of carbohydrates from sources other than corn (e.g., of sugar cane, molasses or other cellulosic sugars derived from wood, agricultural residues and waste) as the cost to acquire those carbohydrates becomes competitive, and the sustainability profile (and related CI scores) become acceptable. We expect our future feedstocks to be chosen on the collective basis of (i) cost, (ii) carbon and/or sustainability footprint with associated value, (iii) positive contribution to food chain where possible, and (iv) availability of the feedstock at a practical scale. Proprietary Carbohydrate Conversion Technologies Three technologies are required to convert carbohydrates to SAF and other renewable We have We believe that we possess proprietary know-how to integrate alcohol production and chemical processing to make Alcohols can Integration of the We own and operate a development scale 11 Verity It is critical that we can prove the CI of our products, ensuring that these values are accurate and auditable. The mission of Verity (“Verity”), including Verity Tracking and Verity Carbon Solutions, is to document CI and other sustainability attributes and apply Distributed Ledger Technology, commonly referred to as blockchain, to create a record of the products throughout the entire business system. Verity starts by calculating carbon intensity of feedstocks from data collected at the farm and field level. We There is increasing regulatory and stakeholder pressure on global corporations to lower emissions. These trends are driving demand for carbon credits, giving rise to two sets of markets, the regulated compliance carbon market and the unregulated voluntary carbon market, both of which could grow
In March 2023, we entered into a
During the second quarter of 2023, we launched the Verity Tracking platform (the “Platform”) with farmers in the Lake Preston, South Dakota area who participated in our 2022 grower program. In its initial release, the Platform allows the users to measure, report, verify, and view the CI scores at both the farm average and field-by-field levels. The Platform provides insights into the contributors and removers behind the CI, helping users to understand the factors that 12 Our Facilities and Development Scale Facility As described above, we currently own a development scale plant, the Luverne Facility. The Luverne Facility was originally constructed in 1998 and is located on approximately 55 acres of land containing approximately 50,000 square feet of building space. In 2022, the activities at our Luverne Facility
We developed Gevo’s initial RNG project, Gevo RNG, in Northwest Iowa to generate RNG captured from dairy cow manure which is supplied by three dairies located in Northwest Iowa. Gevo RNG has a designed capacity of 400,000 MMBtu of RNG per year. The RNG is sold into the California market under dispensing agreements BP Canada Energy Marketing Corp. and We have Development Properties In July 2022, we purchased approximately 240 acres of land for NZ1 in Lake Preston, South Dakota, followed by a Headquarters Our corporate headquarters and research and development laboratories are located in Englewood, Colorado and are leased. Our lease terminates in January 2029 and the Competition We face competitors in each market that we focus on, some of 13 Our renewable hydrocarbons, including SAF, compete with the Renewable fuels companies may provide substantial competition in the hydrocarbon fuels markets. These renewable fuel competitors are numerous and include both large established companies and numerous startups. Government tax incentives for renewable fuel producers and regulations such as Intellectual Property and Technologies We seek protection for our intellectual property under patent, copyright, trademark and trade secret laws. Since the Company was founded, we have submitted hundreds of patent applications in the U.S. and in various foreign jurisdictions. These patent applications are for our technologies and specific methods and products that support our business. We continue to
We have We have a strong proprietary We have a proprietary fermentation yeast biocatalyst that
While we believe that the majority of the development work on a commercially viable isobutanol producing yeast is complete, we expect to continue to make
Government Regulation - Environmental Compliance Regulation by governmental authorities in the U.S. and other countries is a significant factor in the development, manufacture and marketing of second-generation
We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and the health and safety of our employees. These laws and regulations require us to obtain environmental permits and comply with numerous environmental restrictions as we construct and operate isobutanol assets. They may require expensive pollution control equipment or There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where we arrange for the disposal of hazardous substances. If these substances are or have been disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act or other environmental laws for all or part of the costs of investigation and remediation. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from the properties. Some of these matters may require us to expend significant amounts for investigation and cleanup or other costs. We are not aware of any material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported or arranged for the disposal of hazardous substances. In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments in environmental controls at our facilities which cannot be estimated at this time. Present and future environmental laws and regulations applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions could all require us to make substantial expenditures. For example, our air emissions are subject to the Clean Air Act, the Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. Under the Clean Air Act, the EPA has promulgated National Emissions Standards for Hazardous Air Pollutants (“NESHAP”), which could apply to facilities that we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we might still be required to come into compliance with another NESHAP at some future time. New or expanded facilities might be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to the costs for achieving and maintaining compliance with these laws, more stringent standards may also limit our operating flexibility. As a condition to granting the permits necessary for operating our facilities, regulators could make demands that increase our construction and operations costs, which might force us to obtain additional financing. For example, unanticipated water discharge limits could sharply increase construction costs for our projects. Permit conditions could also restrict or limit the extent of our operations. We cannot guarantee that we will be able to obtain or comply with the terms of all necessary permits to complete the Our products benefit from the 15 Various systems are being put in place around the
People and Culture Higher Purpose Our employees strive to make environmental and social impacts in the world. Our employees are also guided by our code of business conduct and ethics, which helps them to uphold and strengthen our standards of integrity and innovation while continuously improving our environment, health, safety and sustainability. Our world and business may change, but our core values are a constant in everything we do. Employees As of December 31,
16 Human Rights Gevo honors human rights and respects the individual dignity of all people globally. Our commitment to human rights requires that we understand and carry out our Code of Business Conduct and Ethics We are committed to conducting business in accordance with the highest ethical standards. This means how we conduct ourselves is more than just a matter of policy and law, it is a reflection of our
We
We are Diversity and Inclusion In order to ensure that each of We are proud of the vibrant tapestry of people represented within our team, including individuals of African descent, Latinx heritage, and Asian backgrounds, as well as individuals of diverse sexual orientations and gender identities. Building a diverse and inclusive workforce is a top priority at Gevo. While we acknowledge that we have further progress to make, we are 17
We recognize that our diversity journey is ongoing, and we haven't yet reached our full potential. The decline in the overall diversity percentage of our leaders (from 22% in 2022 to 15% in 2023) reflects a decrease from the prior year of 7%. This shift underscores the importance of maintaining momentum in expanding representation across all backgrounds. We are transparent about our data and committed to using it to guide our progress. We will continue to hold ourselves accountable and report regularly on our diversity and inclusion efforts. Board composition fosters diverse perspectives and strengthens the Board’s ability to understand and address the needs of a broad stakeholder base. With 33% female representation among independent directors, the Board demonstrates a dedication to gender equality and harnesses the talents of a wider pool of leadership. The inclusion of 17% Hispanic independent board directors reflects the Company's commitment to diversity in its leadership and aligns with the Attraction, Retention and Engagement We are currently operating in an extremely challenging talent market. Market hiring surges, increased attrition and shifting work expectations have significantly impacted the attraction and retention of talent, creating a hyper-competitive marketplace. We understand that our long-term success will require a differentiated, targeted approach to talent attraction and retention. In response to these challenges, we took a number of actions in 2023 in an effort to enhance our ability to attract and retain diverse talent:
18 We are committed to providing employment opportunities for people in our local communities. We partner with local technical colleges and universities to offer scholarships, tuition reimbursement and internships to students in the Energy programs and partner with them in showcasing non-traditional careers to achieve gender equity. Our continued support of this scholarship program has awarded four scholarships to date. Our employees are highly engaged with our mission. We promote discussion and alignment through monthly town hall sessions with all employees, led by our CEO, Patrick Gruber, as well as fostering open-door conversations with all members of management. Further, we found that our employees could be effective while working outside the Gevo offices. Gevo’s management philosophy is to lead with trust in our employees and support a culture which enables employees to do their best work. And, as a company focused on reducing the Available Information Our Annual Reports on Form 10-K, 19 Item 1A.Risk Factors You should carefully consider
We have a history of net losses, and we may not achieve or maintain profitability. We
Furthermore, we expect to spend significant amounts on the further development and commercial implementation of our strategic plans and technology. We also expect to spend significant amounts
We will require substantial additional
To date, we have funded our operations primarily through equity offerings and issuances of Our future capital requirements will depend on many factors, including:
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all.
Our proposed growth projects may not be completed or, if completed, may not perform as expected or achieve profitability. Our project development activities may consume a significant portion of We plan to grow our business by building multiple production facilities, including greenfield and brownfield projects. Development projects may require us to spend significant sums for engineering, permitting, legal, financial advisory and other expenses before we determine whether a development project is feasible, economically attractive or capable of being financed. Our development projects are typically planned to be large and complex, and we may not be able to complete them. There can be no assurance that we will be able to negotiate the required agreements, overcome any local opposition, or obtain the necessary licenses, permits and financing. Failure to achieve any of these elements may prevent the development and construction of a project. If that were to occur, we could lose all of our investment in development expenditures and may be required to write off project development assets. 21 We may be unable to successfully
In addition, from time to time, we may enter into letters of intent, memoranda of understanding and other largely non-binding agreements or Our Our ability to realize revenue under our conditions precedent. In
Fluctuations in the price of corn and other feedstocks may affect our cost structure. Our approach to the The price and availability of corn and other plant feedstocks may be influenced by general economic, market and regulatory factors. These factors include weather conditions, pests, global or regional growing conditions, including plant disease, farming decisions, government policies and subsidies with respect to agriculture and international trade, increasing input costs, prices for alternative crops, global political or economic issues and conflicts and shifts in global 22 demand and supply. For example, corn prices may increase significantly in response to drought conditions in the
Fluctuations in petroleum prices and customer demand patterns may reduce demand for
Any decline in the
We may not be successful in the
Our future success on alcohol-to-SAF projects depends on, among other things, our ability to produce commercial quantities of The technological and logistical challenges associated with We have limited experience operating, and
commercial volumes, our commercialization of Our actual costs may be greater than expected in developing our growth projects, causing us to realize significantly lower profits or greater losses on our projects. We 23 variations may
As projects grow in size and
We may be unable to produce
We have
Even if we are successful in We expect that many of our customers will be large companies with extensive experience operating in the fuels or chemicals markets.
If we engage in If appropriate opportunities become available, we may acquire businesses, assets, technologies or products to enhance our business in the future. In connection with any future acquisitions, we could, subject to certain limitations in the agreements governing our indebtedness
Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs and other liabilities, diversion of management’s attention from our core business, adverse effects on existing business relationships with current and/or prospective partners, customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. Other than our acquisition of the Luverne Facility, we have not engaged in acquisitions in the past, and do not have experience in managing the integration process. Therefore, we may not be able to successfully integrate any businesses, assets, products, technologies or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. The integration process could divert management time from focusing on operating our business, result in a decline in employee morale and cause retention issues to arise from changes in compensation, reporting relationships, future prospects or the direction of the business. In addition, we may acquire companies that have insufficient internal financial controls, which could impair our ability to integrate the acquired company and adversely impact our financial reporting. If we fail in our integration efforts with respect to acquisitions and are unable to efficiently operate as a combined organization, our business, financial condition and results of operations may be materially adversely affected. If we engage in If appropriate opportunities become available, we may enter into joint ventures with various parties. Realizing the anticipated benefits of joint ventures 25 consuming and we may encounter unexpected difficulties or incur unexpected costs related to such arrangements, including:
If we lose key personnel, including key management personnel, or are unable to attract and retain additional personnel, it could delay our product development programs and harm our research and development efforts, make it more difficult to pursue partnerships or develop our own products or otherwise have a material adverse effect on our business. Our business is complex and we intend to target a variety of markets. Therefore, it is critical that our management team and employee workforce are knowledgeable in the areas in which we operate. The Our planned activities will require additional expertise in specific industries and areas applicable to the products and processes developed through our technology platform or acquired through strategic or other transactions, especially in the end markets that we seek to penetrate. These activities will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to attract personnel with appropriate skills or to develop the necessary expertise could impair our ability to grow our business.
We may face substantial competition from companies with greater resources and financial strength, which could adversely affect our performance and growth. We may face substantial competition in the markets for Our ability to compete successfully will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Many of our competitors have substantially greater production, financial, research and development, personnel 26 and marketing resources than we do. In addition, certain of our competitors may also benefit from local government subsidies and other incentives that are not available to us. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may limit our products or potential products increases, which could lead to litigation. Furthermore, to secure purchase agreements from certain customers, we may be required to enter into exclusive supply contracts, which could limit our ability to further expand our sales to new customers. Likewise, major potential customers may be locked into long-term, exclusive agreements with our competitors, which could inhibit our ability to compete for their business. In addition, various governments have recently announced a number of spending programs focused on the development of clean technologies, including alternatives to petroleum-based fuels and the reduction of carbon emissions. Such spending programs could lead to increased funding for our competitors or a rapid increase in the number of competitors within those markets. Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position and prevent us from obtaining or maintaining profitability.
We are vulnerable to natural disasters and other events that could disrupt our operations, such as riots, civil disturbances, war, terrorist acts, pandemics and other public health crises, weather conditions, electricity rationing, floods, infections in our laboratory or production facilities or those of our contract manufacturers and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business. Our business and operations would suffer in the event of IT system
Furthermore, the importance of such information technology systems and networks and systems has increased due to many of our employees working remotely. Additionally, if one of our service providers were to fail and we were unable to find a suitable replacement in a As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or 27 We may engage in hedging transactions, which could
Ethical, legal and social concerns about genetically engineered products and processes, and similar concerns about feedstocks grown on land that could be used for food production, could limit or prevent the use of our products, processes and technologies and limit our revenues. Some of our processes involve the use of genetically engineered organisms or genetic engineering technologies. Additionally, our feedstocks may be grown on land that could be used for food production, which subjects our feedstock sources to “food versus fuel” concerns. If we are not able to overcome the ethical, legal and social concerns relating to genetic engineering or food versus fuel, our products and processes may not be Our ability to develop and commercialize one or more of our technologies, products or processes could be limited by the following factors:
The subjects of genetically engineered organisms and food versus fuel have received negative publicity, which has aroused public debate. Any negative publicity (even if relating to the actions or products of a competitor or partner) could have a negative impact on our business and/or perceptions of our products. This could result in lower revenue and profits. This adverse publicity could also lead to greater regulation and trade restrictions on imports of genetically engineered products or feedstocks grown on land suitable for food production. Additionally, the use of social media platforms and similar devices, provide an opportunity for the immediate and far-reaching dissemination of information, including inaccurate information. Information concerning us or our products may be posted on such platforms at any time, and such information may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects, or business. The harm may be immediate without affording us an opportunity for redress or correction. The biocatalysts that we develop have significantly enhanced characteristics compared to those found in naturally occurring enzymes or microbes. While we produce our biocatalysts only for use in a controlled industrial environment, the release of such biocatalysts into uncontrolled environments could have unintended consequences. Any 28 adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, and we may be exposed to liability for any resulting harm. As
We may not be able to use some or all of our net operating loss carry-forwards to offset future income. We have net operating loss carryforwards due to prior period losses generated before January 1, 2023, which if not utilized will begin to expire at various times over the next 20 years. If we are unable to generate sufficient taxable income to utilize our net operating loss carryforwards, these carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period) is subject to limitation on its ability to utilize its pre-change net operating loss carry-forwards, or net operating losses, to offset future taxable income. We
We
In addition, we may be required to register our projects or qualify our products with the federal government, various states or other countries. Delays in obtaining registration or qualification of our projects or products could delay future revenues and could adversely affect our cash flows. Further, we typically make a large investment in our projects 29 prior to receiving registration and/or qualification. Failure of our projects or products to qualify for government economic incentives could have a material adverse effect on our business. In order to benefit from RINs and LCFS credits, our RNG projects are required to be registered and are subject to regulatory audit. We are required to register an RNG project with the EPA and relevant state regulatory agencies. Further, we qualify our RINs through a voluntary Quality Assurance Plan. By registering our RNG project with the EPA’s voluntary Quality Assurance Plan, we are subject to quarterly third-party audits and semi-annual on-site visits of our projects to validate generated RINs and overall compliance with the RFS program. We are also subject to a separate third party’s annual attestation review. The Quality Assurance Plan provides a process for RIN owners to follow, for an affirmative defense to civil liability, if used or transferred Quality Assurance Plan verified RINs were invalidly generated. A project’s failure to comply could result in remedial action by the EPA, including penalties, fines, retirement of RINs, or termination of the project’s registration, any of which could adversely affect our business, financial condition and results of operations. Our RNG project has, and any future digester project may not be able to achieve the operating results we expect from these projects. Our RNG project is dependent on the LCFS credits and RINs produced at the dairy farms that make up part of our RNG project. In the event that CARB reduces the CI score that it applies to waste conversion projects, such as dairy digesters, the number of LCFS credits for RNG generated at our RNG project will decline. Additionally, revenue from LCFS credits also depends on the price per LCFS credit, which is driven by various market forces, including the supply of and demand for LCFS credits, which in turn depends on the demand for traditional transportation fuel and the supply of renewable fuel from other renewable energy sources, and mandated CI targets, which determine the number of LCFS credits required to offset LCFS deficits, and which increase over time. A significant decline in the value of LCFS credits could require us to incur an impairment charge on our RNG project and could adversely affect our business, financial condition and results of operations. Risks Related to Intellectual Property Our ability to compete may be adversely affected if we are unsuccessful in defending against any claims by competitors or others that we are infringing upon their intellectual property rights. The various bioindustrial markets in which we operate or plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the renewable energy industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. As a result, we may be required to defend against claims of intellectual property infringement that may be asserted by our competitors against us and, if the outcome of any such litigation is adverse to us, it may affect our financial condition and our ability to compete effectively. Litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside of the U.S. may divert management time from focusing on business operations, could cause us to spend significant amounts of money and may have no guarantee of success. Any future intellectual property litigation could also force us to do one or more of the following:
30 We are aware of a significant number of patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties. We cannot assure you that we will ultimately prevail if any of this third-party intellectual property is asserted against us. Our ability to compete may be adversely affected if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights through costly litigation or Our success will depend in part on our ability to obtain patents and maintain adequate protection of our intellectual property covering our technologies and products and potential products in the U.S. and other countries. We have adopted a strategy of seeking patent protection in the U.S. and in certain foreign countries with respect to certain of the technologies used in or relating to our products and processes. We own rights to hundreds of issued patents and filed patent applications in the U.S. and in various foreign jurisdictions. When and if issued, patents would expire at the end of their term and any patent would only provide us commercial advantage for a limited period of time, if at all. Our patent applications are directed to our enabling technologies and to our methods and products which support our business in the advanced Only some of the patent applications that we have filed in the U.S. or in any foreign jurisdictions, and only certain of the patent applications filed by third parties in which we own rights, have been issued. A filed patent application does not guarantee a patent will issue and a patent issuing does not guarantee its validity, nor does it give us the right to practice the patented technology or commercialize the patented product. Third parties may have or obtain rights to “blocking patents” that could be used to prevent us from commercializing our products or practicing our technology. The scope and validity of patents and success in prosecuting patent applications involve complex legal and factual questions and, therefore, issuance, coverage and validity cannot be predicted with any certainty. Patents issuing from our filed applications may be challenged, invalidated or circumvented. Moreover, third parties could practice our inventions in secret and in territories where we do not have patent protection. Such third parties may then try to sell or import products made using our inventions in and into the U.S. or other territories and we may be unable to prove that such products were made using our inventions. Additional uncertainty may result from implementation of the Leahy-Smith America Invents Act, enacted in September 2011, as well as other potential patent reform legislation passed by the U.S. Congress and from legal precedent handed down by the Federal Circuit Court and the U.S. Supreme Court, as they determine legal issues concerning the scope, validity and construction of patent claims. Because patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publication of discoveries in the scientific literature often lags behind the actual discoveries, there is additional uncertainty as to the validity of any patents that may issue and the potential for “blocking patents” coming into force at some future date. Accordingly, we cannot ensure that any of our currently filed or future patent applications will result in issued patents, or even if issued, predict the scope of the claims that may issue in our and other companies’ patents. These concerns apply equally to patents we have licensed, which may likewise be challenged, invalidated or circumvented, and the licensed technologies may be obstructed from commercialization by competitors’ “blocking patents.” In addition, we generally do not control the patent prosecution and maintenance of subject matter that we license from others. Generally, the licensors are primarily or wholly responsible for the patent prosecution and maintenance activities pertaining to the patent applications and patents we license, while we may only be afforded opportunities to comment on such activities. Accordingly, we are unable to exercise the same degree of control over licensed intellectual property as we exercise over our own intellectual property and we face the risk that our licensors will not prosecute or maintain it as effectively as we would like. 31 In addition, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, particularly where, as here, the end products reaching the market generally do not reveal the processes used in their manufacture, and particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the U.S., so we cannot be certain that the steps we have taken in obtaining intellectual property and other proprietary rights will prevent unauthorized use of our technology. If competitors are able to use our technology without our authorization, our ability to compete effectively could be adversely Our commercial success also depends in part on not infringing patents and proprietary rights of third parties, and not breaching any licenses or other agreements that we have entered into with regard to our technologies, products and business. We cannot be certain that patents have not or will not As is commonplace in the biotechnology industries, some of our directors, employees and consultants are or have been employed at, or associated with, companies and universities that compete with us or have or will develop similar technologies and related intellectual property. While employed at these companies, these employees, directors and consultants may have been exposed to or involved in research and technology similar to the areas of research and technology in which we are engaged. Though we have not received such a complaint, we may be subject to allegations that we, our directors, employees or consultants have inadvertently or otherwise used, misappropriated or disclosed alleged trade secrets or confidential or proprietary information of those companies. Litigation may be necessary to defend against such allegations and the outcome of any such litigation would be uncertain. Under some of our research agreements, our partners share joint rights in certain intellectual property we develop. Such provisions may limit our ability to gain commercial benefit from some of the intellectual property we develop and may lead to costly or time-consuming disputes with parties with whom we have commercial relationships over rights to certain innovations. If any other party has filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in interference, derivation or other proceedings declared by the USPTO to determine priority of invention and, thus, the right to the patents for these inventions in the U.S. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, such a proceeding may result in the loss of certain claims. Even successful outcomes of such proceedings could result in significant legal fees and other expenses, diversion of management time and efforts and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to
We may not be able to enforce our intellectual property rights throughout the world. The laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Many companies have encountered significant problems in protecting and enforcing intellectual property rights in certain foreign jurisdictions, and, particularly 32 efforts and attention from other aspects of our business. Accordingly, our efforts to enforce our intellectual property rights in such countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop. Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information. We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that know-how and inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, these agreements may not be enforceable, our proprietary information may still be disclosed, third parties could reverse engineer our biocatalysts and others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, an unauthorized breach in our information technology systems may expose our trade secrets and other proprietary information to unauthorized parties. Any exposure of our trade secrets or other proprietary information could harm our competitive position and have an adverse impact on our financial condition. We have received funding from U.S. government agencies, which could negatively affect our intellectual property rights. Some of our research has been funded by grants from U.S. government agencies. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents and technical data, generally including, at a minimum, a nonexclusive license authorizing the government to use the invention or technical data for noncommercial purposes. U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions will normally be subject to government license rights, periodic progress reporting, foreign manufacturing restrictions and march-in rights. March-in rights refer to the right of the U.S. government, under certain limited circumstances, to require us to grant a license to technology developed under a government grant to a responsible applicant or, if we refuse, to grant such a license itself. March-in rights can be triggered if the government determines that we have failed to work sufficiently towards achieving practical application of a technology or if action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. If we breach the terms of our grants, the government may gain rights to the intellectual property developed in our related research. The government’s rights in our intellectual property may lessen its commercial value, which could adversely affect our performance. Risks Related to Legal and Regulatory
The EPA has implemented the RFS Program pursuant to the Energy Policy Act of 2005 (the “Energy Policy Act”) and the Energy Independence and Security Act of 2007. The RFS Program sets annual quotas for
minimum requirements may
Reductions or changes to existing regulations and policies may present technical, regulatory and economic barriers, The market for Concerns associated with Additionally,
The
Parties with an interest in other energy sources, including lawmakers, regulators, policymakers, environmental and advocacy organizations or other activists may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations and programs that promote renewable energy. Many of these parties have substantially greater resources and influence than we 34 modification, delayed adoption or repeal. Any failure to adopt, delay in implementing, expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage the use of other energy sources over renewable energy, could adversely affect our business, financial condition and results of operations. Any claims relating to improper handling, storage or disposal of Our research and development processes involve the use of hazardous materials, including chemical, radioactive and biological materials. Our operations also produce hazardous waste. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of, and human exposure to, these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Although we believe that our activities conform in all material respects with environmental laws, there can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present or future laws could result in the imposition of fines, third-party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business. Our In the course of our relationships with Additionally, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors or agents. Even with implementation of policies, training and internal controls designed to reduce the risk of corrupt payments, our employees, vendors or agents may violate our policies. Our international partnerships may significantly increase our exposure to potential liability. Our failure to comply with Anti-Corruption Laws could result in significant fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and damage to our reputation. Risks Related to Owning Our We may not be able to comply with all applicable listing requirements or standards of Our common stock is listed on
35 On February 29, 2024, we received notice from Nasdaq that We have 180 calendar days, or until
We intend to actively monitor the
We cannot predict the size of future issuances or sales of shares of our common stock in connection with future acquisitions or capital raising activities, or the effect, if any, that such issuances or sales may have on Future issuances of our common stock or instruments convertible or exercisable into our common stock
We may need to raise capital through these We may obtain additional funds through public or private debt or equity financings, Raising capital at a subsidiary, or project, level would result in lower revenues attributable back to us. We operate in a capital-intensive business and in order to construct our facilities, we need to raise large amounts of capital. In
36
Our stock price may be volatile, and your investment in our securities could suffer a decline in value. The market price of shares of our common stock has experienced significant price and volume fluctuations. We cannot predict whether the price of our common stock will rise or fall. A variety of factors may have a significant effect on our stock price, including:
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock, regardless of our operating performance, and cause the value of your investment to decline.
Additionally, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation or other derivative shareholder lawsuits. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business regardless of the outcome. The price of our common stock could also be affected by possible sales of common stock by investors who view our 37 activity involving our common stock. The hedging or arbitrage could, in turn, affect the trading prices of Sales of a substantial number of shares of our common stock or securities linked to our common stock, such as our In addition, certain holders of our outstanding common stock
Our financial
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies. We may
We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment. We have never paid cash dividends on our common stock and we do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock. If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over 38 We are subject to anti-takeover provisions in our Provisions in our Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. Our certificate of incorporation provides that the Court of Chancery of the State of Delaware shall, unless we consent in writing to the selection of an alternative forum, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. The exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. Notwithstanding the foregoing, the exclusive forum provision shall not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the Exchange Act or the Securities Act, or the respective rules and regulations promulgated thereunder. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find the exclusive forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees. 39 Item 1B.Unresolved Staff Comments None.
We have an information security program designed to identify, protect, detect and respond to and manage reasonably foreseeable cybersecurity risks and threats. To protect our information systems from cybersecurity threats, we use various security tools that help prevent, identify, escalate, investigate, resolve and recover from identified vulnerabilities and security incidents in a timely manner. These include, but are not limited to, internal reporting, monitoring and detection tools. We regularly assess risks from cybersecurity and technology threats and monitor our information systems for potential vulnerabilities. We use a widely-adopted risk quantification model to identify, measure and prioritize cybersecurity and technology risks and develop related security controls and safeguards. We conduct regular reviews and tests of our information security program and also leverage other exercises (e.g., penetration and vulnerability testing) to evaluate the effectiveness of our information security program and improve our security measures and planning. The results of these reviews and exercises are reported to the Audit Committee. While we have not, as of the date of this Form 10-K, experienced a cybersecurity threat or incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that we will not experience such an incident in the future. Such incidents, whether or not successful, could result in our incurring significant costs related to, for example, rebuilding our internal systems, implementing additional threat protection measures, defending against litigation, responding to regulatory inquiries or actions, paying damages, providing customers with incentives to maintain a business relationship with us, or taking other remedial steps with respect to third parties, as well as incurring significant reputational harm. In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures. Our Chief People Officer oversees our information security program. Team members who support our information security program have relevant educational and industry experience. The team provides regular reports to senior management on various cybersecurity threats, assessments and findings. The Board oversees our enterprise risk assessment, where we assess key risks within the company, including security and technology risks and cybersecurity threats. The Audit Committee oversees our cybersecurity risk and receives regular reports from our Chief People Officer on various cybersecurity matters, including risk assessments, mitigation strategies, areas of emerging risks, incidents and industry trends, and other areas of importance. |
None.
Our corporate headquarters and research and development laboratories, included in our Gevo, Inc. segment, are located in Englewood, Colorado. In January 2016, we amended our lease to extend the term until July 2021 and to reduce the amount of leased space from 29,865 square feet to approximately 19,241 square feet, effective July 2016. We believe that the facility with the reduced
square footage will be adequate for our needs for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth.
Our subsidiary, Luverne, included in our Gevo Development/Luverne segment, owns and operates an ethanol and isobutanol production facility in Luverne, Minnesota on approximately 55 acres of land and contains approximately 50,000 square feet of building space. The production facility was originally constructed in 1998. The land and buildings are owned by Luverne, which granted to Whitebox a mortgage lien and security interest in such property to secure its obligations under Whitebox Notes Indenture.
From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.
Not Applicable.
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
The Company'sCompany’s common stock is listed and traded on the NASDAQThe Nasdaq Capital Market under the symbol 'GEVO'“GEVO”.
The following table sets forth, for the period indicated, the high and low sales prices for our common stock, as reported by the NASDAQ Stock Market, for the periods indicated below. The table below has been adjusted to reflect the January 5, 2017 one-for-twenty reverse stock split.
| Common Stock |
| |||||||||||||
| 2017 |
|
| 2016 |
| ||||||||||
| High |
|
| Low |
|
| High |
|
| Low |
| ||||
First Quarter | $ | 4.09 |
|
| $ | 0.93 |
|
| $ | 13.33 |
|
| $ | 5.20 |
|
Second Quarter |
| 1.13 |
|
|
| 0.58 |
|
|
| 19.19 |
|
|
| 4.46 |
|
Third Quarter |
| 0.81 |
|
|
| 0.56 |
|
|
| 16.00 |
|
|
| 9.11 |
|
Fourth Quarter |
| 0.72 |
|
|
| 0.59 |
|
|
| 9.63 |
|
|
| 3.46 |
|
Holders of Record
As of March 6, 2018,January 31, 2024, there were approximately 3069 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”
Dividends
No cash dividends have been paid on our common stock to date, nor do we anticipate paying dividends in the foreseeable future. Any future determination to declare cash dividends on our common stock will be made at the discretion of our Board of Directors, subject to compliance and limitations under our debt arrangements.
Performance Graph
Set forth below is a graph comparing the annual changearrangements in the cumulative total return of Gevo’s common stock with the cumulative total return of the Standard & Poor’s SmallCap 600 Value Index and with the NASDAQ Clean Edge Green Energy Index over the period from the initiation of public trading of the Company’s common stock in December 31, 2011 through December 31, 2017.
It is assumed in the graph that $100 was invested (i) in our common stock; (ii) in the stocks of the companies in the Standard & Poor’s SmallCap 600 Value Index; and (iii) in the stocks of the NASDAQ Clean Edge Green Energy Index.
The stock price performance shown on the following graph is not indicative of future price performance
effect at such time.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities by the Issuer
None.On May 30, 2023, the Board authorized a stock repurchase program, under which the Company may repurchase up to $25 million of its common stock. The primary goal of the repurchase program is to allow the Company to opportunistically repurchase shares, while maintaining its ability to fund development projects. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or through privately negotiated transactions. The timing, volume and nature of stock repurchases, if any, will be in the Company’s sole discretion and will be dependent on market conditions, applicable securities laws, and other factors. The stock repurchase program may be suspended or discontinued at any time and does not have an expiration date.
The Company did not repurchase any shares of common stock under the stock repurchase program during the three months or fiscal year ended December 31, 2023.
Performance Graph
The following information is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.
41
The following line graph compares the cumulative total shareowner return on our common stock against the cumulative total return of the S&P Smallcap 600 Index and the NASDAQ Clean Edge Green Energy Index for the each of the five years ended December 31, 2023. The graph assumes a $100 investment in our common stock and each index at December 31, 2018.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Gevo, Inc., The S&P Smallcap 600 Index
and the NASDAQ Clean Edge Green Energy Index
| | | | | | | | | | | | | | | | | | |
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| December 31, | ||||||
|
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 | ||||||
| | | | | | | | | | | | | | | | | | |
Gevo, Inc. | | $ | 100.00 | | $ | 117.86 | | $ | 216.84 | | $ | 218.37 | | $ | 96.94 | | $ | 59.18 |
S&P Smallcap 600 | |
| 100.00 | |
| 122.78 | |
| 136.64 | |
| 173.29 | |
| 145.39 | |
| 168.73 |
NASDAQ Clean Edge Green Energy | |
| 100.00 | |
| 142.67 | |
| 406.35 | |
| 395.62 | |
| 276.35 | |
| 248.97 |
The information in the graph will not be considered solicitation material, nor will it be filed with the SEC or incorporated by reference into any future filing under the Securities Act or the Exchange Act, unless we specifically incorporate it by reference into our filing.
Item 6. |
42
The following selected historical consolidated financial data should be read together with our consolidated financial statements and the accompanying notes appearing in Part II, Item 8Table of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected historical consolidated financial data in this section is not intended to replace our historical consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.Contents
We derived the consolidated statements of operations data for the years ended December 31, 2017, 2016, and 2015 and the consolidated balance sheet data as of December 31, 2017 and 2016 from our audited consolidated financial statements in Part II, Item 8 of this Report. The consolidated statements of operations data for the years ended December 31, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 has been derived from our audited consolidated financial statements not included in this Report. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein.
On December 21, 2016, the Board of Directors of the Company approved a reverse split of the Company’s common stock, par value $0.01, at a ratio of one-for-twenty. This reverse stock split became effective on January 5, 2017 and, unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.
(In thousands except share and per share amounts) | Years Ended December 31, |
| |||||||||||||||||
Consolidated statement of operations data: | 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Total revenue (1) (2) (3) | $ | 27,536 |
|
| $ | 27,213 |
|
| $ | 30,137 |
|
| $ | 28,266 |
|
| $ | 8,224 |
|
Costs of goods and corn sold |
| 38,165 |
|
|
| 37,017 |
|
|
| 38,762 |
|
|
| 35,582 |
|
|
| 17,913 |
|
Operating expenses |
| 12,653 |
|
|
| 14,181 |
|
|
| 23,302 |
|
|
| 32,461 |
|
|
| 45,826 |
|
Loss from operations |
| (23,282 | ) |
|
| (23,985 | ) |
|
| (31,927 | ) |
|
| (39,777 | ) |
|
| (55,515 | ) |
Net loss (4) (5) (6) (7) (8) (9) |
| (24,630 | ) |
|
| (37,228 | ) |
|
| (36,194 | ) |
|
| (41,145 | ) |
|
| (66,806 | ) |
Net loss per share - basic and diluted |
| (1.51 | ) |
|
| (9.68 | ) |
|
| (51.61 | ) |
|
| (153.35 | ) |
|
| (444.67 | ) |
Weighted-average number of common shares outstanding - basic and diluted |
| 16,295,937 |
|
|
| 3,847,421 |
|
|
| 701,252 |
|
|
| 268,308 |
|
|
| 150,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, |
| |||||||||||||||||
Consolidated balance sheet data: | 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Cash and cash equivalents | $ | 11,553 |
|
| $ | 27,888 |
|
| $ | 17,031 |
|
| $ | 6,359 |
|
| $ | 24,625 |
|
Total assets |
| 88,853 |
|
|
| 112,324 |
|
|
| 102,831 |
|
|
| 98,928 |
|
|
| 116,355 |
|
Derivative warrant liability |
| 1,951 |
|
|
| 2,698 |
|
|
| 10,493 |
|
|
| 3,114 |
|
|
| 7,243 |
|
Secured debt |
| - |
|
|
| - |
|
|
| 483 |
|
|
| 773 |
|
|
| 10,127 |
|
2017 Notes recorded at fair value |
| - |
|
|
| 25,769 |
|
|
| 21,565 |
|
|
| 25,460 |
|
|
| - |
|
2020 Notes, net |
| 13,491 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
2022 Notes, net |
| 515 |
|
|
| 8,221 |
|
|
| 14,341 |
|
|
| 13,679 |
|
|
| 14,501 |
|
Total liabilities |
| 25,322 |
|
|
| 43,060 |
|
|
| 54,505 |
|
|
| 51,964 |
|
|
| 45,380 |
|
Accumulated deficit |
| (401,350 | ) |
|
| (376,720 | ) |
|
| (339,492 | ) |
|
| (303,298 | ) |
|
| (262,153 | ) |
Total stockholders’ equity |
| 63,531 |
|
|
| 69,264 |
|
|
| 48,326 |
|
|
| 46,964 |
|
|
| 70,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects our unaudited summarized quarterly consolidated financial statements for each of the twelve months ended December 31, 2017 and 2016. This information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information (in thousands except share and per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter |
| |||||||||||||
2017 | First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Revenue | $ | 5,616 |
|
| $ | 7,542 |
|
| $ | 7,699 |
|
| $ | 6,679 |
|
Gross loss |
| (3,792 | ) |
|
| (2,163 | ) |
|
| (2,010 | ) |
|
| (2,664 | ) |
Loss from operations (1) |
| (7,182 | ) |
|
| (6,177 | ) |
|
| (5,113 | ) |
|
| (4,810 | ) |
Gain (Loss) from change in fair value of derivative warrant liability |
| 3,259 |
|
|
| 2,260 |
|
|
| (413 | ) |
|
| (5 | ) |
Selling, general and administrative expense |
| 2,173 |
|
|
| 2,123 |
|
|
| 1,893 |
|
|
| 1,282 |
|
Net loss |
| (5,934 | ) |
|
| (10,158 | ) |
|
| (4,153 | ) |
|
| (4,385 | ) |
Net loss per share - basic and diluted | $ | (0.51 | ) |
| $ | (0.66 | ) |
| $ | (0.25 | ) |
| $ | (0.20 | ) |
Weighted-average number of common shares outstanding - basic and diluted |
| 11,584,595 |
|
|
| 15,372,485 |
|
|
| 16,508,158 |
|
|
| 21,606,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter |
| |||||||||||||
2016 | First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Revenue | $ | 6,320 |
|
| $ | 8,113 |
|
| $ | 6,944 |
|
| $ | 5,836 |
|
Gross loss |
| (2,903 | ) |
|
| (1,876 | ) |
|
| (2,706 | ) |
|
| (2,319 | ) |
Loss from operations (1) |
| (5,866 | ) |
|
| (5,492 | ) |
|
| (6,135 | ) |
|
| (6,492 | ) |
Gain (Loss) from change in fair value of derivative warrant liability |
| 5,248 |
|
|
| (10,573 | ) |
|
| 1,154 |
|
|
| 5,954 |
|
Loss from change in fair value of 2017 Notes |
| (836 | ) |
|
| (940 | ) |
|
| (1,854 | ) |
|
| (573 | ) |
Net loss |
| (3,605 | ) |
|
| (21,487 | ) |
|
| (9,849 | ) |
|
| (2,287 | ) |
Net loss per share - basic and diluted | $ | (3.13 | ) |
| $ | (8.75 | ) |
| $ | (2.04 | ) |
| $ | (0.33 | ) |
Weighted-average number of common shares outstanding - basic and diluted |
| 1,150,816 |
|
|
| 2,454,282 |
|
|
| 4,837,698 |
|
|
| 6,840,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1)Loss from operations during 2017 and 2016 primarily relates to costs associated with conducting research and development, business development, business and financial planning, continued improvement of facilities and operations for the co-production of isobutanol and ethanol at the Luverne Facility.
Item 7. | Management’s Discussion and |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedaudited financial statements and related notes that appearappearing elsewhere in this Annual Report on Form 10-K (this “Report”“Annual Report”). In additionSome of the information contained in this discussion and analysis and set forth elsewhere in this Annual Report, including information with respect to historical financial information, the following discussion containsour plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Company Overview
We are a growth-oriented, carbon abatement company with the mission of solving greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen. We believe that the market size for hydrocarbon fuels will continue to remain significant in the long-term even with the rapid adoption of electric vehicles and hydrogen technologies.
We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel (“SAF”), with the potential to achieve a “net-zero” greenhouse gas (“GHG”) footprint. We believe that this addresses the global need of reducing GHG emissions with “drop in” sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (the “GREET Model”) to measure, predict and verify GHG emissions across the life cycle of our products. The “net-zero” concept means Gevo expects that by using sustainably grown feedstock (e.g., low till, no-till and dry corn cultivation), renewable and substantially decarbonized energy sources, drop-in hydrocarbon fuels can be produced that have a net-zero, full life cycle footprint measured from the capture of renewable carbon through the burning of the fuel.
Our primary market focus, given current demand and growing customer interest, is hydrocarbon fuels, and SAF in particular. We believe that SAF from carbohydrates to alcohol is the most economically viable approach for carbon abatement. We also have commercial opportunities for other renewable hydrocarbon products, such as RNG; hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. Global fuel consumption by commercial airlines continues to remain strong, with global fuel consumption of more than 100 MGPY and growing.
Project Updates
Net-Zero Projects. Our concept of “Net-Zero Projects” is a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. Our initial Net-Zero Project, Net-Zero 1 (“NZ1”), is expected to be located in Lake Preston, South Dakota, and is being currently designed to produce approximately 65 million gallons per year (“MGPY”) of total hydrocarbon volumes, including 60 MGPY of SAF, which would fulfill part of our approximately 350 MGPY of SAF and hydrocarbon supply agreements. The liquid hydrocarbons, when burned, are expected to have a “net-zero” GHG footprint. Along with the hydrocarbons, NZ1 is expected to produce approximately 695,000 tons per year of high-value protein products for use in the food chain and more than 34 million pounds per year of corn oil. Our products will be produced in three steps: the first step is milling the corn to produce the carbohydrates needed for the production of SAF while simultaneously enabling the production of protein and oil; the second step produces alcohols using carbohydrate-based fermentation; and the third step is the conversion of the alcohols into hydrocarbons.
43
We work with several technology, design and equipment partners, most notably Fluid Quip Technologies (FQT), Axens, and Praj. FQT and Axens provide area operation designs which have been incorporated into Gevo’s proprietary overall design of low CI carbohydrate-to-hydrocarbon plants, such as NZ1 plant. Praj is working with us on the proprietary design and construction of prefabricated process modules for our plants. Our partners are working with us on proprietary process designs that have the potential to lower capital and operating cost in the future. The advantage of utilizing Fluid Quip and Axens area operation and related process designs which are well proven in other applications, we believe we have chosen technology which is substantially de-risked.
We completed the value engineering on our NZ1 project and are proceeding with detailed engineering, modularization design, and capital costs updates. We are currently refining project cost estimates with engineering, procurement, and construction (“EPC”) partners to identify cost saving opportunities, and currently expect to finance the construction of NZ1 at the subsidiary level using a combination of Company equity and third-party capital, to include non-recourse debt. The Company expects to have invested a cumulative total of $236 to $286 million of cash equity in the project at financial close. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in NZ1 under this expected financing structure. The use of project debt and third party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.
We have substantially completed the engineering design of NZ1. We have substantially completed value engineering and we are now focusing on detail engineering with an EPC partner, to reduce and contractually finalize a negotiated lump-sum, fixed price agreement whereby the EPC will build and deliver the plant. This detail engineering work is focused specifically on increasing the modularization of component parts on the NZ1 plant design, which means that we expect that the process equipment would be built into modules at a factory, then the modules would be assembled onsite at NZ1, with the goal of minimizing specialized field work typical in plant construction of this type. This approach is expected to lower the risk and cost of, and access to, skilled labor at the site and reduce the supply chain constrictions for some of our long-lead equipment. Increasing the modularization of the plant design is also expected to reduce our spend in advance of securing third-party equity and debt financing for NZ1 and increase the certainty of construction schedule for those counterparties.
In order to achieve full construction financing for NZ1, we need to secure third-party equity and debt. Upon receiving an invitation from the U.S. Department of Energy (“DOE”), we submitted a Part II Application for a DOE loan guarantee for a direct lending from Federal Financing Bank. In August 2023, Gevo was invited to enter the due diligence and underwriting phases with DOE. Given the current interest rate environment and general macroeconomic conditions, a DOE-guaranteed loan is our most attractive debt option and is expected to offer the lowest cost of debt for the project. We expect that obtaining a DOE-guaranteed loan will have the benefit of reducing the overall amount of equity required to finance NZ1 and should result in higher project equity returns for investors which should increase the likelihood of Gevo successfully financing NZ1. The DOE loan application process is targeted to be complete in 2024. We expect that our NZ1 plant start-up date will occur twenty-four to thirty months after the NZ1 financing closes, the timing of which is uncertain. In parallel with the DOE-guaranteed loan process, we continue to explore debt financing for NZ1 without the benefit of the DOE-guaranteed loan. We are also working to secure access to carbon capture and sequestration at the site.
We are evaluating and performing early site development work at several sites in the U.S. for other greenfield sites. These sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market. In addition, we are pursuing potential Net-Zero Projects with several existing ethanol plant sites. Existing ethanol plants need to be decarbonized with renewable energy or de-fossilized energy and/or carbon sequestration. Gevo has developed a preferred list of potential partners and sites with decarbonization in mind and is engaged in preliminary feasibility and development discussions with several of these potential partners. We plan to give priority to existing industrial plant sites that have attractive potential economics and high predictability of timeline for decarbonization.
Renewable Natural Gas Project. The Gevo RNG project started up and began producing and injecting initial volumes of biogas in 2022, during the project’s testing and ramp-up period. The project achieved stable production levels and surpassed our annual production target of 310,000 MMBtu for 2023. In addition, we completed an expansion to the Gevo RNG project to increase its annual design capacity from 355,000 MMBtu to 400,000 MMBtu.
44
Gevo’s revenue from the RNG project in Northwest Iowa (the “RNG Project”) stems from sales of RNG and from the environmental attributes associated with its RNG sales, including the attributes available from California’s Low Carbon Fuel Standard (“LCFS”) program and the U.S. Environmental Protection Agency (“EPA”) Renewable Fuels Standard (“RFS”) program to receive renewable identification numbers (“RINs”). Gevo was granted registration approval by the EPA in 2022, allowing us to participate in its Renewable Fuel Standard Program (“RFS Program”) to receive renewable identification numbers (“RINs”).
During the first quarter of 2023, we received approval for a temporary pathway under California’s Low Carbon Fuel Standard (“LCFS”) program. We continue to realize substantial sales for our environmental attributes of both LCFS credits and RINs in 2023.
Verity. It is critical that we can prove the CI of our products, ensuring that these values are accurate and auditable. The mission of Verity (“Verity”), including Verity Tracking and Verity Carbon Solutions, is to document CI and other sustainability attributes and apply Distributed Ledger Technology, commonly referred to as blockchain, to create a record of the products throughout the entire business system. Verity starts by calculating carbon intensity of feedstocks from data collected at the farm and field level. We plan to track these feedstocks through production at our plants where we intend to use a mix of renewable electricity, biogas, renewable hydrogen and other potentially decarbonized energy sources in production. The CI data would then be combined to deliver a comprehensive CI reduction in a finished renewable fuel. The resulting CI reduction value has potential to be quantified as a digital asset and monetized in voluntary or compliance carbon markets, and providing compliance needs for tax incentives while preventing double-counting. We believe that in the future, regenerative agricultural practices have the potential to sequester large quantities of soil organic carbon while improving soil health.
There is increasing regulatory and stakeholder pressure on global corporations to lower emissions. These trends are driving demand for carbon credits, giving rise to two sets of markets, the regulated compliance carbon market and the unregulated voluntary carbon market, both of which could grow meaningfully in the coming decades. The total value of major compliance carbon markets is expected to be greater than $800 billion in 2023, according to Bloomberg. Verity intends to document and account for carbon capture in conjunction with scientifically supported measurement techniques. The potential for Verity is broad and could be applicable to tracking the CI of various items beyond Gevo’s internal businesses, including, but not limited to, renewable fuels, food, feed and industrial products through their respective business systems and value chains. Our robust scientific measurement, reporting, and verification plan and approach is expected to provide a high-quality credit that should meet regulated compliance and unregulated carbon markets.
In March 2023, we entered into a joint development framework agreement with Southwest Iowa Renewable Energy; in August 2023, we entered into a joint development framework agreement with a second ethanol producer in the Midwest that has over 100 million gallons of capacity; and in October 2023, we entered into an agreement with a third ethanol producer in the Southwest. These agreements include commercial terms and profit-sharing frameworks. As we grow Verity as an externally facing business, we are working to sign up additional ethanol and biofuel customers. Each of these agreements will focus on implementing Verity technology and developing the market for carbon credits to help farmers and biofuel producers quantify the CI reductions for their products.
During the second quarter of 2023, we launched the Verity Tracking platform (the “Platform”) with farmers in the Lake Preston, South Dakota area who participated in our 2022 grower program. In its initial release, the Platform allows the users to measure, report, verify, and view the CI scores at both the farm average and field-by-field levels. The Platform provides insights into the contributors and removers behind the CI, helping users to understand the factors that drive differences in CI performance between fields. Users can also compare their scores with the U.S. national average calculated by the GREET model.
Key Verity project highlights include:
● | Verity Carbon Solution began development in 2020 as a necessary and value-added services for our SAF production; |
● | 3 ethanol producer customers contracted, and growing; |
● | 2% of the total US ethanol market or more than 300 million gallons per year; |
45
● | 100% farmer retention in the grower program comprising 65,000 acres and growing; |
● | Total value pool of all major global compliance carbon markets in 2023 was $800 billion; |
● | Capital light, fee-based, industry agnostic business |
Luverne Facility. In 2022, the activities at our Luverne Facility were transitioned to care and maintenance, market development, and customer education, as we shifted focus to our Net Zero Projects. The workforce adjustment which resulted allowed us to retain key personnel and redeploy some resources to our NZ1 and RNG projects to provide valuable knowledge and experience for the future strategic growth of the Company. The Luverne Facility is well equipped and positioned as a development site as it provides a unique opportunity to showcase our decarbonization and business systems and raise awareness for future partnerships, investors, and local communities, even though operations at the site have been minimized. Future operations, if any, will be tailored to support a focus on advancing our technology, testing, optimizing alternative feedstocks and yeast strains, and unit operations as well as partnership development for fuels and specialty chemicals with integrated solutions for GHG reductions. We continue to evaluate incentive opportunities recently introduced by the Inflation Reduction Act, which may positively impact the future economics of our operation at Luverne.
U.S. Department of Agriculture. In September 2023, we executed a Notice of Grant and Agreement Award with the U.S. Department of Agriculture (“USDA”) for a Partnerships for Climate-Smart Commodities grant of up to $30.0 million for Gevo’s Climate-Smart Farm-to-Flight Program, with project activity beginning for the 2023 crop year. The project expects to create critical structural climate-smart market incentives for low CI corn as well as to accelerate the production of SAF to reduce the sector’s dependency on fossil-based fuels. In addition, this program will help provide support and incentive payments for farmers to produce, measure, report and verify low CI corn using climate smart agricultural practices, as well as accelerate development of the low-CI corn supply chain for low-carbon ethanol and SAF.
LG Chem Agreement. In April 2023, we entered into a joint development agreement with LG Chem, Ltd. (“LG Chem”) a leading global chemical company to develop bio-propylene for renewable chemicals using our Ethanol-to-Olefins (“ETO”) technology. Gevo’s proprietary ETO technology can target carbon neutral or carbon negative drop-in replacements for traditional petroleum-based building blocks called olefins, including bio-propylene, which can be used for renewable chemicals or fuels including sustainable aviation fuel. These plant-based, renewable olefins would be derived from atmospheric CO2 captured through photosynthesis and are expected to deliver the same performance in final products on the market today. Under the terms of the agreement, we will provide the core enabling technology it has developed for renewable olefins to be produced from low-carbon ethanol and together the parties will collaborate to accelerate the pilot research, technical scale-up, and commercialization of bio-propylene. LG Chem is expected to bear all scale-up costs for chemicals and make certain payments to Gevo. We received $1.1 million, net of foreign taxes of $0.2 million, in the second quarter of 2023 under the agreement, and we expect to receive an additional $1.2 million over the next two years to help defray costs associated with the joint development efforts. In addition, LG Chem agreed to make certain payments to us upon commencement of commercialization as follows:
● | $5.0 million upon commencement of commercialization, to be paid ratably over a period of five years. |
● | 1% royalty on Net Sales for the first production facility beginning six years from commercial operation. |
● | 1% royalty on Net Sales for all subsequent production facilities upon commencement of operations. |
Nasdaq Listing Rules Compliance
On February 29, 2024, we received notice from Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the minimum bid price of our common stock had been below $1.00 per share for the previous 30 consecutive business days. We have 180 calendar days, or until August 27, 2024, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the minimum bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the compliance grace period. In the event we do not regain compliance with the Minimum Bid Price Requirement by August 27, 2024, we may be eligible for an additional 180-calendar day compliance period. Our failure to regain compliance during the compliance period could result in delisting.
46
Key Operating Metrics
Total operating revenues reflect both sales of RNG and sales of related environmental attributes. As a result, our revenues are primarily affected by unit production of RNG, production of environmental attributes, and the prices at which we monetize such production. The following table summarizes the key operating metrics described above, which metrics we use to measure performance:
| | | | | | | | | | | | |
| | | | | | | | | | | ||
| | Year Ended December 31, | | | | | | | ||||
(in thousands, unless otherwise indicated) |
| 2023 |
| 2022 |
| Change |
| Change % |
| |||
Revenues |
| |
|
| |
|
| |
|
|
|
|
Natural gas commodity | | $ | 659 | | $ | 640 | | $ | 19 | | 3 | % |
Natural gas environmental attributes - RINs | |
| 9,888 | |
| 214 | |
| 9,674 | | 4,521 | % |
Natural gas environmental attributes - LCFS | |
| 4,910 | |
| — | |
| 4,910 | | 100 | % |
Total revenues | | $ | 15,457 | | $ | 854 | | $ | 14,603 | | | |
Production expenses (1) | | $ | 11,481 | | $ | 2,626 | | $ | 8,855 | | 337 | % |
RNG metrics | |
|
| |
|
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| |
| |
RNG production volumes (MMBtu) | |
| 314 | |
| 125 | |
| 189 | | 151 | % |
Plus: prior period RNG volumes dispensed in current period | |
| 116 | |
| — | |
| 116 | | 100 | % |
Less: RNG production volumes not dispensed | |
| (34) | |
| (116) | |
| 82 | | (71) | % |
Total RNG volumes available for RIN and LCFS generation (2) | |
| 396 | |
| 9 | |
| 387 | | 4,300 | % |
RIN metrics | |
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| |
RIN generation (3) | |
| 4,639 | |
| 101 | |
| 4,538 | | 4,493 | % |
Plus: Prior period RINs | |
| — | |
| — | |
| — | | — | % |
Total RINs available for sale | |
| 4,639 | |
| 101 | |
| 4,538 | | 4,493 | % |
Less: RINs sold | |
| (4,639) | |
| (101) | |
| (4,538) | | 4,493 | % |
RIN inventory | |
| — | |
| — | |
| — | | | |
RNG volumes not dispensed for RINs (MMBtu) (4) | |
| 34 | |
| 116 | |
| (82) | | (71) | % |
Average realized RIN price (5) | | $ | 2.13 | | $ | 2.13 | | $ | — | | — | % |
LCFS metrics | |
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| |
LCFS generation (6) | | | 76 | | | — | | | 76 | | 100 | % |
Less: LCFS sold | | | (76) | | | — | | | (76) | | 100 | % |
LCFS inventory | | | — | | | — | | | — | | | |
RNG volumes not dispensed for LCFS (MMBtu) | |
| 34 | |
| 116 | |
| (82) | | (71) | % |
Average realized LCFS price (5) | | $ | 64.79 | | $ | — | | $ | 64.79 | | 100 | % |
(1) | The higher per unit cost reflects lower production volumes during the commissioning and ramp-up phase, which was substantially completed by the end of Q3 2023. |
(2) | Represents gas production which has not been dispensed to generate RINs and LCFS. |
(3) | RINs are generally generated in the month following the gas being dispensed. |
(4) | One MMBtu of RNG has approximately the same energy content as 11.727 gallons of ethanol, and thus may generate 11.727 RINs under the RFS Program. |
(5) | Realized prices for environmental attributes are net of third-party commissions and thus do not correspond directly to index prices. |
(6) | LCFS credits are generally generated in the calendar quarter following the gas being dispensed. |
47
Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report, our actual results may differ materially from those discussed below. Factors that could cause or contribute toanticipated in these differences include those discussed below and elsewhere inforward-looking statements.
This section of this Report particularly in “Risk Factors.”
Overview
We are a renewable chemicalsdiscusses year-to-year comparisons between 2023 and next generation biofuels company, targeting what we believe to be very large potential markets: that2022. The complete Management’s Discussion and Analysis of low carbon fuelsFinancial Condition and chemicals that can compete directly against petro-chemical products depending on the priceResults of oilOperations for year-to-year comparisons between 2022 and value2021 and other discussions of carbon. Renewable fuels are one of the few markets where the value for renewable carbon has already been established, particularly in the U.S. We believe that the demand for low carbon fuels, chemicals, and plastics will continue and grow stronger over time. We believe that renewable carbon will eventually be valued in chemicals and plastics in addition to fuels.
The challenges to displace petrochemical products with renewable products are enormous: (i) the products need to meet or exceed the stringent performance requirements established by the incumbent products, (ii) the products need to be compatible with existing distribution infrastructure, (iii) the products must be economical in the market place, and (iv) in most cases, the products must have a lower carbon footprint and improve the “sustainability” of the business system. We believe we have viable technologies that produce products that address these challenges.
We have developed proprietary technology that uses a combination of synthetic biology, metabolic engineering, chemistry and chemical engineering to make isobutanol and hydrocarbon products from isobutanol that can displace petrochemical incumbent products. We have been able to genetically engineer yeast, whereby the yeast produces isobutanol from carbohydrates at costs that we believe to be commercially competitive once large production facilities are deployed that will enable economies of scale to be reached. We have shown that the isobutanol production process works in full scale fermenter systems at our production facility in Luverne, Minnesota (the “Luverne Facility”). We also have shown that our renewable isobutanol2021 items can be readily converted to hydrocarbon products that address large markets. Specifically, our renewable alcohol-to-jet fuel (“ATJ”) has been approved for use in commercial aviation and used multiple times for commercial flights. In addition, our renewable isobutanol is being used as a gasoline blendstock in the Houston area for on-road vehicles as an ethanol-free fuel option for consumers. Our renewable isooctane meets the performance and specification requirements for use in chemicals and fuels and is currently being used in the European Union. We believe that there is large potential to grow our business, through a combination of (i) directly producing and selling our renewable isobutanol and related hydrocarbon products, and (ii) licensing our technology.
We believe that renewable isobutanol is a potentially valuable commercial product because of its versatility to address large markets either as a product directly or as a key intermediate for producing renewable carbon alternatives to mainstream fuels such as jet fuel, gasoline, plastics such as PET, and various other chemical products and materials. Isobutanol is a four-carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents, paints and coatings, or more importantly from a market size and performance value-added point of view, as a gasoline blendstock. Because isobutanol can be readily converted to hydrocarbon products such hydrocarbon fuels, including isooctane, isooctene and ATJ, lubricants, polyester, rubber, plastics, fibers and other polymers, we believe that the addressable markets are very large; potentially being able to ultimately reach 40% of the global petrochemicals markets depending on the price of oil and the value of renewable carbon.
2017 Production and Sales
During 2017, we produced 15.6 million gallons of ethanol, 47 thousand tons of animal feed, and 1,050 tons of corn oil resulting in revenue of $26.3 million. Consistent with our market development efforts, during 2017, we produced approximately 206,000 gallons of isobutanol at the Luverne Facility. During 2017, we sold the equivalent of approximately 49,368 gallons of isobutanol, either directly as isobutanol or as renewable hydrocarbons (jet fuel, isooctane and isooctene) resulting in revenue of $1.1 million.
As we continue our market development efforts and increase our isobutanol production levels at our Luverne Facility, there will likely continue to be a mismatch in timing between isobutanol production and sales. As a result, at times we will likely build isobutanol inventory levels. Currently, our alcohol storage capacity is limited at our Luverne Facility, and our isobutanol inventory, together with our ethanol inventory, may exceed such storage capacity. This will cause us to seek other forms of storage, such as railcars, customer sites or investing in additional storage capabilities.
Market Development, Sales and Production Strategy for 2018
In 2018, we intend to continue to develop the markets for our isobutanol, jet fuel, isooctane, and other products made from isobutanol and ethanol. Ultimately, our primary target is to enter into binding supply contracts for isobutanol and related hydrocarbon products that represent the majority of the production volumes to be produced at the expanded Luverne Facility that we plan to construct (the “Luverne Facility Expansion”). The focus for market development continues to be:
Isobutanol for the ethanol free gasoline market, primarily in Reformulated Gasoline or RFG areas. We plan to increase our distribution network, and add additional regions, broadening our distribution footprint. The isobutanol in our inventory would be used in part to develop these sales.
Isooctane for gasoline and chemicals are expected to continue to be a priority. The vast majority of sales are expected to go into the European Union. We expect that the demand for this product will continue to grow, and we may expand or modify the hydrocarbon demonstration plant at South Hampton Resources in Silsbee, Texas to increase capacity for isooctane. We plan use the renewable isobutanol in inventory for the feedstock for this product. We expect to continue to work on securing a set of offtake contracts that would support the Luverne Facility Expansion.
ATJ. We plan to sell ATJ for market development purposes and demonstrations. In certain niche markets, we may begin commercial sales, depending on price and volumes that can be supported from the hydrocarbon demonstration plant at South Hampton Resources in Silsbee, Texas. We expect to continue to work on securing a set of offtake contracts that would support the Luverne Facility Expansion.
In 2018, we expect to sell approximately 19 million gallons or more of ethanol, and approximately 56 thousand tons of its animal feed product. As previously announced, in 2018, we expect to improve the cash flow out of the Luverne Facility by optimizing the ethanol production processes, developing value added products for ethanol, animal feed, and corn oil produced at the Luverne Facility plant and further reducing the cost of the Luverne Facility’s carbohydrates.
We expect to use our inventory of isobutanol to meet our market development needs in 2018. In 2017, we ran up an inventory of isobutanol. During the production runs at the Luverne Facility in 2017, we also met our variable cost production targets for isobutanol. As previously disclosed, running isobutanol at a scale of 1.5 MGPY, the current capacity of the Luverne Facility, costs us cash because not all of the fixed costs are covered given the relatively low run rate. We are prepared to ramp-up isobutanol production in response to positive demand and price appreciation. We will be focused on developing markets and generating cash using the current inventory. We expect to be selling isobutanol into the gasoline blendstock market, as well as selling isooctane, jet fuel and other products made from inventoried isobutanol.
Path to Profitability
We believe that there are two paths by which we can become profitable. First, as described above, together with the initiatives to improve the cash flow profilefound within Part II, Item 7, of our business in 2018 compared to 2017, we believe that by optimizing the Luverne Facility’s ethanol production processes, developing value added products for ethanol and animal feed produced at the plant and further reducing the cost of the plant’s carbohydrate feedstock, we could become profitable in the near future, independent of isobutanol production.
Second, we believe that we could become profitable if we are able to obtain binding offtake agreements for our isobutanol and related hydrocarbon products that justify the Luverne Facility Expansion, along with adequate financing for such expansion, whereby we would convert the Luverne Facility primarily to the production of isobutanol, with some percentage of such isobutanol volumes to be further processed into hydrocarbons such as ATJ and isooctane.
Luverne Facility Update
In 2018, as previously announced, we expect to undertake initiatives to improve the profitability of the Luverne Facility.
We currently have five fermentation vessels at its Luverne Facility. Three fermentation vessels are made from carbon steel. Two fermentation vessels are newer and made from stainless steel. The two stainless steel fermentation vessels and one of the three
carbon steel fermentation vessels are expected to be used for ethanol production during 2018. The remaining two carbon steel fermentation vessels are not expected to be needed for production in 2018. If we were to run isobutanol production in side by side mode of operation with ethanol production, we would need one of the two other carbon steel fermentation vessels to be put back into operation, along with the other three fermentation vessels that we plan to use for ethanol production during 2018.
During 2017, we hired a third-party engineering firm to test the structural integrity of the carbon steel fermentation vessels. The results of the testing indicate that one of these fermentation vessels has at least one more year of life before needed repair, and the other one has approximately 2 months of life remaining. If we were to start up and run isobutanol for an extended period of time, at least one of these carbon steel fermentation vessels would need to be repaired prior to being put back into service. Repair costs are estimated to be approximately $250,000 per fermentation vessel.
Ultimately, we anticipate that as we build out, or expands the Luverne Facility to increase capacity, we might repair both carbon steel fermentation vessels, and/or install additional fermentation vessels dependingAnnual Report on the need for capacity for isobutanol and/or ethanol at that time.
NASDAQ Market Price Compliance
On June 21, 2017, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market, notifying us that, for the prior 30 consecutive business days, the closing bid price of our common stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, we had an initial compliance period of 180 calendar days, to regain compliance with this requirement. On December 20, 2017, the Nasdaq Stock Market granted us an additional 180 calendar days, or until June 18, 2018, to regain compliance. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before June 18, 2018. The Nasdaq determination to grant the second compliance period was based on our meeting of the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the exception of the bid price requirement, and our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
Recent Highlights and Developments
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Debt Maturities and Exchanges
In June 2017, we issued our 12% convertible senior secured notes due 2020 (the “2020 Notes”) in exchange for our outstanding 12.0% convertible senior secured notes due 2017 (“2017 Notes”). As of December 31, 2017, the outstanding principal on our 2020 Notes was $16.7 million. The 2020 Notes are scheduled to mature on March 15, 2020.
In January 2018, we entered into a private exchange agreement with a holder of our 2022 Notes to exchange the remaining $515,000 of outstanding principal amount of the 2022 Notes for 780,303 shares of our common stock. Upon completion of this exchange, the 2022 Notes were satisfied in their entirety and there are no remaining obligations under the 2022 Notes.
Financial Condition
For the year ended December 31, 2017, we incurred a consolidated net loss of $24.6 million and had an accumulated deficit of $401.4 million. Our cash and cash equivalents at December 31, 2017 totaled $11.5 million which is primarily being used for the following: (i) operating activities of our Luverne Facility; (ii) operating activities at our corporate headquarters in Colorado, including research and development work; (iii) capital improvements primarily associated with the Luverne Facility; (iv) costs associated with optimizing isobutanol production technology; and (v) debt service obligations.
The continued operation of our business is dependent upon raising additional capital through future public and private equity offerings, debt financings or through other alternative financing arrangements. In addition, successful completion of our research and development programs and the attainment of profitable operations are dependent upon future events, including our ability to raise sufficient capital to expand our commercial production facility, completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, achieving market acceptance and demand for our products and services and attracting and retaining qualified personnel.
We expect to incur future net losses as we continue to fund the development and commercialization of our products and product candidates. We have primarily relied on raising capital to fund our operations and debt service obligations by issuing common stock and warrants in underwritten public offerings. Those issuances have caused significant dilution to our existing stockholders. While we have sought, and will continue to seek, other, less dilutive forms financing to fund our operations and debt service obligations, there is no assurance that we will be successful in doing so.
Based on our current operating plan, existing working capital at December 31, 2017 was not sufficient to meet the cash requirements to fund planned operations through the period that is one year after the date our 2017 financial statements are issued unless we are able to raise additional capital to fund operations. Our audited financial statementsForm 10-K for the year ended December 31, 2017, were prepared under2022, filed with the assumption that we would continueSEC on March 9, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our operations as a going concern. Our independent registered public accounting firm forcorporate website at www.gevo.com.
Comparison of the Years Ended December 31, 2023 and 2022
(in thousands)
| | | | | | | | | | | | |
|
| Year Ended December 31, | |
| |
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| ||||
|
| 2023 |
| 2022 |
| Change ($) |
| Change (%) |
| |||
Total operating revenues | | $ | 17,200 | | $ | 1,175 | | $ | 16,025 | | 1,364 | % |
Operating expenses: | |
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| |
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| |
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| | | |
Cost of production | |
| 11,991 | |
| 8,698 | |
| 3,293 | | 38 | % |
Depreciation and amortization | | | 19,007 | | | 7,887 | | | 11,120 | | 141 | % |
Research and development expense | |
| 6,637 | |
| 7,427 | |
| (790) | | (11) | % |
General and administrative expense | |
| 42,628 | |
| 39,941 | |
| 2,687 | | 7 | % |
Project development costs | |
| 14,732 | |
| 10,061 | |
| 4,671 | | 46 | % |
Facility idling costs | |
| 4,040 | |
| 4,599 | |
| (559) | | (12) | % |
Impairment loss | |
| — | |
| 24,749 | |
| (24,749) | | (100) | % |
Loss on disposal of assets | |
| — | |
| 499 | |
| (499) | | (100) | % |
Total operating expenses | |
| 99,035 | |
| 103,861 | |
| (4,826) | | (5) | % |
Loss from operations | |
| (81,835) | |
| (102,686) | |
| 20,851 | | (20) | % |
Other income (expense) | |
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| |
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| |
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| | | |
Interest expense | |
| (2,161) | |
| (1,167) | |
| (994) | | 85 | % |
Interest and investment income | |
| 19,090 | |
| 3,481 | |
| 15,609 | | 448 | % |
Other income (expense), net | |
| (1,309) | |
| 2,365 | |
| (3,674) | | (155) | % |
Total other income, net | |
| 15,620 | |
| 4,679 | |
| 10,941 | | 234 | % |
Net loss | | $ | (66,215) | | $ | (98,007) | | $ | 31,792 | | (32) | % |
Operating revenue. During the year ended December 31, 2017 included a “going concern” emphasis of matter paragraph in its report on our financial statements as of, and for2023, revenue increased $16.0 million compared to the year ended December 31, 2017. These conditions raise substantial doubt about2022, primarily due to sales of RNG and environmental attributes from our ability to continue as a going concern. Our inability to continue as a going concern may potentially affect our rights and obligationsRNG project. Sales under our debt obligations.
Our transition to profitability is dependent upon, among other things,RNG project commenced in the successful development and commercializationthird quarter of our products and product candidates,2022. During the achievement of a level of revenues adequate to support our cost structure and securing sufficient financing for the build-out and Retrofit of the Luverne Facility or a facility at another suitable location. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise additional cash. We intend to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, we may seek additional capital through arrangements with strategic partners or from other sources, may seek to restructure our debt and we will continue to address our cost structure. Notwithstanding, there can be no assurance that we will be able to raise additional funds, or achieve or sustain profitability or positive cash flows from operations.
Comparison of the yearsyear ended December 31, 20172023, we sold 313,572 MMBtu of RNG from our RNG project, resulting in biogas commodity sales of $0.7 million and 2016 (in thousands)
| Years Ended December 31, |
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| 2017 |
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| 2016 |
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| Change |
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Revenue and cost of goods sold |
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Ethanol sales and related products, net | $ | 26,279 |
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| $ | 24,613 |
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| $ | 1,666 |
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Hydrocarbon revenue |
| 1,029 |
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| 1,929 |
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| (900 | ) |
Grant and other revenue |
| 228 |
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| 671 |
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| (443 | ) |
Total revenues |
| 27,536 |
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| 27,213 |
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| 323 |
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Cost of goods sold |
| 38,165 |
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| 37,017 |
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| 1,148 |
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Gross loss |
| (10,629 | ) |
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| (9,804 | ) |
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| (825 | ) |
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Operating expenses |
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Research and development expense |
| 5,182 |
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| 5,216 |
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| (34 | ) |
Selling, general and administrative expense |
| 7,471 |
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| 8,965 |
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| (1,494 | ) |
Total operating expenses |
| 12,653 |
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| 14,181 |
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| (1,528 | ) |
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Loss from operations |
| (23,282 | ) |
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| (23,985 | ) |
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| 703 |
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Other (expense) income |
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Interest expense |
| (2,951 | ) |
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| (7,837 | ) |
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| 4,886 |
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Loss on exchange or conversion of debt |
| (4,933 | ) |
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| (763 | ) |
|
| (4,170 | ) |
Loss on extinguishment of warrant liability |
| - |
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| (918 | ) |
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| 918 |
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Gain from change in fair value of derivative warrant liability |
| 5,101 |
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| 1,783 |
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| 3,318 |
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Gain from change in fair value of 2020 Notes embedded derivative |
| 1,751 |
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| - |
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| 1,751 |
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Loss from change in fair value of 2017 Notes |
| (339 | ) |
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| (4,204 | ) |
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| 3,865 |
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Loss on issuance of equity |
| - |
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| (1,519 | ) |
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| 1,519 |
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Other income |
| 23 |
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|
| 215 |
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|
| (192 | ) |
Total other (expense) income |
| (1,348 | ) |
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| (13,243 | ) |
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| 11,895 |
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Net loss | $ | (24,630 | ) |
| $ | (37,228 | ) |
| $ | 12,598 |
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Revenues. Duringenvironmental attribute sales of $14.8 million, see Key Operating Metrics above. Additionally, we recognized $1.3 million of licensing and development revenue from the twelve monthsagreement with LG Chem as well as $0.4 million from the sale of isooctane during the year ended December 31, 2017, we recognized revenue2023.
Cost of $26.3production. Cost of production increased $3.3 million associated withduring the sale of 15.6 million gallons of ethanol,year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the production and sales from our RNG project, which significantly increased in 2023, after the ramp-up phase, as well as isobutanollower costs at the idling Luverne Facility in 2023.
Depreciation and related products, an increase of $1.7amortization. Depreciation and amortization increased $11.1 million fromduring the twelve monthsyear ended December 31, 2016 primarily related2023, compared to increased production at the Luverne Facility. Hydrocarbon revenue decreased during the 12 monthsyear ended December 31, 2017 primarily as a result of lower shipments of finished products from our demonstration plant located at the South Hampton Facility. Hydrocarbon revenues are comprised of ATJ, isooctane and isooctene sales. Grant and other revenue was $0.2 million during the 12 months ended December 31, 2017, down $0.4 million on as compared to the same period in 2016, primarily as a result of the Company’s contract with the Northwest Advanced Renewables Alliances ending in 2017.
Cost of goods sold. Our cost of goods sold during the twelve months ended December 31, 2017 included $32.0 million associated with the production of ethanol, isobutanol and related products and $6.2 million in depreciation expense. Cost of goods sold increased during the twelve months ended December 31, 2017 2022, primarily due to increased productiona full three quarters of ethanol as comparedadditional depreciation expense in 2023 for RNG assets placed into service in Q3 2022 and accelerated depreciation on Agri-Energy segment assets due to shorter lives stemming from the impairment assessment during the third quarter of 2022. See Note 4 to the prior year.Consolidated Financial Statements for additional information.
48
Research and development expense. Research and development expensesexpense decreased $0.8 million during the twelve monthsyear ended December 31, 20172023, compared to the year ended December 31, 2022, primarily due to a $0.3 million decrease in depreciation expenses.
Selling, general and administrative expense. The decrease in selling, general and administrative expenses during the twelve months ended December 31, 2017 primarily resulted from decreasesreduction of $0.6 million in salary related expenses, $0.2 million in legal expenses, and $0.5 million in consulting expenses.
Loss on exchange or conversion of debt. During the twelve months ended December 31, 2017, we incurred a loss of $0.9 million resulting from the exchange of a portion of our 2022 Notes for our common stock and a $3.9 million loss on the exchange of our 2017 Notes for our 2020 Notes.
Gain from change in fair value of derivative warrant liability. In December 2013, August 2014, February 2015, May 2015, December 2015, April 2016, September 2016 and February 2017, we issued warrants to purchase our common stock which are recorded at fair value each reporting period. During the twelve months ended December 31, 2017, the estimated fair value of the derivative warrant liability decreased primarily due to a decline in the price of our common stock, and as a result, the Company reported a $5.1 million gain for 2017.
Gain from change in fair value of 2020 Notes embedded derivative. During the twelve months ended December 31, 2017, the estimated fair value of the 2020 Notes embedded derivative liability decreased, resulting in a non-cash gain of $1.8 million primarily due to the decrease in the price of the Company’s stock from the June 20, 2017 issuance date.
Loss from change in fair value of the 2017 Notes. During the twelve months ended December 31, 2017, we reported a $0.3 million loss associated with the increase in fair value of the 2017 Notes, primarily as a result of the decrease in the time to maturity during the period of time the 2017 Notes were still outstanding in 2017.
Comparison of the years ended December 31, 2016 and 2015 (in thousands)
| Years Ended December 31, |
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| |||||
| 2016 |
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| 2015 |
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| Change |
| |||
Revenue and cost of goods sold |
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Ethanol sales and related products, net | $ | 24,613 |
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| $ | 27,125 |
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| $ | (2,512 | ) |
Hydrocarbon revenue |
| 1,929 |
|
|
| 1,694 |
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|
| 235 |
|
Grant and other revenue |
| 671 |
|
|
| 1,318 |
|
|
| (647 | ) |
Total revenues |
| 27,213 |
|
|
| 30,137 |
|
|
| (2,924 | ) |
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|
|
|
|
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|
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|
|
|
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Cost of goods sold |
| 37,017 |
|
|
| 38,762 |
|
|
| (1,745 | ) |
|
|
|
|
|
|
|
|
|
|
|
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Gross loss |
| (9,804 | ) |
|
| (8,625 | ) |
|
| (1,179 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Research and development expense |
| 5,216 |
|
|
| 6,610 |
|
|
| (1,394 | ) |
Selling, general and administrative expense |
| 8,965 |
|
|
| 16,692 |
|
|
| (7,727 | ) |
Total operating expenses |
| 14,181 |
|
|
| 23,302 |
|
|
| (9,121 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
| (23,985 | ) |
|
| (31,927 | ) |
|
| 7,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (7,837 | ) |
|
| (8,243 | ) |
|
| 406 |
|
(Loss)/Gain on exchange or conversion of debt |
| (763 | ) |
|
| 232 |
|
|
| (995 | ) |
(Loss)/Gain on extinguishment of warrant liability |
| (918 | ) |
|
| 1,775 |
|
|
| (2,693 | ) |
Gain from change in fair value of derivative warrant liability |
| 1,783 |
|
|
| 577 |
|
|
| 1,206 |
|
(Loss)/Gain from change in fair value of 2017 Notes |
| (4,204 | ) |
|
| 3,895 |
|
|
| (8,099 | ) |
Loss on issuance of equity |
| (1,519 | ) |
|
| (2,523 | ) |
|
| 1,004 |
|
Other income |
| 215 |
|
|
| 20 |
|
|
| 195 |
|
Total other (expense) income |
| (13,243 | ) |
|
| (4,267 | ) |
|
| (8,976 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (37,228 | ) |
| $ | (36,194 | ) |
| $ | (1,034 | ) |
Revenues. During the twelve months ended December 31, 2016, we recognized revenue of $24.6 million associated with the sale of 14.2 million gallons of ethanol, as well as isobutanol and related products, a decrease of $2.5 million from the twelve months ended December 31, 2015 primarily related to decreased production at the Luverne Facility. Hydrocarbon revenue increased during the twelve months ended December 31, 2016 primarily as a result of increased shipments of isooctane and isooctene during the year.
Cost of goods sold. Our cost of goods sold during the twelve months ended December 31, 2016 included $31.0 million associated with the production of ethanol, isobutanol and related products and $6.0 million in depreciation expense. Cost of goods sold decreased during the twelve months ended December 31, 2016 primarily due to decreased production of ethanol as compared to the prior year.
Research and development expense. Research and development expenses decreased during the twelve months ended December 31, 2016 primarily due to a $1.3 million decrease in employee compensation expense.
Selling, general and administrative expense. The decrease in selling, general and administrative expenses during the twelve months ended December 31, 2016 primarily resulted from decreases of $1.5 million in employee compensation expense, $6.9 million in professional and legal expenses, partially offset by an increase in $0.6personnel related costs due to additional headcount added during the year ended December 31, 2023.
General and administrative expense. General and administrative expense increased $2.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increases in other general expenses, includingpersonnel costs associatedrelated to the hiring of highly qualified and skilled professionals, professional consulting fees, and stock-based compensation. On a periodic basis, we assess our Corporate cost allocation estimates. During the year ended December 31, 2023, we performed an assessment which resulted in the implementation of Corporate cost allocations across all segments to reflect the use of centralized administrative functions as well as the allocation of personnel costs related to our project development efforts. If we had applied the most recent cost allocation estimate to the year ended December 31, 2023, it would have resulted in a decrease in General and administrative expense of approximately $28.4 million, with restructuringa corresponding increase primarily to Project development costs, representing the nature of the Company’s debt obligations.
Gain / (Loss) on exchangeexpenditures related to those growth projects: namely our view that substantial portions of these expenditures may be reimbursed to us upon financial close of NZ1, and their growth-oriented non-recurring and discretionary nature. The allocations did not impact the Company’s operating loss or conversion of debt. Duringnet loss for the twelve monthsyear ended December 31, 2016, we incurred a loss2023.
Project development costs. Project development costs are related to our future Net-Zero Projects and Verity which consist primarily of $0.8employee expenses, preliminary engineering costs, and technical consulting costs. Project development costs increased $4.7 million resulting fromduring the exchange of a portion of our 2022 Notes for our common stock.
Loss on extinguishment of warrant liability. During the twelve monthsyear ended December 31, 2016, we incurred a loss of $0.9 million resulting from exercises of warrants2023, compared to purchase our common stock. This is the result of the fair value of the derivative warrant liability for the warrants and the cash received being less than the fair value of the shares issued upon exercise.
Gain (loss) from change in fair value of derivative warrant liability. In December 2013, August 2014, February 2015, May 2015, December 2015, April 2016 and September 2016, we issued warrants to purchase our common stock which are recorded at fair value each reporting period. During the twelve monthsyear ended December 31, 2016, the estimated fair value of the derivative warrant liability decreased 2022, primarily due to a declineincreases in the pricepersonnel costs and consulting fees.
Facility idling costs. Facility idling costs are related to care and maintenance of our common stock, and as a result,Luverne Facility. Facility idling costs decreased by $0.6 million for the Company reported a $1.8 million gain for 2016.
Gain (Loss) from change in fair value of the 2017 Notes. During the twelve monthsyear ended December 31, 2016,2023, compared to the year ended December 31, 2022, primarily due to one-time charges recorded during 2022 related to removing flammable and other hazardous items from the site, writing off certain patents, and reduction in the workforce.
Impairment loss. No impairment loss was recorded during the year ended December 31, 2023. During the year ended December 31, 2022, the Company recorded a $24.7 million impairment loss on long-lived assets, which reduced the carrying value of certain property, plant, and equipment, and a leased right of use asset, at the Agri-Energy segment to its fair value. The impairments recorded relate to the determination to suspend production at the Luverne Facility and shift the plant into an idled, care and maintenance status during the third quarter of 2022. The impact of the one-time impairment charge of $24.7 million was $0.11 of basic and diluted impairment loss per share for the year ended December 31, 2022. See Note 4 to the Consolidated Financial Statements for additional information.
Loss on disposal of assets. The Company did not record a loss on disposal of assets for the year ended December 31, 2023. As a result of suspending the production of ethanol at the Luverne Facility, we reported a $4.2wrote-off $0.5 million of costs during the year ended December 31, 2022, related to ancillary equipment and spare parts that are no longer expected to be utilized at the Luverne Facility. The equipment and spare parts had been planned to be used in ethanol production.
Loss from operations. The Company’s loss associated withfrom operations decreased by $20.9 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increased revenue from RNG operations and LG Chem licensing in 2023, as well as the prior year impairment loss, partially offset by the increase in fair valuecosts for our Net-Zero, Verity, and USDA Climate-Smart Grant projects.
Interest expense. Interest expense increased by $1.0 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the interest on the 2021 Bonds, which was capitalized into construction in process during the construction phase of our RNG Project in the 2017 Notes,prior periods.
Interest and investment income. Interest and investment income increased $15.6 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to an increase in interest earned on our cash equivalent investments as a result of the decrease in the time to maturityhigher interest rates.
49
Other income. Other income decreased $3.7 million during the twelve-months-ended December 31, 2016.
Loss on issuance of equity. During the twelve monthsyear ended December 31, 2016, we reported a $1.52023, compared to the year ended December 31, 2022, primarily due to the receipt of $0.4 million loss associated withfrom the April 2016 equity issuance primarily as a resultUSDA's Biofuel Producer Program in 2023 compared to $2.9 million in 2022. In addition, our termination of the estimated fair valueexpediting procurement agreement with a local utility resulted in a one-time charge of the common stock$1.6 million in 2023.
Sources of Our Revenues
Our current and warrants issued being greater than the consideration received in exchange.
Revenues, Cost of Goods Sold and Operating Expenses
Revenues
During 2017, 2016 and 2015, we generated revenuehistoric revenues are primarily derived from: (i) the sale of ethanol, isobutanolRNG commodities and the related products;environmental attributes; (ii) licensing and development sales; (iii) hydrocarbon sales consisting primarily of the sale of biojet fuel, isooctane and bio-PX derived from our isobutanol for purposesand SAF; and (iv) the sale of certificationisobutanol and testing; and (iii) government grants and research and development programs.related products.
Principal Components of Our Cost Structure
Cost of Goods Sold and Gross Loss
Production. Our cost of goods sold during the years ended December 31, 2017, 2016 and 2015production consists primarily includesof costs directly associated with ethanol production and initial operations for the production of RNG and other renewable hydrocarbon products, including isobutanol, at the Luverne Facility such asSAF, and isooctane. Such costs forinclude direct materials, direct labor, depreciation, other operating costs and certain plant overhead costs. Direct materials include corn feedstock, denaturant and process chemicals. Direct labor includes compensation (including stock-based compensation) of personnel directly involved in production operations at the Luverne Facility.operations. Other operating costs include utilities and natural gas and wind power usage.
Our gross loss is defined as our total revenues less our cost of goods sold.
Research and Development
Development. Our research and development costs consistexpense consists of expensescosts incurred to identify, develop and test our technologies for the production of isobutanolrenewable hydrocarbon products and the development of downstream applications thereof. Research and development expenses includeexpense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, depreciation and amortization expense on property, plant and equipment used in product development, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.
Research and development expenses also include upfront fees and milestone payments made under licensing agreements and payments for sponsored research and university research gifts to support research at academic institutions.
Selling, General and Administrative
Selling, generalAdministrative. General and administrative expenses consistexpense consists of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, corporate insurance costs, occupancy-related costs, depreciation and amortization expenses on property, plant and equipment not used in our product development programs or recorded in cost of goods sold, travel and relocation expenses and hiring expenses.
We also record selling, general Our corporate personnel, consisting of subject matter experts, including chemists, engineers, and administrative expensessustainability experts, dedicate the majority of their time and efforts for the operationsdevelopment of our growth projects. Costs incurred have not yet been allocated to the Luverne Facility that include administrativespecific growth projects on the face of our financial statements.
Project Development Costs. Project development costs consist of consulting, preliminary engineering costs, personnel expenses (including stock-based compensation) and oversightresearch and development expenses certain personnel-related expenses, insuranceto support the business activities of our Net-Zero Projects.
Depreciation and Amortization. Depreciation and amortization relates to property, plant and equipment associated with the production of RNG and other operating expenses.renewable hydrocarbon products, including isobutanol, SAF, and isooctane, as well as that used in product development.
Liquidity and Capital Resources
As of December 31, 2023, we had cash and cash equivalents of $298.3 million and current restricted cash of $77.3 million, totaling $375.6 million in cash, cash equivalents, and restricted cash. As of December 31, 2023, we had net working capital of $295.0 million, with $91.4 million of current liabilities. Our cash equivalents primarily consist of investments in U.S. government money market funds. We expect to use our cash, cash equivalents, and restricted cash for the following purposes: (i) identification, development, engineering, licensing, acquisition and construction of production facilities and the Company’s other Net-Zero Projects; (ii) potential investment in RNG projects; (iii) potential development of the Luverne Facility; (iv) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (v) exploration of strategic alternatives and additional financing, including project financing; and (vi) future debt service obligations. We believe as a result of our cash and cash equivalents balances, and the performance of our current and expected operations, we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report.
50
Since our inception in 2005, we have devoted most of our cash resources to manufacturing, research andthe development and selling, general and administrative activities related to the commercialization of isobutanol,routes to efficiently produce fuels and chemicals from carbohydrates, such as wellrenewable feedstock, using alcohols (isobutanol and ethanol) as related products from renewable feedstocks.intermediates. We have incurred losses since inception, have a significant accumulated deficit, and expect to incur losses through at least 2020. Wefor the foreseeable future. Historically we have financed our operations primarily with proceeds from multiple salesthe issuance of equity, andwarrants, debt securities, and borrowings under debt facilities and product sales.
The continued operationfacilities. Our current sources of our business is dependent upon raising additional capital through future public and private equity offerings, debt financings or through other alternative financing arrangements. In addition, successful completion of our research and development programs and the attainment of profitable operations are dependent upon future events, including our ability to raise sufficient capital to expand our commercial production facility, completion of our development activities resulting incash include sales of isobutanol or isobutanol-derived products and/or technology, achieving market acceptanceRNG, environmental attributes, and demand for our products and services and attracting and retaining qualified personnel.
We expect to incur future net losses as we continue to fund the development and commercialization of our products and product candidates. We have primarily relied on raising capital to fund our operations and debt service obligations by issuing common stock and warrants in underwritten public offerings. Those issuances have caused significant dilution to our existing stockholders. While we have sought, and will continue to seek, other, less dilutive forms financing to fund our operations and debt service obligations, there is no assurance that we will be successful in doing so.
Based on our current operating plan, existing working capital at December 31, 2017 was not sufficient to meet the cash requirements to fund planned operations through the period that is one year after the date our 2017 financial statements are issued unless we are able to raise additional capital to fund operations. These conditions raise substantial doubt about our ability to continue as a going concern. Our inability to continue as a going concern may potentially affect our rights and obligations under our debt obligations.
Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our products and product candidates, the achievement of a level of revenues adequate to support our cost structure and securing sufficient financing for the build-out and Retrofit of the Luverne Facility or a facility at another suitable location.licensing fees. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise additional cash. We intend toalso fund future operations through additional private and/or public offerings of debtequity or equitydebt securities. In addition, we may seek additional capital, on acceptable terms, through arrangements with strategic partners or from other sources, may seek to restructure our debt and we will continue to address our cost structure.sources. Notwithstanding, there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations.
Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our product candidates, the development, licensing, acquisition and construction of commercial level production facilities to support our offtake agreements, the achievement of a level of revenues adequate to support the Company’s cost structure, and the ability to raise capital to finance the development, licensing, acquisition, and construction of additional productions facilities.
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
| Year Ended December 31, |
| |||||
| 2017 |
|
| 2016 |
| ||
Net cash used in operating activities | $ | (20,626 | ) |
| $ | (20,516 | ) |
Net cash used in investing activities |
| (1,906 | ) |
|
| (5,938 | ) |
Net cash provided by financing activities |
| 6,197 |
|
|
| 37,311 |
|
| | | | | | |
| | Year Ended December 31, | ||||
|
| 2023 |
| 2022 | ||
Net cash used in operating activities |
| $ | (53,719) |
| $ | (44,311) |
Net cash provided by investing activities | | $ | 114,129 | | $ | 85,092 |
Net cash (used in) provided by financing activities | | $ | (189) | | $ | 138,562 |
Operating Activities
Our primary uses of cash from operating activities are personnel-related expenses, and research and development-related expenses, including costs incurred under development agreements, costs forof licensing of technology, legal-related costs, and expenses
for the productiondevelopment and commercialization of isobutanol, ethanolroutes to efficiently produce fuels and related products, logisticschemicals from renewable feedstock carbohydrates using alcohols (isobutanol and further processing of ethanol and isobutanol at the Luverne Facility and for the operation of our hydrocarbon demonstration production facility.ethanol) as an intermediate.
During the year ended December 31, 2017, we used $20.6 million in cash for operating activities due to a net loss of $24.6 million, excluding the impact of $6.4 million in non-cash expenses, and $2.4 million2023, net cash used associated with an increase in working capital primarily a result of a pay down of accounts payable coupled with an increase in both accounts receivable and inventory.
Duringoperating activities was $53.7 million compared to $44.3 million for the year ended December 31, 2016, we used $20.52022. Non-cash charges primarily consisted of depreciation and amortization of $19.0 million, stock-based compensation expense of $17.1 million, which reflects higher amortization expense for the stock awards issued in cashthe prior period with higher market value, see Note 16 to the Consolidated Financial Statements for operating activities dueadditional information, and non-cash expense of $0.1 million related to a net lossthe amortization of $37.3 million, offset by the impact of $17.2 million in non-cash expenses, and $0.5 millionmarketable securities premiums. The net cash usedoutflow from changes in operating assets and liabilities increased $23.9 million, primarily due to an increase in working capital primarilycash outflows of $23.0 million related to prepaid expenses and other current assets, deposits and other assets, $2.6 million related to increases in accounts receivable as a result of the pay down ofwell as $0.9 million related to accounts payable coupledand accrued liabilities. These were partially offset by $2.7 million of decreased costs associated with an increase in accounts receivable.the sale of environmental attribute inventory.
Investing Activities
During the year ended December 31, 2017,2023, we used $1.9had $114.1 million in cash forprovided by investing activities, of which $168.6 million related to proceeds from sales and maturities of marketable securities, partially offset by $54.5 million of investments in our capital expendituresprojects, including $28.2 million in NZ1, $6.4 million in the RNG Project, and $19.9 million in other projects.
51
We completed the value engineering on our NZ1 project and are proceeding with detailed engineering, modularization design, and capital costs updates. We are currently refining project cost estimates with engineering, procurement, and construction (“EPC”) partners to identify cost saving opportunities, and currently expect to finance the construction of NZ1 at out Luverne Facility.the subsidiary level using a combination of Company equity and third-party capital, to include non-recourse debt. The Company expects to have invested a cumulative total of $236 to $286 million of cash equity in the project at financial close. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in NZ1 under this expected financing structure. The use of project debt and third party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.
In 2022, we allocated approximately $25.0 million to develop our next Net-Zero Project, of which we have spent approximately $15.0 million. Gevo is in the process of identifying and performing early site development work for additional Net-Zero production locations. These potential sites include greenfield and brownfield (i.e., at an existing ethanol plant) locations that are advantageous in terms of potential economics, opportunities to decarbonize, and time to market.
During the year ended December 31, 2016,2022, we used $5.9had $85.1 million in cash forprovided by investing activities, all of which was$299.6 million related to proceeds from sales and maturities of marketable securities, partially offset by the reinvestment of $130.4 million in marketable securities, and $84.1 million of investments in our capital expenditures at our Luverne Facility. projects, including $34.7 million in the RNG Project, $43.3 million in NZ1 and $2.0 million in other Net-Zero Projects, as well as $4.1 million in other isobutanol related projects.
Financing Activities
During the year ended December 31, 2017,2023, we generated $6.2had $0.2 million inof net cash fromused in financing activities, primarily relateddue to payments for equipment loans and finance lease liabilities.
We currently expect to finance the $11.0 millionconstruction of NZ1 at the subsidiary level using a combination of our own, third-party, and debt capital. The Company expects to retain an equity interest in proceeds from issuance of common stock, the $2.6 million release of restricted cash,project and may invest equity in the $3.4 million inproject using the proceeds from the exercisereimbursement of warrants, These gainsthe Company’s NZ1 development expenditures. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in cash were offset by $9.8 million in principal paymentsNZ1 under this expected financing structure which would allow us to Whitebox,conserve and $1.1 million in equityredeploy our capital on other growth projects, including our Net-Zero 2 project (“NZ2”). We expect to apply similar development and debt offering costs.financing strategies to NZ2 and future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.
During the year ended December 31, 2016,2022, we accumulated $37.3had $138.6 million inof net cash fromprovided by financing activities, primarily relateddue to the$139.0 million of net proceeds from public offeringsthe issuance of common stock and common stock warrants in April,a registered direct offering in June and September 20162022, offset by our pay down$0.4 million of the remaining balance of our secured long-term debt in September 2016.
2020 Notes
On April 19, 2017, we entered into the Purchase Agreement with the Holder of the 2017 Notes, and Whitebox Advisors LLC, in its capacity as representative of the Holder (“Whitebox”). Pursuant to the terms of the Purchase Agreement, the Holder, subject to certain conditions, including approval of the transaction by our stockholders (which was received on June 15, 2017), agreed to exchange all of the outstanding principal amount of the 2017 Notespayments primarily for an equal principal amount of our newly created 2020 Notes, plus an amount in cash equal to the accrued and unpaid interest (other than interest paid in kind) on the 2017 Notes (the “Exchange”). As noted above, on June 20, 2017, we completed the Exchange, terminated the 2017 Notes Indenture and cancelled the 2017 Notes. As of December 31, 2017, the outstanding principal on the 2020 Notes was $16.7 million, including paid-in-kind interest.
The 2020 Notes will mature on March 15, 2020. The 2020 Notes bear interest at a rate equal to 12% per annum (with 2% potentially payable as PIK Interest (as defined and described below) at our option), payable on March 31, June 30, September 30, and December 31 of each year. Under certain circumstances, we have the option to pay a portion of the interest due on the 2020 Notes by either (a) increasing the principal amount of the 2020 Notes by the amount of interest then due or (b) issuing additional 2020 Notes with a principal amount equal to the amount of interest then due (interest paid in the manner set forth in (a) or (b) being referred to as “PIK Interest”).
The 2020 Notes are convertible into shares of our common stock, subject to certain terms and conditions. The initial conversion price of the 2020 Notes is equal to $0.7359 per sharenet settlement of common stock or 1.3589 sharesunder stock plans and certain equipment loans.
Critical Accounting Estimates
Our Consolidated Financial Statements are based on the application of common stock per $1 principal amountU.S. GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of 2020 Notes (the “Conversion Price”). In addition, upon certain equity financing transactions by us,estimates requires the Holders will have a one-time right to reset the Conversion Price (the “Reset Provision”) (i) in the first ninety (90) days following the Exchange Date, at a 25% premium to the common stock price in the equity financing and (ii) after ninety (90) and to and including one hundred eighty (180) days following the closing of the Exchange, at a 35% premium to the common stock share price in the equity financing. Following an exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the Reset Provision,results could be materially different from the Holders will alsoamounts recorded. We have a right to consent to certain equity financings by us during the one hundred eighty (180) days following the closing of the Exchange.
See Note 8, Debt,determined that we have no critical accounting estimates material to our consolidated financial statements included herein for further discussionposition, results of the 2020 Notes.
In July 2012, we sold $45.0 million in aggregate principal amount of 2022 Notes, for net proceeds of $40.9 million, after accounting for $2.7 million and $1.4 million ofoperations or cash discounts and issue costs, respectively. The 2022 Notes bear interest at 7.5% which is to be paid semi-annually in arrears on January 1 and July 1 of each year commencing on January 1, 2013. As a result of certain conversion and exchanges, the principal balance of the 2022 Notes was $515,000 as of December 31, 2017.
In the first quarter of 2018, we issued 780,303 shares in exchange for the redemption of the remaining $515,000 in outstanding 2022 Notes. As a result of this exchange, all obligations under the 2022 Notes have been fully satisfied.
Contractual Obligations and Commitments
The following summarizes the future commitments arising from our contractual obligations at December 31, 2017 (in thousands).
|
| Less than 1 year |
|
| 1-3 years |
|
| 4 - 5 years |
|
| Thereafter (4) |
|
| Total |
| |||||
Principal debt payments (1) |
| $ | - |
|
| $ | 17,408 |
|
| $ | - |
|
| $ | 515 |
|
| $ | 17,923 |
|
Interest payments on debt (2) |
|
| 1,717 |
|
|
| 2,155 |
|
|
| 77 |
|
|
| - |
|
|
| 3,949 |
|
Operating leases (3) |
|
| 1,421 |
|
|
| 1,302 |
|
|
| 200 |
|
|
| - |
|
|
| 2,923 |
|
Insurance and Maintenance |
|
| 223 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 223 |
|
Total |
| $ | 3,361 |
|
| $ | 20,865 |
|
| $ | 277 |
|
| $ | 515 |
|
| $ | 25,018 |
|
|
|
|
|
|
|
|
|
The table above reflects only payment obligations that are fixed and determinable. The above amounts exclude potential payments to be made under our license and other agreements that are based on the achievement of future milestones or royalties on product sales.
Off-Balance Sheet Arrangements
As of December 31, 2017, we did not have any off-balance sheet arrangements, or relationships with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, in the U.S. requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.
While our significant accounting policies are more fully described in Note 2flow related to our consolidated financial statements included in this Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.
Accounting for Senior Secured Debt, Convertible Notes and Embedded Derivative
2020 Notes
On April 19, 2017, we entered into the Purchase Agreement with the Holder of the 2017 Notes, and Whitebox Advisors LLC, in
its capacity as representative of the Holder (“Whitebox”). Pursuant to the terms of the Purchase Agreement, the Holder, subject to certain conditions, including approval of the transaction by our stockholders (which was received on June 15, 2017), agreed to exchange all of the outstanding principal amount of the 2017 Notes for an equal principal amount of our newly created 2020 Notes, plus an amount in cash equal to the accrued and unpaid interest (other than interest paid in kind) on the 2017 Notes (the “Exchange”). As noted above, on June 20, 2017, we completed the Exchange, terminated the 2017 Notes Indenture and cancelled the 2017 Notes. As of December 31, 2017, the outstanding principal on the 2020 Notes was $16.7 million.
The 2020 Notes will mature on March 15, 2020. The 2020 Notes bear interest at a rate equal to 12% per annum (with 2% potentially payable as PIK Interest (as defined and described below) at our option), payable on March 31, June 30, September 30, and December 31 of each year. Under certain circumstances, we have the option to pay a portion of the interest due on the 2020 Notes by either (a) increasing the principal amount of the 2020 Notes by the amount of interest then due or (b) issuing additional 2020 Notes with a principal amount equal to the amount of interest then due (interest paid in the manner set forth in (a) or (b) being referred to as “PIK Interest”).
The 2020 Notes are convertible into shares of our common stock, subject to certain terms and conditions. The initial conversion price of the 2020 Notes is equal to $0.7359 per share of common stock, or 1.3589 shares of common stock per $1 principal amount of 2020 Notes (the “Conversion Price”). In addition, upon certain equity financing transactions by us, the Holders will have a one-time right to reset the Conversion Price (the “Reset Provision”) (i) in the first ninety (90) days following the Exchange Date, at a 25% premium to the common stock price in the equity financing and (ii) after ninety (90) and to and including one hundred eighty (180) days following the closing of the Exchange, at a 35% premium to the common stock share price in the equity financing. Following an exercise of the Reset Provision, the Holders will also have a right to consent to certain equity financings by us during the one hundred eighty (180) days following the closing of the Exchange.
See Note 8, Debt, to our consolidated financial statements included herein for further discussion of the 2020 Notes.
2022 Notes and Embedded Derivative
In July 2012, we sold $45.0 million in aggregate principal amount of 2022 Notes. Terms of the 2022 Notes, include, among others: (i) rights to convert into shares of our common stock, including upon a Fundamental Change (as defined in the 2022 Notes Indenture); and (ii) a Coupon Make-Whole Payment (as defined in the 2022 Notes Indenture) in the event of a conversion by the holders of the 2022 Notes prior to July 1, 2017. The embedded derivative is separated from the host contract, the 2022 Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that the embedded derivative within the 2022 Notes meet these criteria and, as such, must be valued separate and apart from the 2022 Notes as an embedded derivative and recorded at fair value each reporting period. The fair value of the embedded derivative is included as a component of the 2022 Notes on our consolidated balance sheets.
We used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2022 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the 2022 Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2022 Notes will be converted early if the conversion value is greater than the holding value; and (ii) the 2022 Notes will be called if the holding value is greater than both (a) the Redemption Price (as defined in the 2022 Notes Indenture) and (b) the conversion value plus the Coupon Make-Whole Payment at the time. If the 2022 Notes are called, then the holders will maximize their value by finding the optimal decision between (1) redeeming at the Redemption Price and (2) converting the 2022 Notes.
Using this lattice, we valued the embedded derivative using a “with-and-without method,” where the value of the 2022 Notes including the embedded derivative is defined as the “with,” and the value of the 2022 Notes excluding the embedded derivative is defined as the “without.” This method estimates the value of the embedded derivative by looking at the difference in the values between the 2022 Notes with the embedded derivative and the value of the 2022 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of our common stock; (ii) Conversion Rate (as defined in the 2022 Notes Indenture); (iii) Conversion Price (as defined in the 2022 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.
Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded derivative. For example, the estimated fair value of the embedded derivative will generally decrease with: (i) a decline in the stock price; (ii) decreases in the estimated stock volatility; and (iii) a decrease in the estimated credit spread. From the date the 2022 Notes were issued through December 31, 2016, we observed a significant decline in the market price of our common stock which resulted in a $28.0 million decrease in the estimated fair value of our embedded derivative from issuance through December 31,
2016. These changes in the estimated fair value of the embedded derivative represent unrealized gains, which have been recorded as gains from change in fair value of embedded derivative in the consolidated statements of operations.
Derivative Warrant Liability
The following warrants were sold by the Company:
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The following table sets forth information pertaining to shares issued upon the exercise of Warrants as of December 31, 2017:
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| Issuance Date |
| Expiration Date |
| Exercise Price as of December 31, 2017 |
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| Shares Underlying Warrants on Issuance Date |
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| Shares Issued upon Warrant Exercises as of December 31, 2017 |
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| Shares Underlying Warrants Outstanding as of December 31, 2017 (4) |
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2013 Warrants |
| 12/16/2013 |
| 12/16/2018 |
| $ | 8.99 |
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| 71,013 |
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| 15,239 |
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| 55,774 |
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2014 Warrants |
| 8/5/2014 |
| 8/5/2019 |
| $ | 6.83 |
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| 50,000 |
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| 30,538 |
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| 19,462 |
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Series A Warrants |
| 2/3/2015 |
| 2/3/2020 |
| $ | 0.68 |
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| 110,833 |
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| 99,416 |
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| 11,417 |
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Series B Warrants |
| 2/3/2015 |
| 8/3/2015 |
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| - |
| (1) |
| 110,833 |
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| 110,833 |
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| - |
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Series C Warrants |
| 5/19/2015 |
| 5/19/2020 |
| $ | 5.50 |
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| 21,500 |
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| - |
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| 21,500 |
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Series D Warrants |
| 12/11/2015 |
| 12/11/2020 |
| $ | 2.00 |
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| 502,500 |
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| 501,570 |
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| 930 |
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Series E Warrants |
| 12/11/2015 |
| 12/11/2020 |
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| - |
| (1) |
| 400,000 |
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| 400,000 |
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| - |
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Series F Warrants |
| 4/1/2016 |
| 4/1/2021 |
| $ | 2.00 |
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| 514,644 |
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| 233,857 |
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| 280,787 |
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Series G Warrants |
| 4/1/2016 |
| 4/1/2017 |
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| - |
| (1) |
| 328,571 |
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| 328,571 |
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| - |
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Series H Warrants |
| 4/1/2016 |
| 10/1/2016 |
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| - |
| (1) |
| 1,029,286 |
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| 1,029,286 |
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| - |
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Series I Warrants |
| 9/13/2016 |
| 9/13/2021 |
| $ | 11.00 |
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| 712,503 |
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| - |
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| 712,503 |
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Series J Warrants |
| 9/13/2016 |
| 9/13/2017 |
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| - |
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| 185,000 |
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| 185,000 |
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| - |
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Series K Warrants |
| 2/17/2017 |
| 2/17/2022 |
| $ | 0.60 |
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| 6,250,000 |
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| 160,000 |
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| 6,090,000 |
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Series L Warrants |
| 2/17/2017 |
| 2/17/2018 |
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| - |
| (1) |
| 570,000 |
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| 570,000 |
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| - |
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Series M-A Warrants |
| 2/17/2017 |
| 11/17/2017 |
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| - |
| (1), (2) |
| 2,305,000 |
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| 1,485,000 |
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| - |
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Series M-B Warrants |
| 2/17/2017 |
| 11/17/2017 |
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| - |
| (1), (3) |
| 3,945,000 |
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| 3,945,000 |
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| - |
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| 17,106,683 |
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| 9,094,310 |
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| 7,192,373 |
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The agreements governing the above Warrants include the following terms:
certain warrants have exercise prices which are subject to adjustment for certain events, including the issuance of stock dividends on our common stock and, in certain instances, the issuance of our common stock or instruments convertible into the Company’s common stock at a price per share less than the exercise price of the respective warrants;
warrant holders may exercise the warrants through a cashless exercise if, and only if, we do not have an effective registration statement then available for the issuance of the shares of our common stock. If an effective registration statement is available for the issuance of its common stock, a holder may only exercise the warrants through a cash exercise;
the exercise price and the number and type of securities purchasable upon exercise of the warrants are subject to adjustment upon certain corporate events, including certain combinations, consolidations, liquidations, mergers, recapitalizations, reclassifications, reorganizations, stock dividends and stock splits, a sale of all or substantially all of our assets and certain other events; and
in the event of an extraordinary transaction (as defined in the respective warrant agreements), generally including any merger with or into another entity, sale of all or substantially all of our assets, tender offer or exchange offer, or reclassification of its common stock, in which the successor entity (as defined in the respective warrant agreements) that assumes the warrant is not a publicly traded company, we or any successor entity will pay the warrant holder, at such holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the extraordinary transaction, an amount of cash equal to the value of such holder’s warrants as determined in accordance with an appropriate valuation model and the terms of the respective warrant agreement.
Based on these terms, we have determined that the warrants issued since 2013 (the “Warrants”) qualify as derivatives and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The fair value of the Warrants was estimated to be $2.0 million and $2.7 million as of December 31, 2017 and December 31, 2016, respectively. The decrease in the estimated fair value of the Warrants represents an unrealized gain which has been recorded as a gain from the change in fair value of derivative warrant liability in the consolidated statements of operations.
During the twelve months ended December 31, 2017, our common stock was issued as a result of exercise of Warrants as described below:
| Twelve Months Ended December 31, 2017 |
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| Common Stock Issued |
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| Proceeds |
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Series K Warrants |
| 160,000 |
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| 106,000 |
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Series L Warrants |
| 570,000 |
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| 5,700 |
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Series M-A Warrants |
| 1,485,000 |
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| 950,250 |
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Series M-B Warrants |
| 3,945,000 |
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| 2,367,000 |
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| 6,160,000 |
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| $ | 3,428,950 |
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During the twelve months ended December 31, 2017, we issued 160,000 shares of common stock as a result of the exercise of Series K Warrants, 570,000 shares of common stock as a result of the exercise of Series L Warrants and 5,430,000 shares of common stock as a result of the exercise of Series M Warrants, resulting in a total proceeds of approximately $3.4 million.
In addition, in September 2017, as permitted by Section 2(a) of the Series M Warrants agreement the Board of Directors of the Company approved a voluntarily reduction of the exercise price of the Series M Warrants exercisable into 3,945,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock, for the remaining term of these warrants (The Series “M-B” Warrants). Except for the reduction in exercise price, the terms of these Series M-B Warrants remained unchanged. In September 2017, the Company issued 3,500,000 shares of common stock as a result of the exercise of these Series M-B Warrants. In the fourth quarter of 2017, the remaining 445,000 Series M-B Warrants for which the exercise price had been adjusted to $0.60 were exercised.
In October 2017, the Board of Directors of the Company approved voluntarily reductions of the exercise price of additional Series M Warrants exercisable into 1,185,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.65 per share of common stock, and Series M Warrants exercisable into 300,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock. These, along with the remainder of the Series M Warrants for which the original exercise price was not reduced comprise the Series M-A Warrants. Except for the reduction in exercise price, the terms of these Series M Warrants remained unchanged. During the fourth quarter of 2017, all Series M-A warrants for which the exercise price was reduced were exercised. The remaining Series M-A warrants expired during the fourth quarter of 2017.
As of December 31, 2017, all of the Series B, E, G, H, J and M Warrants for which the exercise price had been adjusted were fully exercised or expired
Impairment of Property, Plant and Equipment
Our property, plant and equipment consist primarily of assets associated with the acquisition and Retrofit of the Luverne Facility. We assess impairment of property, plant and equipment for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances applicable to our current stage of operations which could trigger a review include, but are not limited to: (i) significant decreases in the market price of the asset; (ii) significant adverse changes in the business climate or legal or regulatory factors; (iii) accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; and (iv) expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. The carrying amount of a long-lived asset is considered to be impaired if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
We evaluated our long-lived assets for impairment as of December 31, 2017. This evaluation included comparing the carrying amount our long-lived assets to the undiscounted future cash flows of our consolidated net assets as this represents the lowest level of identifiable cash flows. Significant assumptions included in the estimated undiscounted future cash flows include, among others, estimates of the:
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Factors which can impact these assumptions include, but are not limited to;
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Based upon our evaluation at December 31, 2017, we concluded that the estimated undiscounted future cash flows from Luverne exceeded the carrying value of the Luverne Facility and, as such, these assets were not impaired. Although our cash flow forecasts are based on assumptions that are consistent with our planned use of the assets, these estimates required significant exercise of judgment and are subject to change in future reporting periods as facts and circumstances change. Additionally, we may make changes to our business plan that could result in changes to the expected cash flows. As a result, it is possible that a long- lived asset may be impaired in future reporting periods.
Stock-Based Compensation
Our stock-based compensation expense includes expenses associated with share-based awards granted to employees and board members and expenses associated with our employee stock purchase plan (“ESPP”). The estimated fair value of stock options and ESPP awards is determined on the date of grant and recorded to expense over the requisite service period, generally the vesting period. We estimate the fair value of stock option awards using the Black-Scholes option-pricing model which requires judgments to be made, including estimating: (i) the expected life of an award; (ii) stock price volatility; and (iii) prior to our initial public offering in February 2011, the fair value of our common stock.
The Black-Scholes option-pricing model calculates the estimated fair value of stock options using the following inputs: (i) expected stock option life; (ii) expected volatility; (iii) risk-free interest rate; (iv) expected dividend yield rate; (v) exercise price; and (vi) closing price of our common stock on the date of grant.
Due to our limited history of grant activity, we use the “simplified method” permitted by the SEC to estimate the expected stock option life as the arithmetic average of the total contractual term of the option and its vesting period. We calculate the estimated volatility rate based on selected comparable public companies, due to a lack of historical information regarding the volatility of our stock price. We will continue to analyze the historical stock price volatility assumption as more historical data for our common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect on the date of grant for instruments with a term similar to the expected life of the related option. No dividends are expected to be paid.
The estimated fair value of a stock option using the Black-Scholes option-pricing model is impacted significantly by changes in a company’s stock price. For example, all other assumptions being equal, the estimated fair value of a stock option will increase as the closing price of a company’s stock increases, and decrease as the closing price of a company’s stock decreases. Prior to the closing of our initial public offering, we were a private company and, as such, we were required to estimate the fair value of our common stock. In the absence of a public trading market, we determined a reasonable estimate of the then-current fair value of our common stock for purposes of granting stock-based compensation based on multiple criteria. We determined the fair value of our common stock utilizing methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” After the closing of our initial public offering in February 2011, the fair value of our common stock is no longer an estimate as it is based upon the closing price of our stock on the date of grant.
Following our acquisition of Luverne on September 22, 2010, we have primarily derived revenue from the sale of ethanol, distiller’s grains and other related products produced as part of the ethanol production process at the Luverne Facility. The production of ethanol alone is not our intended business and our future strategy is expected to depend on our ability to produce and market isobutanol and products derived from isobutanol. Revenue from the sale of ethanol, hydrocarbons or excess corn inventory is recognized when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title is transferred to the customer; the price is fixed or determinable; and collectability is reasonably assured. Ethanol and related products are generally shipped free on board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability between us and our customers.
Lease revenue related to the contractual agreements for utilization of the Luverne storage facilities is recognized on a straight line basis over the term of the lease.
Revenue related to our government research grants and cooperative agreements is recognized in the period during which the related costs are incurred or over the contract period, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding.Report.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in Item 8. “Financial Statements and Supplemental Data,,” of this Report, for a discussion of recent accounting pronouncements.
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Commodity Price Risk
We are exposed to market risks related to environmental attribute pricing, commodity pricing, interest rate, credit risk with our contract counterparties, and equity price risks. We currently have produced isobutanol, ethanolno foreign exchange risk and distiller’s grains from corn anddo not use derivative financial instruments as part of an overall strategy to manage market risk; however, we may consider such arrangements in the future as we evaluate our business is sensitiveand financial strategy.
Environmental Attribute and Commodity Pricing Risk
We attempt to changesnegotiate the best prices for our environmental attributes and to competitively price our products to reflect the fluctuations in market prices. Reductions in the market prices of environmental attributes may have a material adverse effect on our revenues and profits as they directly reduce our revenues. We have prepared a sensitivity analysis to estimate our exposure to market risk with respect to RIN and LCFS prices. Our analysis, which may differ from actual results, based on our actual 2023 RINs and LCFS sold of approximately $2.08 and $64.79 respectively. The estimated annual impact of a hypothetical 10% decrease in the average realized price per RIN and per LCFS credit would have a negative effect on our operating profit of corn. approximately $1.0 million and $0.5 million, respectively.
The price of corn is subject to fluctuations due to unpredictable factors such as weather, corn planted and harvested acreage,RNG changes in national and global supply and demand and government programs and policies. We use natural gas during the production of isobutanol and ethanol and, as a result, our business is also sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons. Ethanol, isobutanol and hydrocarbon prices are sensitive to world crude oil supply and demand, crude oil refining capacity and utilization, government regulation and consumer demand for alternative fuels. Distiller’s grains prices are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives and supply factors, primarily production by ethanol plants and other sources.
Historically, we have attempted to reduce the market risk associated with fluctuations in the price of corn by employing a variety of risk management and economic hedging strategies. Strategies include the use of forward purchase contracts and exchange-traded futures contracts. Exchange-traded futures contracts for corn are recorded as a derivative asset or liability on our consolidated balance sheets at fair value. Changes in the fair value during a reporting period are recognized as cost of goods sold in our consolidated statements of operations.
In June 2015, Agri-Energy, LLC, our wholly-owned subsidiary, entered into a Price Risk Management, Origination and Merchandising Agreement, as amended as of December 21, 2017 (the “Origination Agreement”) with FCStone Merchant Services, LLC (“FCStone”) and a Grain Bin Lease Agreement with FCStone, as amended as of December 21, 2017 (the “Lease Agreement”). Pursuantrelation to the Origination Agreement, FCStone will originate and sell to Agri-Energy, the owner of the Luverne Facility, and Agri-Energy will purchase from FCStone, the entire volume of corn grain used by the Luverne Facility in Luverne, Minnesota. The initial term of the Origination Agreement will continue for a period of eighteen months and will automatically renew for additional terms of one year unless Agri-Energy gives notice of non-renewal to FCStone. FCStone will receive an origination fee for purchasing and supplying Luverne with all of the corn used by the Luverne Facility. As security for the payment and performance of all indebtedness, liabilities and obligations of Agri-Energy to FCStone, Agri-Energy granted to FCStone a security interest in the corn grain stored in grain storage bins owned and operated by Agri-Energy (“Storage Bins”) and leased to FCStone pursuant to the Lease Agreement. Pursuant to the Lease Agreement, FCStone will lease Storage Bins from Agri-Energy to store the corn grain prior to title of the corn grain transferring to Agri-Energy upon Agri-Energy’s purchase of the corn grain. FCStone agrees to lease Storage Bins sufficient to store 700,000 bushels of corn grain. The term of the Lease Agreement will run concurrently with the Origination Agreement, and will be extended, terminated, or expire in accordance with the Origination Agreement. Gevo also entered into an unsecured guaranty (the “Guaranty”) in favor of FCStone whereby Gevo guaranteed the obligations of Agri-Energy to FCStone under the Origination Agreement. The Guaranty shall terminate on the earlier to occur of (i) April 15, 2020 or (ii) termination of the Origination Agreement.
2020 Notes Embedded Derivative. As of December 31, 2017, we had $16.7 million in principal amount of the 2020 Notes, due March 15, 2020. A component of the 2020 Notes includes an embedded holder conversion option, which has been accounted for as a separate instrument from the host 2020 Notes, representing a $5.2 million liability as of 12/31/2017. The change in the estimated fair value, which is determined in part based upon the quoted market prices of the underlying common stock of the Company, represents an unrealized gain or loss included in our consolidated statement of operations. Accordingly, our results of operations are subjectwholesale gas. Pricing for wholesale gas is volatile and we expect this volatility to exposure associated with increases or decreasescontinue in the estimated fair valuefuture. Further, volatility of the 2020 Notes embedded derivative.
Warrants. As of December 31, 2017, there were 55,774 shares underlying the 2013 Warrants, 19,462 shares underlying the 2014 Warrants, 11,417 shares underlying the Series A Warrants, 21,500 shares underlying the Series C Warrants, 930 shares underlying the Series D Warrants, 280,787 shares underlying the Series F Warrants, 712,503 shares underlying the Series J Warrants, 6,090,000 shares underlying the Series J Warrants, respectively that are derivative instruments and are recorded at an estimated fair value each reporting period. The changewholesale gas also creates volatility in the estimated fair value, which is determined in part based upon the quoted market prices of environmental attributes. We have prepared a sensitivity analysis to estimate our exposure to market risk with respect to the Warrants, represents an unrealized gainmarket price of wholesale gas. Our analysis. which may differ from actual results, was based on our actual 2023 gas production sold pursuant to contracts that do not provide for a fixed or loss included in our consolidated statementfloor price of operations. Accordingly, our resultsapproximately $2.10/MMBtu. The estimated annual impact of operations are subject to exposure associated with increases or decreasesa hypothetical 10% decrease in the estimated fair valuemarket price of the Warrants.
Refer to “Critical Accounting Policies and Estimates” included in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for an additional discussion on thewholesale gas would not have a material impact on our financial condition or results of operations associated with the embedded derivative and derivative instruments described above.operations.
Interest Rate Risk
We hadare exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments, including cash equivalents, are invested in U.S. treasury or government money market funds. Our analysis. which may differ from actual results, was based on our actual 2023 effective interest rate earned on our cash and cash equivalents totaling $11.6 million at December 31, 2017. These amounts were invested primarilyequivalents. The estimated annual impact of a hypothetical 0.25% decrease in demand deposit checking and savings accounts andmarket interest rates would have a negative impact on our interest income of approximately $2.8 million.
We are held for working capital purposes. The primary objective of our investment activities isexposed to preserve our capital for the purpose of funding our operations and we do not enter into investments for trading or speculative purposes. Accordingly, we believe we do not have material exposurefurther market risk related to changes in fair value as a result of changes in interest rates.
The terms ofrates through our 2020 Notes provide2021 Bonds, see Footnote 15 to the Consolidated Financial Statements for fixed rates of interest, and are therefore not subject to fluctuations in market interest rates.
The valuations ofadditional information. Our analysis, which may differ from actual results, was based on the embedded derivative within our 2020 Notes use the risk-freeanticipated future interest rate that is expected to be entered into under the 2021 Bond remarketing under a Trust Indenture dated April 1, 2021 (the “Indenture”) between the Authority and Citibank, N.A. as trustee (the “Trustee”), which is expected to occur no later than April 1, 2024. We anticipate an input, so the valuationsincrease in our interest rates to 4.5%, with a resulting negative impact on our annual interest expense of $2.0 million.
Credit Risk
We are subject to interest rate risk.credit risk due to the concentration of our RNG receivables with a limited number of significant customers. This concentration increases our exposure to credit risk on our receivables, since the financial insolvency of these customers could have a significant impact on our results of operations.
Equity Price Risk
We have in the past, and may in the future, seek to acquire additional funding by sale of common stock and other equity. The price of our common stock has been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell our common stock at an acceptable price should the need for new equity funding arise.
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Index to Gevo, Inc. Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) |
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54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Gevo, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Gevo, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the threetwo years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
Going concern uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and incurred a net loss of $25 million during the year ended December 31, 2017. As of December 31, 2017 and the date of this report, the Company’s existing working capital is not sufficient to meet the cash requirements to fund operations through March 28, 2019 without additional sources of debt or equity. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. As described in Note 8 to the consolidated financial statements, these matters may also potentially affect the Company’s rights and obligations under certain of its debt agreements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Consolidation – Variable interest model
As described in Notes 2 and 22 to the consolidated financial statements, the Company enters into agreements with special purpose entities (“SPEs”), some of which are variable interest entities (“VIEs”). The Company consolidates a VIE if it is deemed to be the primary beneficiary. The Company determines it is the primary beneficiary if it has the power to direct the activities that most significantly impact the VIEs’ economic performance and has the obligation to absorb losses or has the right to receive benefits of the VIE that could potentially be significant to the VIE. During September 2022 and February 2023, the Company entered into agreements with Zero6 Energy Development, Inc. (“ZEDI”) to develop and construct facilities to provide carbon neutral power to their Net Zero 1 project via the two Project LLCs: Kingsbury County Wind Fuel, LLC and Dakota Renewable Hydrogen, LLC, respectively. In December
55
2023 the agreements with ZEDI related to the two Project LLCs were amended to remove certain kickout rights that previously existed. Each Project LLC is a VIE, and the Company holds an implicit variable interest in each Project LLC. As of December 2023, the Company has concluded that the removal of the kickout rights from the agreements has resulted in a loss of control and that, therefore, the Company is no longer the primary beneficiary of the Project LLCs. We identified the Company’s assessment of the primary beneficiary of the Project LLCs as a critical audit matter.
The principal considerations for our determination that performing procedures relating to the deconsolidation of the Project LLCs as VIEs is a critical audit matter are that (i) there is significant judgment by management when determining whether the Company is the primary beneficiary of the VIEs based on the purpose and design of the project LLCs and other legal rights of the parties, including the determination of which party has power to direct the activities that most significantly affect the economic performance of the VIE, as well as the substance of the arrangements, the right to receive potentially significant benefits, indicators if the parties in the arrangements were acting in the role of agents or de facto agents, and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the purpose of each Project LLCs rights and obligations of the variable interest holders, mechanisms for the resolution of disputes among variable interest holders, and other agreements with the legal entity and its variable interest holders.
Our audit procedures related to the assessment of the primary beneficiary of the Project LLCs included the following, among others.
● | discussing with management the purpose and design of each VIE |
● | reading the operating agreements and other related legal documents to understand the rights of each party, including the ability to remove the entity that has the power to direct the activities of the VIE |
● | evaluating management’s analysis of significant activities of each VIE such as capital decisions, financing decisions and operating decisions, and which party, if any, has the power to direct such activities. In our evaluation, we considered the purpose and design of the Project LLCs and other legal rights of the parties, including the significance of the decision-making rights of each party in assessing which party has power to direct the activities that most significantly affect the economic performance of the VIE, as well as the substance of the arrangements. We also considered whether there were indicators that parties to the arrangements were acting in the role of agents or de facto agents. |
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2015.
Denver, Colorado
March 28, 20187, 2024
56
GEVO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 11,553 |
|
| $ | 27,888 |
|
Accounts receivable |
|
| 1,054 |
|
|
| 1,122 |
|
Inventories |
|
| 4,362 |
|
|
| 3,458 |
|
Prepaid expenses and other current assets |
|
| 712 |
|
|
| 850 |
|
Total current assets |
|
| 17,681 |
|
|
| 33,318 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 70,369 |
|
|
| 75,592 |
|
Restricted deposits |
|
| - |
|
|
| 2,611 |
|
Deposits and other assets |
|
| 803 |
|
|
| 803 |
|
Total assets |
| $ | 88,853 |
|
| $ | 112,324 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 4,011 |
|
| $ | 6,193 |
|
Current Portion of 2017 Notes recorded at fair value |
|
| - |
|
|
| 25,769 |
|
2020 Notes embedded derivative liability |
|
| 5,224 |
|
|
| - |
|
Derivative warrant liability |
|
| 1,951 |
|
|
| 2,698 |
|
Total current liabilities |
|
| 11,186 |
|
|
| 34,660 |
|
|
|
|
|
|
|
|
|
|
2020 Notes, net |
|
| 13,491 |
|
|
| - |
|
2022 Notes, net |
|
| 515 |
|
|
| 8,221 |
|
Other long-term liabilities |
|
| 130 |
|
|
| 179 |
|
Total liabilities |
|
| 25,322 |
|
|
| 43,060 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (see Note 18) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share; 250,000,000 authorized; 21,811,059 and 7,074,246 shares issued and outstanding at December 31, 2017 and 2016, respectively. (See Note 2) |
|
| 218 |
|
|
| 71 |
|
Additional paid-in capital |
|
| 464,663 |
|
|
| 445,913 |
|
Accumulated deficit |
|
| (401,350 | ) |
|
| (376,720 | ) |
Total stockholders' equity |
|
| 63,531 |
|
|
| 69,264 |
|
Total liabilities and stockholders' equity |
| $ | 88,853 |
|
| $ | 112,324 |
|
| | | | | | | | |
|
| Note | | December 31, 2023 |
| December 31, 2022 | ||
Assets |
|
| | |
|
| |
|
Current assets |
|
| | |
|
| |
|
Cash and cash equivalents |
|
| | $ | 298,349 | | $ | 237,125 |
Marketable securities |
| 6 | |
| — | |
| 167,408 |
Restricted cash |
| 7 | |
| 77,248 | |
| 1,032 |
Trade accounts receivable, net |
|
| |
| 2,623 | |
| 476 |
Inventories |
| 10 | |
| 3,809 | |
| 6,347 |
Prepaid expenses and other current assets |
| 8 | |
| 4,353 | |
| 3,034 |
Total current assets |
|
| |
| 386,382 | |
| 415,422 |
Property, plant and equipment, net |
| 11, 23 | |
| 211,563 | |
| 185,174 |
Restricted cash |
| 7 | |
| — | |
| 77,219 |
Operating right-of-use assets |
| 9 | |
| 1,324 | |
| 1,331 |
Finance right-of-use assets |
| 9 | |
| 210 | |
| 219 |
Intangible assets, net |
| 12 | |
| 6,524 | |
| 7,691 |
Deposits and other assets |
| 13 | |
| 44,319 | |
| 13,692 |
Total assets |
| | | $ | 650,322 | | $ | 700,748 |
Liabilities |
|
| |
|
| |
|
|
Current liabilities |
|
| |
|
| |
|
|
Accounts payable and accrued liabilities |
| 14, 23 | | $ | 22,752 | | $ | 24,760 |
Operating lease liabilities |
| 9 | |
| 532 | |
| 438 |
Finance lease liabilities |
| 9 | |
| 45 | |
| 79 |
Loans payable |
| 15 | |
| 130 | |
| 159 |
2021 Bonds payable, net | | 15 | | | 67,967 | | | — |
Total current liabilities |
|
| |
| 91,426 | |
| 25,436 |
2021 Bonds payable, net |
| 15 | |
| — | |
| 67,223 |
Loans payable |
| 15 | |
| 21 | |
| 159 |
Operating lease liabilities |
| 9 | |
| 1,299 | |
| 1,450 |
Finance lease liabilities |
| 9 | |
| 187 | |
| 183 |
Other liabilities |
|
| |
| — | |
| 820 |
Total liabilities |
|
| |
| 92,933 | |
| 95,271 |
Commitments and Contingencies |
| 19 | |
|
| |
|
|
Stockholders' Equity |
|
| |
|
| |
|
|
Common stock, $0.01 par value per share; 500,000,000 shares authorized; 240,499,833 and 237,166,625 shares issued and outstanding at December 31, 2023, and December 31, 2022, respectively. |
|
| |
| 2,405 | |
| 2,372 |
Additional paid-in capital |
|
| |
| 1,276,581 | |
| 1,259,527 |
Accumulated other comprehensive loss |
|
| |
| — | |
| (1,040) |
Accumulated deficit |
|
| |
| (721,597) | |
| (655,382) |
Total stockholders' equity |
|
| |
| 557,389 | |
| 605,477 |
Total liabilities and stockholders' equity |
|
| | $ | 650,322 | | $ | 700,748 |
See the accompanying Notes to the Consolidated Financial Statements.
57
GEVO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Revenue and cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
Ethanol sales and related products, net | $ | 26,279 |
|
| $ | 24,613 |
|
| $ | 27,125 |
|
Hydrocarbon revenue |
| 1,029 |
|
|
| 1,929 |
|
|
| 1,694 |
|
Grant and other revenue |
| 228 |
|
|
| 671 |
|
|
| 1,318 |
|
Total revenues |
| 27,536 |
|
|
| 27,213 |
|
|
| 30,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
| 38,165 |
|
|
| 37,017 |
|
|
| 38,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss |
| (10,629 | ) |
|
| (9,804 | ) |
|
| (8,625 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Research and development expense |
| 5,182 |
|
|
| 5,216 |
|
|
| 6,610 |
|
Selling, general and administrative expense |
| 7,471 |
|
|
| 8,965 |
|
|
| 16,692 |
|
Total operating expenses |
| 12,653 |
|
|
| 14,181 |
|
|
| 23,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
| (23,282 | ) |
|
| (23,985 | ) |
|
| (31,927 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (2,951 | ) |
|
| (7,837 | ) |
|
| (8,243 | ) |
(Loss)/Gain on exchange or conversion of debt |
| (4,933 | ) |
|
| (763 | ) |
|
| 232 |
|
(Loss)/Gain on extinguishment of warrant liability |
| - |
|
|
| (918 | ) |
|
| 1,775 |
|
Gain from change in fair value of 2020 Notes embedded derivative |
| 1,751 |
|
|
| - |
|
|
| - |
|
Gain from change in fair value of derivative warrant liability |
| 5,101 |
|
|
| 1,783 |
|
|
| 577 |
|
(Loss)/Gain from change in fair value of 2017 Notes |
| (339 | ) |
|
| (4,204 | ) |
|
| 3,895 |
|
Loss on issuance of equity |
| - |
|
|
| (1,519 | ) |
|
| (2,523 | ) |
Other income |
| 23 |
|
|
| 215 |
|
|
| 20 |
|
Total other (expense) income |
| (1,348 | ) |
|
| (13,243 | ) |
|
| (4,267 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (24,630 | ) |
| $ | (37,228 | ) |
| $ | (36,194 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted | $ | (1.51 | ) |
| $ | (9.68 | ) |
| $ | (51.61 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding - basic and diluted |
| 16,295,937 |
|
|
| 3,847,421 |
|
|
| 701,252 |
|
| | | | | | | | |
|
| |
| Year Ended December 31, | ||||
|
| Note |
| 2023 |
| 2022 | ||
Total operating revenues |
| 3, 23 | | $ | 17,200 | | $ | 1,175 |
Operating expenses: |
|
| |
|
| |
|
|
Cost of production |
| 16 | |
| 11,991 | |
| 8,698 |
Depreciation and amortization |
| 11, 12 | |
| 19,007 | |
| 7,887 |
Research and development expense |
| 16 | |
| 6,637 | |
| 7,427 |
General and administrative expense | | | | | 42,628 | | | 39,941 |
Project development costs |
| 16 | |
| 14,732 | |
| 10,061 |
Facility idling costs |
| | |
| 4,040 | |
| 4,599 |
Impairment loss |
| 4 | |
| — | |
| 24,749 |
Loss on disposal of assets |
| 11, 12 | |
| — | |
| 499 |
Total operating expenses |
| 16 | |
| 99,035 | |
| 103,861 |
Loss from operations |
| | |
| (81,835) | |
| (102,686) |
Other income (expense) |
|
| |
|
| |
|
|
Interest expense |
|
| |
| (2,161) | |
| (1,167) |
Interest and investment income |
| 6, 7, 20 | |
| 19,090 | |
| 3,481 |
Other income (expense), net |
|
| |
| (1,309) | |
| 2,365 |
Total other income, net |
|
| |
| 15,620 | |
| 4,679 |
Net loss |
|
| | $ | (66,215) | | $ | (98,007) |
Net loss per share - basic and diluted |
| 5 | | $ | (0.28) | | $ | (0.44) |
Weighted-average number of common shares outstanding - basic and diluted |
| 5 | |
| 238,687,621 | |
| 221,537,262 |
See the accompanying Notes to the Consolidated Financial Statements.
58
GEVO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCOMPREHENSIVE INCOME (LOSS)
(In thousands, except share amounts)in thousands)
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Stockholders’ |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
BALANCE—December 31, 2014 |
| 332,094 |
|
| $ | 3 |
|
| $ | 350,259 |
|
| $ | (303,298 | ) |
| $ | 46,964 |
|
Shares issued upon reverse stock split |
| 34 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of restricted stock |
| 23,791 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of common stock, net of issue costs and warrants |
| 428,333 |
|
|
| 4 |
|
|
| 22,442 |
|
|
| - |
|
|
| 22,446 |
|
Cancellation of restricted stock |
| (37 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of common stock for services, upon exercise of stock options and pursuant to an employee stock purchase plan |
| 38 |
|
|
| - |
|
|
| 3 |
|
|
| - |
|
|
| 3 |
|
Non-cash stock-based compensation |
| - |
|
|
| - |
|
|
| 2,647 |
|
|
| - |
|
|
| 2,647 |
|
Issuance of common stock upon exercise of warrants |
| 232,205 |
|
|
| 2 |
|
|
| 10,164 |
|
|
| - |
|
|
| 10,166 |
|
Issuance of common stock upon conversion of debt |
| 8,502 |
|
|
| - |
|
|
| 714 |
|
|
| - |
|
|
| 714 |
|
Issuance of common stock upon exchange of debt |
| 55,392 |
|
|
| 1 |
|
|
| 1,579 |
|
|
| - |
|
|
| 1,580 |
|
Net loss |
| - |
|
|
| - |
|
|
| - |
|
|
| (36,194 | ) |
|
| (36,194 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2015 |
| 1,080,352 |
|
| $ | 10 |
|
| $ | 387,808 |
|
| $ | (339,492 | ) |
| $ | 48,326 |
|
Shares issued upon reverse stock split |
| 4 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of common stock under stock plans, net |
| 2,782 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Cancellation of restricted stock |
| (4 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of common stock, net of issue costs & warrants |
| 2,480,094 |
|
|
| 25 |
|
|
| 34,199 |
|
|
| - |
|
|
| 34,224 |
|
Non-cash stock-based compensation |
| - |
|
|
| - |
|
|
| 886 |
|
|
| - |
|
|
| 886 |
|
Issuance of common stock upon exercise of warrants |
| 2,559,218 |
|
|
| 26 |
|
|
| 12,272 |
|
|
| - |
|
|
| 12,298 |
|
Issuance of common stock upon exchange of debt |
| 951,800 |
|
|
| 10 |
|
|
| 10,748 |
|
|
| - |
|
|
| 10,758 |
|
Net loss |
| - |
|
|
| - |
|
|
| - |
|
|
| (37,228 | ) |
|
| (37,228 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2016 |
| 7,074,246 |
|
| $ | 71 |
|
| $ | 445,913 |
|
| $ | (376,720 | ) |
| $ | 69,264 |
|
Issuance of common stock under stock plans, net |
| 3,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of common stock, net of issue costs & warrants |
| 5,680,000 |
|
|
| 56 |
|
|
| 6,339 |
|
|
| - |
|
|
| 6,395 |
|
Non-cash stock-based compensation |
| - |
|
|
| - |
|
|
| 421 |
|
|
| - |
|
|
| 421 |
|
Issuance of common stock upon exercise of warrants |
| 6,160,000 |
|
|
| 62 |
|
|
| 3,367 |
|
|
| - |
|
|
| 3,429 |
|
Issuance of common stock upon exchange of debt |
| 2,893,813 |
|
|
| 29 |
|
|
| 8,623 |
|
|
| - |
|
|
| 8,652 |
|
Net loss |
| - |
|
|
| - |
|
|
| - |
|
|
| (24,630 | ) |
|
| (24,630 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2017 |
| 21,811,059 |
|
| $ | 218 |
|
| $ | 464,663 |
|
| $ | (401,350 | ) |
| $ | 63,531 |
|
| | | | | | | | |
| | | | Year Ended December 31, | ||||
|
| Note |
| 2023 |
| 2022 | ||
Net loss |
|
| | $ | (66,215) | | $ | (98,007) |
Other comprehensive income (loss): | |
| |
| | | | |
Unrealized gain (loss) on available-for-sale securities | | 6 | |
| 1,040 | |
| (426) |
Comprehensive loss | |
| | $ | (65,175) | | $ | (98,433) |
See the accompanying Notes to the Consolidated Financial Statements.
59
GEVO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(In thousands) thousands, except share amounts)
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (24,630 | ) |
| $ | (37,228 | ) |
| $ | (36,194 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
(Gain) from the change in fair value of derivative warrant liability |
| (5,101 | ) |
|
| (1,783 | ) |
|
| (577 | ) |
(Gain) from the change in fair value of the embedded derivative to the 2020 Notes |
| (1,751 | ) |
|
| - |
|
|
| - |
|
Loss from the change in fair value of 2017 Notes |
| 339 |
|
|
| 4,204 |
|
|
| (3,895 | ) |
Loss/(Gain) on exchange or conversion of debt |
| 4,933 |
|
|
| 763 |
|
|
| (232 | ) |
Loss/(Gain) on extinguishment of warrant liability |
| - |
|
|
| 918 |
|
|
| (1,775 | ) |
Loss on issuance of equity |
| - |
|
|
| 1,519 |
|
|
| 2,523 |
|
Stock-based compensation |
| 421 |
|
|
| 886 |
|
|
| 2,647 |
|
Depreciation and amortization |
| 6,641 |
|
|
| 6,747 |
|
|
| 6,573 |
|
Non-cash interest expense |
| 962 |
|
|
| 3,977 |
|
|
| 3,772 |
|
Other non-cash expenses |
| - |
|
|
| (1 | ) |
|
| (7 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| 68 |
|
|
| 269 |
|
|
| 970 |
|
Inventories |
| (904 | ) |
|
| 29 |
|
|
| 805 |
|
Prepaid expenses and other current assets |
| 137 |
|
|
| (119 | ) |
|
| 1 |
|
Accounts payable, accrued expenses, and long-term liabilities |
| (1,742 | ) |
|
| (697 | ) |
|
| (2,771 | ) |
Net cash used in operating activities |
| (20,627 | ) |
|
| (20,516 | ) |
|
| (28,160 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of property, plant and equipment |
| (1,906 | ) |
|
| (5,938 | ) |
|
| (1,464 | ) |
Proceeds from sales tax refund for property, plant and equipment |
| - |
|
|
| - |
|
|
| 144 |
|
Net cash used in investing activities | $ | (1,906 | ) |
| $ | (5,938 | ) |
| $ | (1,320 | ) |
| | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | Accumulated Other | | Accumulated | | Stockholders’ | ||||||
|
| Note |
| Shares |
| Amount |
| Paid-In Capital |
| Comprehensive Loss |
| Deficit |
| Equity | |||||
Balance, December 31, 2021 |
|
|
| 201,988,662 |
| $ | 2,020 |
| $ | 1,103,224 |
| $ | (614) |
| $ | (557,375) |
| $ | 547,255 |
Issuance of common stock and common stock warrants, net of issuance costs |
| 21 |
| 33,333,336 | |
| 333 | |
| 138,675 | |
| — | |
| — | |
| 139,008 |
Issuance of common stock upon exercise of warrants |
| 21 |
| 4,677 | |
| — | |
| 3 | |
| — | |
| — | |
| 3 |
Non-cash stock-based compensation |
| 16 |
| — | |
| — | |
| 17,419 | |
| — | |
| — | |
| 17,419 |
Stock-based awards and related share issuances, net |
| 21 |
| 1,839,950 | |
| 19 | |
| 206 | |
| — | |
| — | |
| 225 |
Other comprehensive loss |
|
|
| — | |
| — | |
| — | |
| (426) | |
| — | |
| (426) |
Net loss |
|
|
| — | |
| — | |
| — | |
| — | |
| (98,007) | |
| (98,007) |
Balance, December 31, 2022 |
|
|
| 237,166,625 | | $ | 2,372 | | $ | 1,259,527 | | $ | (1,040) | | $ | (655,382) | | $ | 605,477 |
Non-cash stock-based compensation |
| 16 |
| — | |
| — | |
| 17,087 | |
| — | |
| — | |
| 17,087 |
Stock-based awards and related share issuances, net |
| 21 |
| 3,333,208 | |
| 33 | |
| (33) | |
| — | |
| — | |
| — |
Other comprehensive income |
|
|
| — | |
| — | |
| — | |
| 1,040 | |
| — | |
| 1,040 |
Net loss |
|
|
| — | |
| — | |
| — | |
| — | |
| (66,215) | |
| (66,215) |
Balance, December 31, 2023 |
|
|
| 240,499,833 | | $ | 2,405 | | $ | 1,276,581 | | $ | — | | $ | (721,597) | | $ | 557,389 |
See the accompanying Notes to the Consolidated Financial Statements.
60
GEVO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)FLOWS
(In thousands)
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
Payments on secured debt | $ | (9,791 | ) |
| $ | (504 | ) |
| $ | (318 | ) |
Debt and equity offering costs |
| (1,095 | ) |
|
| (3,144 | ) |
|
| (3,519 | ) |
Proceeds from issuance of common stock upon exercise of stock options and employee stock purchase plan |
| - |
|
|
| - |
|
|
| 3 |
|
Proceeds from issuance of common stock and common stock warrants |
| 11,044 |
|
|
| 28,661 |
|
|
| 33,820 |
|
Release of restricted cash held as collateral on 2017 notes |
| 2,611 |
|
|
| - |
|
|
| - |
|
Proceeds from the exercise of warrants |
| 3,429 |
|
|
| 12,298 |
|
|
| 10,166 |
|
Net cash provided by financing activities |
| 6,198 |
|
|
| 37,311 |
|
|
| 40,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
| (16,335 | ) |
|
| 10,857 |
|
|
| 10,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
| 27,888 |
|
|
| 17,031 |
|
|
| 6,359 |
|
Ending of year | $ | 11,553 |
|
| $ | 27,888 |
|
| $ | 17,031 |
|
| | | | | | | | |
| | | | Year Ended December 31, | ||||
|
| Note | | 2023 |
| 2022 | ||
Operating Activities |
|
| | |
|
| |
|
Net loss |
|
| | $ | (66,215) | | $ | (98,007) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
| |
|
| |
|
|
Impairment loss |
| 4 | |
| — | |
| 24,749 |
Loss on disposal of assets |
| 23 | |
| — | |
| 499 |
Stock-based compensation |
| 16 | |
| 17,087 | |
| 17,419 |
Depreciation and amortization |
| 11, 12 | |
| 19,007 | |
| 7,887 |
Amortization of marketable securities (discount) premium |
| 6 | |
| (102) | |
| 2,723 |
Other noncash expense (income) |
|
| |
| 908 | |
| 877 |
Changes in operating assets and liabilities: |
|
| |
| | | | |
Accounts receivable |
|
| |
| (2,147) | |
| 502 |
Inventories |
| 10 | |
| 670 | |
| (2,004) |
Prepaid expenses and other current assets, deposits and other assets |
| 8, 13 | |
| (25,620) | |
| (2,591) |
Accounts payable, accrued expenses and non-current liabilities |
| 14 | |
| 2,693 | |
| 3,635 |
Net cash used in operating activities |
|
| |
| (53,719) | |
| (44,311) |
Investing Activities |
|
| |
|
| |
|
|
Acquisitions of property, plant and equipment |
| 11, 23 | |
| (54,455) | |
| (84,077) |
Acquisition of patent portfolio |
| 12 | |
| — | |
| (10) |
Proceeds from maturity of marketable securities |
| 6 | |
| 168,550 | |
| 299,581 |
Purchase of marketable securities |
| 6 | |
| — | |
| (130,402) |
Proceeds from sale of property, plant and equipment | | 11 | | | 34 | | | — |
Net cash provided by investing activities |
|
| |
| 114,129 | |
| 85,092 |
Financing Activities |
|
| |
|
| |
|
|
Debt and equity offering costs |
| 21 | |
| — | |
| (10,993) |
Proceeds from issuance of common stock and common stock warrants |
| 21 | |
| — | |
| 150,000 |
Proceeds from exercise of warrants |
| 21 | |
| — | |
| 3 |
Net settlement of common stock under stock plans |
| 16 | |
| — | |
| (286) |
Payment of loans payable |
| 15 | |
| (167) | |
| (150) |
Payment of finance lease liabilities |
| 9 | |
| (22) | |
| (12) |
Net cash (used in) provided by financing activities |
|
| |
| (189) | |
| 138,562 |
Net increase in cash and cash equivalents |
|
| |
| 60,221 | |
| 179,343 |
Cash, cash equivalents and restricted cash at beginning of period |
|
| |
| 315,376 | |
| 136,033 |
Cash, cash equivalents and restricted cash at end of period |
|
| | $ | 375,597 | | $ | 315,376 |
See the accompanying Notes to the Consolidated Financial Statements.
61
GEVO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(In thousands)
Supplemental disclosures of cash and non-cash investing | Year Ended December 31, |
| |||||||||
and financing transactions | 2017 |
|
| 2016 |
|
| 2015 |
| |||
Conversion and exchanges of convertible debt for common stock | $ | 8,652 |
|
| $ | 10,758 |
|
| $ | 2,294 |
|
Cash paid for interest |
| 2,554 |
|
|
| 3,694 |
|
|
| 4,642 |
|
Non-cash purchase of property, plant and equipment |
| 27 |
|
|
| 513 |
|
|
| 890 |
|
Discount due to exchange of 2017 Notes for 2020 Notes |
| 3,009 |
|
|
| - |
|
|
| - |
|
Fair value of 2020 Notes embedded derivative upon exchange |
| 6,975 |
|
|
| - |
|
|
| - |
|
Accrued offering costs |
| - |
|
|
| - |
|
|
| 648 |
|
Fair value of warrants at issuance and upon exercise, net |
| (4,353 | ) |
|
| 6,668 |
|
|
| (7,951 | ) |
| | | | | | |
| | Year Ended December 31, | ||||
Schedule of cash, cash equivalents and restricted cash | | 2023 |
| 2022 | ||
Cash and cash equivalents | | $ | 298,349 | | $ | 237,125 |
Restricted cash (current) | |
| 77,248 | |
| 1,032 |
Restricted cash (non-current) | |
| — | |
| 77,219 |
Total cash, cash equivalents and restricted cash | | $ | 375,597 | | $ | 315,376 |
| | | | | | |
| | Year Ended December 31, | ||||
Supplemental disclosures of cash and non-cash investing and financing transactions | | 2023 |
| 2022 | ||
Cash paid for interest, net of amounts capitalized | | $ | 1,029 | | $ | 522 |
Non-cash purchase of property, plant and equipment | |
| 8,174 | |
| 13,837 |
Right-of-use asset purchased with operating lease | |
| 199 | |
| — |
See the accompanying Notes to the Consolidated Financial Statements.
62
1. Nature of Business, and Financial Condition and Basis of Presentation
Nature of Business. business. Gevo, Inc. (Nasdaq: GEVO) (“Gevo”, “we”, “us”, “our”, or the “Company,” which, unless otherwise indicated, refers to Gevo, Inc. and its subsidiaries), a Delaware corporation founded in 2005, is a renewable chemicals and next generation biofuelsgrowth-oriented, carbon abatement company focused onwith the development and commercializationmission of alternativessolving greenhouse gas (“GHG”) emissions for those sectors of the transportation industry that are not amenable to petroleum-based products using isobutanol produced from renewable feedstocks. Gevo was incorporated in Delaware on June 9, 2005. Gevo formed Gevo Development, LLC (“Gevo Development”) in September 2009 to finance and develop biorefineries through joint venture, licensing arrangements, tolling arrangementselectrification or direct acquisition (see Note 8 Gevo Development). Gevo Development became a wholly-owned subsidiary of Gevo in September 2010. Gevo Development purchased Agri-Energy, LLC (“Agri-Energy”) in September 2010.hydrogen.
The Company is focused on transforming renewable energy into energy-dense liquid drop-in hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel (“SAF”) and other fuels and chemicals, with the potential to achieve a “net-zero” GHG, or even carbon negative footprint measured by the Argonne National Laboratory’s GREET (Greenhouse gases, Regulated Emissions, and Energy use in Transportation) model (the “GREET Model”) to measure, predict and verify GHG emissions across the life-cycle. Our “net-zero” concept means production of drop-in hydrocarbon fuels by using sustainably grown feedstocks (e.g., low till, no-till and dry corn cultivation), renewable and substantially decarbonized energy sources, resulting in a net-zero carbon footprint from the full life cycle of the fuel measured from the capture of renewable carbon through the burning of the fuel.
Gevo’s primary market focus, given current demand and growing customer interest, is SAF. The Company believes that SAF from carbohydrates to alcohol is the most economically viable approach for carbon abatement. The Company also has commercial opportunities for other renewable hydrocarbon products, such as (i) renewable natural gas, also known as biogas (“RNG”), (ii) hydrocarbons for gasoline blendstocks and diesel fuel, and (iii) plastics, materials and other chemicals. We are engaged in technology, process and intellectual property development targeted to large scale deployment of net-zero hydrocarbon fuels and chemicals. We are developing the marketplace and customers for SAF and other related products. We also are engaged as a developer and enabler/licensor for large scale commercial production, and we expect to be a co-investor on certain projects. Gevo’s business model is that of a developer of projects, a licensor, process technology developer, and operator of certain assets in the future.
Net-Zero Projects
In early 2021, we announced our proprietary “Net-Zero Projects” that we developed and engineered as a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technologytechnology. Our Net-Zero Projects will convert renewable energy (e.g., photosynthetic, wind, RNG) from a variety of sources into energy dense liquid hydrocarbons that, uses a combinationwhen burned in traditional engines, has the potential to achieve net-zero GHG emissions across the whole lifecycle of synthetic biology, metabolic engineering, chemistry and chemical engineeringthe liquid fuel: from the way carbon is captured from the atmosphere, processed to make isobutanolliquid fuel products, and burned as a fuel for planes, cars, trucks, and ships. Gevo has engineered, developed, and owns our Net-Zero plant designs, and the overall Gevo Net-Zero process (i.e., the process to enable carbon-negative olefins, and hydrocarbon fuels with an anticipated net-zero or better carbon footprint measured across the lifecycle of the whole processes). The proprietary Gevo Net-Zero processes and plant designs are based upon the conversion of carbohydrates to alcohols, then the conversion of the alcohols to olefins (i.e., building blocks for chemicals, plastics, and fuels), and then the conversion of the olefins into fuels, all optimized and integrated to achieve a net-zero carbon footprint. In the fermentation section of our plant design, we work with Fluid Quip Technologies, LLC and PRAJ Industries Limited (“PRAJ”), as well as other suppliers of unit operations, and using Axens North America, Inc. (“Axens”) as the unit operation technology supplier for producing olefins and fuels. Gevo has developed and owns the overall proprietary plant designs, engineering details, integration technologies, and has filed patents on several process improvements.
In November 2021, Gevo entered into an agreement to exclusively utilize Axens’ technology for isobutanol conversion into hydrocarbons. In February of 2022, Gevo and Axens entered into a second exclusive agreement to specifically cover the process steps for ethanol to finished jet fuel.
63
Our initial Net-Zero Project, Net-Zero 1 (“NZ1”), is expected to be located in Lake Preston, South Dakota, and is being currently designed to produce approximately 65 million gallons per year (“MGPY”) of total hydrocarbon volumes, including 60 MGPY of SAF. Along with the hydrocarbons, NZ1 is being currently designed to produce approximately 1,390 million pounds per year of high-value protein products from isobutanol that can displace petrochemical incumbent products. The Company has been able to genetically engineer yeast, whereby the yeast produces isobutanol from carbohydrates. Through May 2012, Agri-Energy was engagedfor use in the food chain and more than 34 million pounds per year of corn oil. Our products will be produced in three steps; the first step is milling the corn and the production of protein, oil, and carbohydrates, the second step produces alcohols using fermentation and the third step is the conversion of the alcohols into hydrocarbons.
We also are developing other commercial production projects for SAF at other locations in the United States where we expect to use our Net-Zero plant designs based on work done for NZ1 at Lake Preston. Gevo expects to play the role of project developer, plant design and technology licensor, and investor, based on traditional developer business models where the developer gets a partial ownership stake for developing the project. We may also co-invest in projects to increase our equity ownership in those projects.
Renewable Natural Gas Project
Gevo’s RNG facilities in Northwest Iowa (“NW Iowa RNG”) are owned by Gevo NW Iowa RNG, LLC, and produces RNG captured from dairy cow manure supplied by three local dairies. Animal manure can be digested anaerobically to produce biogas, which is then upgraded to pipeline quality gas referred to as RNG. The original design capacity for this project was 355,000 MMBtu. Gevo NW Iowa RNG, LLC sells the produced RNG to the California market through an agreement with BP Canada Energy Marketing Corp. and BP Products North America Inc. (collectively, “BP”). In addition, NW Iowa RNG generates and sells Low Carbon Fuel Standard (“LCFS”) credits as well as D3 Renewable Identification Numbers (“RINs”) through the production of producing and selling ethanol and related products produced at its production facility locatedRNG (collectively, “environmental attributes”).
Luverne Facility
Gevo’s development plant in Luverne, Minnesota (the “Luverne Facility”). The Company commenced, recorded in the retrofitAgri-Energy segment, was originally constructed in 1998 and is located on approximately 55 acres of land, which contains approximately 50,000 square feet of building space. Gevo may use the Luverne Facility in 2011the future to prove our processes, process concepts, unit operations and commenced initial startup operations for other purposes in order to optimize feedstocks and the commercial production of isobutanol at this facility in May 2012. In September 2012,processes used for producing hydrocarbons from alcohols. Currently, the Company made the strategic decision to pause isobutanol productionactivities at the Luverne Facility are minimized to focus on optimizing specific parts of the process to further enhance isobutanol production rates. care and maintenance, market development, and customer education.
In 2013, theFinancial Condition. The Company modified the Luverne Facility in order to (i) significantly reduce previously identified infections, (ii) demonstrate that its biocatalyst performs in the one million liter fermenters at the Luverne Facility,has incurred consolidated net losses since inception and (iii) confirm GIFT™ efficacy at commercial scale at the Luverne Facility.
In 2014, the Company further reconfigured the Luverne Facility to enable the co-production of both isobutanol and ethanol, leveraging the flexibility of its GIFT™ technology, with one fermenter utilized for isobutanol production and three fermenters utilized for ethanol production. In line with the Company’s strategy to maximize asset utilization and site cash flows, the Company believes that this configuration of the Luverne Facility should allow it to continue to optimize its isobutanol technology athad a commercial scale, while taking advantage of potentially superior ethanol contribution margins. As a result, during certain periods the Company may only produce ethanol at the Luverne Facility. In addition, the condition of two of the Luverne Facility’s oldest fermentation vessels may limit the Company’s ability to co-produce isobutanol and ethanol. Therefore, the Company expects to focus on the production of ethanol and produce limited volumes of isobutanol until one or both of these fermentation vessels have been repaired or replaced.
The Company’s technology converts its renewable isobutanol to alcohol-to-jet (“ATJ”), isooctane, isooctene, and para-xylene (building block for polyester) at its hydrocarbons demonstration plant located at South Hampton Resources located in Silsbee, TX. In addition the Company’s Luverne Facility has production capacity of about 20 MGPY of ethanol, 45-50 kilotons (“KT”) of animal feed, and 3 million pounds of corn oil.
Assignificant accumulated deficit as of December 31, 2017, the Company continues to engage in research and development, business development, business and financial planning, optimizing operations for isobutanol, hydrocarbon and ethanol production and raise capital to fund future expansion of its Luverne Facility for increased isobutanol and hydrocarbon production. Ultimately, the Company believes that the attainment of profitable operations is dependent upon future events, including (i) completing its development activities resulting in commercial production and sales of isobutanol or isobutanol-derived products and/or technology, (ii) obtaining adequate financing to complete its development activities, (iii) obtaining adequate financing to build out further isobutanol and hydrocarbon production capacity, (iv) gaining market acceptance and demand for its products and services, and (v) attracting and retaining qualified personnel.
Financial Condition. For the twelve months ended December 31, 2017 and 2016, the Company incurred a consolidated net loss of $24.6 million and $37.2 million, respectively, and had an accumulated deficit of $401.4 million at December 31, 2017.2023. The Company’s cash and cash equivalents attotaled $298.3 million, and short-term restricted cash totaled $77.2 million as of December 31, 2017 totaled $11.6 million and are expected to be used for the following purposes: (i) operating activities of the Luverne Facility; (ii) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (iii) capital improvements primarily associated with the Luverne Facility; (iv) costs associated with optimizing isobutanol production technology; (v) exploration of strategic alternatives and new financings; and (vi) debt service and repayment obligations.
The Company expects to incur future net losses as it continues to fund the development and commercialization of its product candidates. To date, the Company has financed its operations primarily with proceeds from multiple sales of equity and debt securities, borrowings under debt facilities and product sales. The Company’s transition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability or positive cash flows, and unless
78
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, the Company may seek additional capital through arrangements with strategic partners or from other sources, it may seek to restructure its debt and it will continue to address its cost structure. Notwithstanding, there can be no assurance that the Company will be able to raise additional funds, or achieve or sustain profitability or positive cash flows from operations. Existing working capital was not sufficient to meet the cash requirements to fund planned operations through the period that is one year after the date the Company’s audited 2017 year-end financial statements were issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s inability to continue as a going concern may potentially affect the Company’s rights and obligations under its senior secured debt and issued and outstanding convertible notes. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.
Reverse Stock Split. On December 21, 2016, the Board of Directors approved an amendment to its Amended and Restated Certificate of Incorporation to effect a one-for-twenty reverse stock split of the Company’s common stock, par value $0.01 per share. The reverse stock split became effective January 5, 2017. Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.
NASDAQ Market Price Compliance. On June 21, 2017, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market, notifying us that, for the prior 30 consecutive business days, the closing bid price of our common stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, the Company had an initial compliance period of 180 calendar days, to regain compliance with this requirement. On December 20, 2017, the Nasdaq Stock Market granted us an additional 180 calendar days, or until June 18, 2018, to regain compliance. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before June 18, 2018. The Nasdaq determination to grant the second compliance period was based on our meeting of the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the exception of the bid price requirement, and our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
2023.
2. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statementsConsolidated Financial Statements of Gevo include the accounts of its wholly-ownedwholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation. The consolidated financial statementsConsolidated Financial Statements of the Company (which include the accounts of its wholly-owned subsidiaries Gevo DevelopmentAsset, LLC, Gevo RNG Holdco, LLC, Gevo NW Iowa RNG, LLC, Gevo Net-Zero HoldCo, LLC, Gevo Net-Zero 1, LLC, Gevo Net-Zero Operations, LLC, Gevo Net-Zero Asset Management, LLC, and Agri-Energy, LLC) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company at December 31, 20172023.
64
Reclassifications. The Company reclassified certain prior period amounts to conform to the current period presentation. The reclassifications included the categorization of depreciation and amortization on the Consolidated Statements of Operations and had no impact on total revenues, total operating expenses, net loss or stockholders’ equity for any period.
Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Concentrations of Credit Risk and Major Customers. The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and cash equivalents in excess of the federally insured limits. The Company’s cash and cash equivalents are deposited with high credit-quality financial institutions and are primarily in demand deposit accounts.accounts and money market funds. As of December 31, 2023, and 2022, one customer accounted for 100% of trade accounts receivable, net, and 90% and 73% of total revenue, respectively.
Cash, and Cash Equivalents and Restricted Cash. The Company maintains its cash and cash equivalents in highly liquid interest bearinginterest-bearing money market accounts or non-interest bearingnon-interest-bearing demand accounts. The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition to be cash equivalents. Restricted cash is classified as current or non-current based on the terms of the underlying agreements and represents cash held as deposits and cash collateral for financial letters of credit.
Marketable Securities. The Company’s marketable securities consist of marketable debt securities and have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term. The Company’s marketable securities are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive loss in shareholders’ equity, with the exception of unrealized losses believed to be other-than-temporary, which are reported in earnings in the current period.
Trade Accounts Receivable, net. The Company records receivables for products shipped and services provided but for which payment has not yet been received. As of December 31, 2017 and 2016, noIn evaluating its allowance for doubtful accounts has been recorded, based uponfor accounts receivable, the Company performs ongoing reviews of its outstanding receivables to determine if any amounts are uncollectible and adjusts the allowance for doubtful accounts accordingly.
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GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
expected full collection of the accounts receivable. As of December 31, 2017 and 2016, one customer, C&N Ethanol Marketing, LLC comprised 78% and 53%, respectively, of our outstanding trade accounts receivable.
Inventories. Inventory is recorded at net realizable value per ASU 2015-11value. Isobutanol and cost of goods sold is determined by average cost method. Ethanol and isobutanolethanol inventory cost consists of the applicable share of raw material, direct labor and manufacturing overhead costs.overhead. Work in process inventory includes unfinished SAF, isooctane and isooctene inventory. Spare Parts inventory consists of the parts required to maintain and operate the Company’s Luverne Facility and is recorded at cost.
Derivative Instruments. For each reporting period, the Company reviews the value of inventories on hand to estimate the recoverability through future sales. The Company evaluatesreduces its contractsinventories with adjustments for potential derivatives which Gevo, Inc. useslower of cost or net realizable value, with cost determined by the average cost method.
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GEVO, INC.
Notes to raise capital. See Note 6Consolidated Financial Statements (Continued)
Environmental Attribute Inventory. The Company generates D3 Renewable Identification Numbers (“RINs”) and Low Carbon Fuel Standard (“LCFS”) credits (collectively, “environmental attributes”) through the production of RNG used for transportation purposes as prescribed under the Renewable Fuels Standard program (“RFS”). Environmental attribute inventory is included as a descriptioncomponent of “Inventories” on the Consolidated Balance Sheets. The Company considers environmental attributes to be a distinguishable product that is generated as an integral component of the Company’s accounting for embedded derivativesproduction process of RNG as the environmental attributes that are generated can be separated from the underlying commodity and Note 7 formay be sold independently from the RNG produced. As such, the Company considers environmental attributes to be a descriptionco-product of the Company’s derivative warrant liability. At issuance date, derivative warrant liabilities are initially recognized as a liability with a corresponding reduction in stockholders’ equity. Changes inproduction of RNG and accordingly allocates the estimated faircosts of production based on the relative sales value of all revenue items for the NW Iowa RNG operations. The value of the derivative warrant liability between issuance date and exercise/expiration date represents an unrealized (gain)/loss andenvironmental attributes is reviewed for potential write-downs based on the net realizable value methodology. Revenue is recognized on these environmental attributes when there is an agreement in place to monetize the credits at an agreed upon price with a customer based upon defined third party market prices and recorded in the Consolidated Statementa transfer of Operations. The fair value of the derivative warrant liability is ultimately either re-classed into equity upon either exercise or, if expired, a realized (gain)/loss is recognized and recorded in the Consolidated Statement of Operation.control has occurred.
As of December 31, 2017 and 2016, the Company did not have any forward purchase contracts or exchange-traded futures contracts.
Property, Plant and Equipment. Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized over the term of the lease agreement or the service lives of the improvements, whichever is shorter. Assets under construction are depreciated when they are placed into service. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized.
Impairment of Property, PlantConstruction in Progress. Construction in progress represents expenditures necessary to bring an asset, project, new facilities or equipment to the condition and Equipment. The Company’slocation necessary for its intended use and are capitalized and recorded at cost. Once completed and ready for its intended use, the asset is transferred to property, plant and equipment consist primarilyto be depreciated or amortized.
Depreciation and Amortization. Capitalized costs are depreciated or amortized using the straight-line method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such assets associated withor the acquisition and retrofituseful life of the Luverne Facility.individual assets. The estimates of productive lives may change, possibly in the near term, resulting in changes to depreciation and amortization rates in future reporting periods.
Impairment of Long-Lived Assets. The Company assesses impairmentevaluates the recoverability of the recorded amount of long-lived assets, including property, plant and equipment, for recoverabilitylicenses, patents, operating lease right-of-use assets, and finance lease right-of-use assets when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate, or legal or regulatory factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. The carrying amount of a long-lived asset is considered to be impaired if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets.
The If the Company evaluated its Luverne Facility fordetermines that an asset is impaired, it measures the impairment to be recognized as of December 31, 2017 and 2016. These evaluations included comparing the carryingamount by which the recorded amount of the acquisitionasset exceeds its fair value. A summary of impairment losses on tangible and retrofitintangible assets for the years ended December 31, 2023, and 2022, is included in Note 4, Asset Impairment.
Leases, Right-of-Use Assets and Related Liabilities. The Company enters into various arrangements which constitute a lease as defined by Accounting Standards Codification (“ASC”) 842, Leases, as part of its ongoing business activities and operations. Leases represent a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. Such contracts result in both (a) right-of-use assets, which represent the Company’s right to use an underlying asset for the term of the Luverne Facility to the estimated undiscounted future cash flows at the Luverne Facility as thiscontract; and (b) a corresponding lease liability which represents the lowest levelCompany’s obligation to make the lease payments arising from the contract. The Company has elected not to recognize a right-of-use asset and lease liability for any lease with an original lease term of identifiable cash flows. Significant assumptions included in12 months or less. Lease expense for such leases is recognized on a straight-line basis over the estimated undiscounted future cash flows include, among others, estimates of the:lease term.
sales price of isobutanol, hydrocarbons, ethanol and by-products such as dried distiller’s grains;66
purchase price of corn;
production levelsTable of isobutanol;Contents
capital and operating costs to produce isobutanol; and
estimated useful life of the primary asset.
Factors which can impact these assumptions include, but are not limited to;
effectiveness of the Company’s technology to produce isobutanol at targeted margins;
demand for isobutanol and oil prices; and
harvest levels of corn.
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GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
A lease is classified as a finance lease when one or more of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or (v) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. If a lease does not meet any of these criteria, the lease is classified as an operating lease.
Based uponLease liabilities are initially measured at the lease commencement date based on the present value of lease payments over the lease term, discounted using an estimate of the Company’s evaluationincremental borrowing rate for a collateralized loan with the same term and payment as the lease. Right-of-use assets are measured based on the amount of the lease liability adjusted for any lease payments made to the lessor at December 31, 2017or before the lease commencement date less any lease incentives received. All right-of-use assets are evaluated for impairment in accordance with accounting standards applicable to long-lived assets.
Renewal options are included in the calculation of our right-of-use assets and 2016,lease liabilities when the Company concludeddetermines that the estimated undiscounted future cash flowsoption is reasonably certain of exercise based on an analysis of the relevant facts and circumstances. Certain of the Company’s leases require variable lease payments that do not depend on an index or rate and such payments are excluded from the Luverne Facility exceededcalculation of the right-of-use asset and lease liability and are recognized as variable lease cost when incurred.
Lease cost for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease cost for finance leases consists of amortization of the right-of-use assets on a straight-line basis over the lease term, interest expense on the lease liability and variable lease payments as incurred.
The Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for its corporate office lease asset class.
Intangible assets. Intangible assets consist of patents. Costs related to patents, including legal fees, are capitalized and amortized over the estimated useful lives using the straight-line method. Amortization expense is recorded in “Depreciation and amortization” in the Operating expenses section of the Consolidated Statements of Operations. For patents purchased in an asset acquisition, the useful life is determined by valuation estimates of remaining economic life. The patents are included in “Intangible assets, net” on the Consolidated Balance Sheets. The Company periodically evaluates the amortization period and carrying value and, as such, these assets were not impaired. Although the Company’s cash flow forecasts are based on assumptionsof its patents to determine whether any events or circumstances warrant revised estimated useful life or reduction in value.
Borrowing Costs. The borrowing costs that are consistent withdirectly attributable to the acquisition and construction of an asset that needs a substantially long period of time for its plannedintended use to begin are capitalized and recorded as part of the assets, these estimates required significant exercisecost of judgmentthe asset when expenditures for the asset and are subject to change in future reporting periods as factsborrowing costs have been incurred, and circumstances change. Additionally, the Company may make changes to its business plan that could result in changesactivities relating to the expected cash flows. As a result, itacquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalization of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use and the borrowing costs incurred thereafter are recognized in profit or loss for the current period. The capitalization of borrowing costs is possible that a long-livedsuspended during periods in which the acquisition or construction of an asset may be impaired in future reporting periods.is interrupted abnormally and the interruption lasts for more than three months, until the acquisition or construction is resumed.
Debt IssueIssuance Costs and Debt Discounts/Premiums. Debt issueissuance costs are costs with third parties incurred in connection with the Company’s debt financings that have been capitalized and are being amortized over the stated maturity period or estimated life of the related debt using the effective interest method. Debt issuance costs are presented as a direct reduction of the carrying amount of the related debt. Debt discounts, including fees paid to lenders, and debt premiums are amortized over the life of the related debt using the effective interest method. Debt discounts and premiums are presented as a reduction and increase, respectively, in the carrying amount of the related debt. Amortization of debt issuance costs, discounts and premiums is included in interest expense.
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Revenue Recognition.GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Warrants. Warrants are classified as a component of permanent equity when they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of common stock upon exercise and do not provide any guarantee of value or return.
Variable Interest Entities. The Company records revenueenters into agreements with special purpose entities (“SPEs”), some of which are variable interest entities (“VIEs”), in the ordinary course of business. A legal entity is considered a VIE if it has either a total equity investment that is insufficient to finance its operations without additional subordinated financial support or whose equity holders lack the characteristics of a controlling financial interest. The Company’s variable interests arise from contractual or other monetary interests in the saleentity. The typical condition for a controlling financial interest ownership is holding a majority of hydrocarbon products, ethanolthe voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests.
The Company consolidates a VIE if it is deemed to be the primary beneficiary. The Company determines it is the primary beneficiary if it has the power to direct the activities that most significantly impact the VIEs’ economic performance and related products, includinghas the saleobligation to absorb losses or has the right to receive benefits of corn inventory.the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether it is the primary beneficiary. See Footnote 22 below for further information.
Revenue Recognition. The Company recognizes revenue when all ofin accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenue from the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title transfer to the customer; the priceCompany’s point in time product sales is fixed or determinable; and collectability is reasonably assured.
Ethanol and related products as well as hydrocarbonrecognized when products are generally shipped free on board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability betweentransferred, or services are invoiced and control transferred. The Company has presented the Companydisclosures required by ASC 606, see Note 3, Revenues from contracts with customers and its customers. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to marketers were deducted from the gross sales price at the time payment was remitted. Ethanol and related products sales were recorded net of commissions and shipping and handling costs.other revenues.
Revenue related to government research grants and cooperative agreements is recognized in the period during which the related costs are incurred, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding. Revenues related to the lease agreements are recognized on a straight-line basis over the term of the contract.
In 2017, 2016 and 2015, C&N Ethanol Marketing, LLC accounted for approximately 76%, 71% and 71% of our consolidated revenue, respectively. In the same years, Land O’Lakes Purina Feed LLC accounted for approximately 17%, 17% and 19% of our consolidated revenue, respectively. Both are customers of our Gevo Development/Agri-Energy segment (see Note 17). Given the production capacity compared to the overall size of the North American market and the demand for our products, the Company does not believe that a decline in a specific customer's purchases would have a material adverse long-term effect upon our financial results.
Cost of Goods SoldProduction. Cost of goods soldproduction includes costs incurred in conjunction with the operations for the production of RNG and isobutanol, at the Luverne Facility and costs directly associated with the ethanol and related products production process suchas well as costs for direct materials, direct labor and certain plant overhead costs. Costs associated with the operations for the production of isobutanol includes costs, for direct materials, direct labor,and plant utilities including natural gas and plant depreciation.wind power. Direct materials consist of dextrose for initial production of isobutanol, corn feedstock, manure feedstock, denaturant, and process chemicals. Direct labor includes compensation of personnel directly involved in production operations at the Luverne Facility. Costs of direct materials for the production of ethanol and related products consist of corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in the operation of the Luverne Facility.operations. Plant overhead costs primarily consist of plant utilities and plant depreciation. Cost of goods sold is mainly affected by the cost of corn and natural gas. Corn is the most significant raw material cost.utilities. The Company purchases natural gas and wind power to power steam generation in the production process and to dry the distiller’sdistillers grains, a by-product of ethanol and related products production.
Patents. All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain. Patent-related legal expenses incurred are recorded as selling, general and administrative expense, and during the years ended December 31, 2017, 2016 and 2015 were $0.3 million, $0.2 million, and $0.9 million, respectively.
Research and Development. Research and development costs are expensed as incurred and are recorded as research and development expense in the Consolidated Statement of Operations.incurred. The Company’s research and development costs consist of expenses incurred to identify, develop, and test its technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, depreciation on property, plant and equipment used in development, license fees and milestone payments paid to third parties for use of their intellectual property and patent rights and other direct and allocated expenses incurred to support the Company’s overall research and development programs.
81General and Administrative. General and administrative expenses are expensed as incurred. The Company’s general and administrative costs consist of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses. Our corporate personnel, consisting of subject matter experts, including chemists, engineers, and sustainability experts, dedicate the majority of their time and efforts for the development of our projects. Costs incurred have not yet been allocated to the specific projects on the face of our financial statements.
Project Development Costs. Project development costs consist of consulting, preliminary engineering costs, and personnel costs, including stock-based compensation.
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Income Taxes. Deferred tax assets and liabilities are recognized based on the difference between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax assets and liabilities are measured using currently enacted tax rates in effect in the years in which those temporary differences are expected to reverse. Deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2017 and 2016, based upon current facts and circumstances, the Company had recorded a valuation allowance against its deferred tax assets of $107.4 million and $139.3 million, respectively.
Stock-Based Compensation. The Company’s stock-based compensation expense includes expenses associated with share-based awards granted to employees and board members,members. Our stock-based compensation is classified as either an equity award or a liability award in accordance with U.S. GAAP. The fair value of an equity-classified award is determined at the grant date and expenses associated with awards under its employee stock purchase plan (“ESPP”). Stock-based compensation expense for all share-based payment awards granted is amortized on a straight-line basis over the requisite service period. The fair value of a liability-classified award is determined on a quarterly basis through the final vesting date and is amortized based on the grant datecurrent fair value. value of the award and the percentage of vesting period incurred to date.
The grant date fair value for stock option awards is estimated using the Black-Scholes option pricing model and the grant date fair value for restricted stock awards is based upon the closing price of the Company’s common stock on the date of grant. The Company recognizes compensation costs for share-based payment awards granted to employees net of estimatedactual forfeitures and recognizes stock-based compensation expense for only those awards expected to vest on a straight-line basis over the requisite service period of the award, which is currently the vesting term of up to four years. For performance basedthree years.
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all stock-based payments to employees, including grants of stock options and restricted stock awards, to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.
Stock-based compensation expenses related to restricted stock awards and stock options are recorded net of actual forfeitures in our Consolidated Statements of Operations.
Liability awards are subject to variable accounting treatment, such that they are remeasured at fair value each reporting period through the Consolidated Statements of Operations. Any impact of forfeitures is based on actual forfeitures, although not affecting the fair value measurement of the awards, and are reflected at that time as well.
Income Taxes. In preparing the Consolidated Financial Statements, the Company recognizesestimates the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using currently enacted tax rates in effect in the years in which those temporary differences are expected to reverse. Deferred tax assets are be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of the changes. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the Consolidated Financial Statements.
Each period, we evaluate the likelihood of whether or not some portion or all of each deferred tax asset will be realized and provide a valuation allowance for those deferred tax assets for which it is more likely than not that the related benefits will not be realized. When evaluating our valuation allowance, we consider historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, production costs, interest rates, and federal and local legislation. If we determine that all or a portion of the deferred tax assets will not be realized, a valuation allowance will be recorded with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense.
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In addition, the calculation of income tax expense overinvolves significant management estimation and judgment involving a number of assumptions. In determining these amounts, management interprets tax legislation in each of the requisite service period.jurisdictions in which we operate and makes estimates of the expected timing of the reversal of future tax assets and liabilities. We also make assumptions about future earnings, tax planning strategies and the extent to which potential future tax benefits will be used. We are also subject to assessments by various taxation authorities which may interpret tax legislation differently, which could affect the final amount or the timing of tax payments.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although there have been no such assessments historically with any material impact to its financial results. The Company would recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations. Accrued interest and penalties would be included within the related tax liability line in the Consolidated Balance Sheets.
Prior Period Financial Statement Immaterial Adjustment. The Company has entered into agreements with Zero6 Energy Development, Inc. (“ZEDI”), a national clean energy expert that provides expertise in capital management, development, engineering, and asset management, to develop and construct facilities to provide carbon neutral power to NZ1 via the two limited liability companies: Kingsbury Country Wind Fuel, LLC (“KCWF”) and Dakota Renewable Hydrogen, LLC (“DRH”) (collectively, the “Project LLCs”), respectively, to induce the design and construction of the power generation, transmission and distribution facilities that will serve NZ1. The Project LLCs formed to govern the projects are VIEs. In determining whether the Company was the primary beneficiary of the VIEs, the Company considered both qualitative and quantitative factors regarding the nature, size and form of the involvement with the VIE, such as the role in establishing the VIEs and the ongoing rights and responsibilities; the economic interests deemed to be variable interests in the VIEs; the design of the VIEs, including the capitalization structure, subordination of interests, and payment priority. During the third quarter of 2023, the Company identified that the governance structure and operating procedures of the Project LLCs resulted in the Company having the power to control certain significant activities of the Project LLCs, as defined by Accounting Standards Codification 810 (“ASC 810”), Consolidations. Therefore, the Company is the primary beneficiary of the VIEs, and per ASC 810, must consolidate the VIEs. Prior to the third quarter of 2023, the Company did not consolidate the Project LLCs. The Company assessed the materiality of this correction on the previously issued interim and annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the changes were not material to any of the previously issued consolidated financial statements. The Company’s primary involvement with the VIEs is to fund the deposits in order to induce the contractor to design and construct the power generation, transmission and distribution facilities that will serve NZ1. These amounts funded will be either fully reimbursed upon completion of the project or used as an investment into the Project LLC. Gevo has contractual priority liens against the equipment and constructed facilities under the contracts. In December 2023 the agreements with ZEDI related to the two Project LLCs were amended to remove certain kickout rights that previously existed. As of December 2023, we have concluded that the removal of the kickout rights from the agreements has resulted in a loss of control and that, therefore, the Company is no longer the primary beneficiary of the Project LLCs, and accordingly no longer consolidates the Project LLCs. See Footnote 22.
A summary of the impact of the adjustment on the Consolidated Balance Sheets for each of the periods ended December 31, 2022, March 31, 2023, and June 30, 2023, respectively, is as follows: an increase to property, plant, and equipment of $8.3 million, $19.0 million, and $19.7 million, and a corresponding decrease in deposits and other assets of $8.3 million, $19.0 million, and $19.7 million. For the period ended March 31, 2023, a summary of the impact of the adjustment on the Consolidated Balance Sheets is as follows: an increase in trade accounts receivable, net, of $0.1 million and an increase is accounts payable and accrued liabilities of $0.1 million. For the period ended June 30, 2023, a summary of the impact of the adjustment on the Consolidated Balance Sheets is as follows: a decrease in accounts payable and accrued liabilities of $0.3 million and a corresponding decrease to deposits and other assets.
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Additionally, the following immaterial adjustments were made to the consolidated statements of cash flows associated with the above changes for each of the periods ended September 30, 2022, December 31, 2022, March 31, 2023, and June 30, 2023, respectively, as follows: a decrease in the net cash used in operating activities of $8.3 million, $8.3 million, $10.7 million, and $11.4 million, and a corresponding decrease in the netcash provided by investing activities reported for the periods then ended, respectively, as a result of these changes. The reclassification was made for presentation purposes and had no impact on the consolidated statements of operations and comprehensive income.
Recently Issued, Not Yet Adopted Accounting Pronouncements
Segment Reporting. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (“CODM”) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that ASU 2023-07 may have on its financial statements and related disclosures when adopted.
Income Taxes. In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
3. Revenues from Contracts with Customers and Other Revenue
RNG Revenue
The Company’s revenues are primarily comprised of the sale of RNG and related environmental attributes produced at the NW Iowa RNG facility under long-term contracts with customers. Revenue is recognized at a point in time when the Company transfers the product to its customer. The customer obtains control of the product upon RNG delivery into gas pipeline system, whereas the title and control for the environmental attributes are transferred to the customer subsequent to the issuance of such attributes by the relevant regulatory agency. The Company generally has a single performance obligation in our arrangements with customers. The Company’s performance obligation related to the sales of RNG and related environmental attributes are satisfied at a point in time upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products. There is no variable consideration present in the Company’s performance obligations. Consideration for each transaction is based upon quoted market prices at the time of delivery. All material contracts have payment terms of between one to three months and there are no return or refund rights.
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Licensing and Development Revenue
The Company’s licensing and development revenue is related to a joint development agreement with LG Chem, Ltd. ("LG Chem") to develop bio-propylene for renewable chemicals using Gevo’s Ethanol-to-Olefins ("ETO") technology. As the contractually promised intellectual properties (“IP”) are not individually distinct, the Company combined each individual IP noted in the contract into a bundle of IP (“IP Rights”) that is distinct and accounted for all of the IP Rights promised in the contract as a single performance obligation. The IP Rights granted were “functional IP rights” that have significant standalone functionality. The Company’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. The Company has no further obligation with respect to the grant of IP Rights, including no expressed or implied obligation to maintain or upgrade the technology, or provide future support or services. Licensees legally obtain control of the IP Rights upon execution of the contract. As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met.
Other Hydrocarbon Revenue
The Company recorded limited revenues from its development-scale plant, the Luverne Facility, during the year ended December 31, 2023, and 2022. These revenues were promotional in nature and from customer contracts for ethanol sales and related products and hydrocarbon revenues, which included isooctene, isooctane, and SAF. These products were sold mostly on a free-on-board shipping point basis (recognized at a point in time), were independent transactions, did not provide post-sale support or promises to deliver future goods, and were single performance obligations.
The following tables display the Company’s revenue by major source based on product type (in thousands):
| | | | | | |
|
| Year Ended December 31, | ||||
Major Goods/Service Line | | 2023 |
| 2022 | ||
Renewable natural gas commodity | |
| 659 | |
| 640 |
Environmental attribute revenue | | | 14,798 | | | 214 |
Licensing and development revenue | |
| 1,300 | |
| — |
Other hydrocarbon revenue - ethanol, isooctane, IBA | | | 443 | | | 321 |
Total operating revenue | | $ | 17,200 | | $ | 1,175 |
Contract Assets and Trade Receivables. As of December 31, 2023, and 2022, there were no contract assets or liabilities as all customer amounts owed to the Company are unconditional and the Company does not receive payment in advance for its products. Accordingly, amounts owed by customers are included in “Trade accounts receivable, net” on the Company’s Consolidated Balance Sheets. In addition, due to the nature of the Company’s contracts, there are no costs incurred or to be paid in the future that qualify for asset recognition as a cost to fulfill or obtain a contract. No allowance for doubtful accounts was recorded for each of the years ended December 31, 2023, and 2022.
4. Asset Impairment
There were no impairment losses recorded during the year ended December 31, 2023.
72
During the year ended December 31, 2022, the Company recorded a $24.7 million impairment loss on long-lived assets, to reduce the carrying value of certain property, plant, and equipment, and a leased right of use (“ROU”) asset, at the Agri-Energy, LLC (“Agri-Energy”) segment to its fair value. The impairments recorded to date relate to the decision to suspend production at the Luverne Facility and shift the plant into an idled, care and maintenance status during the third quarter of 2022. As a result of this change in use, combined with a sustained history of operating losses, the Company assessed that indicators of impairment were present for long-lived assets within its Agri-Energy reporting segment. The Company therefore performed impairment testing and determined that the carrying amounts of certain property plant and equipment and the leased ROU asset exceeded estimated fair values. The Company estimated the fair value of these asset groups generally using a cost approach which is based on replacement or reproduction costs of the assets and is considered a Level 2 measurement and recorded a corresponding impairment loss under Operating Expenses within the Consolidated Statements of Operations.
5. Net Loss Perper Share.
Basic net loss per share is computed by dividingcalculated based on the net loss attributable to Gevo, Inc. common stockholders for the period by the weighted-averageweighted average number of common shares outstanding for the period. Diluted net loss per share is calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company’s common shares during the period, would have been exercised on the later of the beginning of the period or the date granted, and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period. None of the Company’s stock options or other dilutive securities are considered to be dilutive in periods with net losses.
The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. Diluted earningsnet loss per share (“EPS”) includes the dilutive effect of common stock equivalents and is computed using the weighted-average number of common stock and common stock equivalents outstanding during the reporting period. Diluted EPS for the years ending December 31, 2017, 2016, and 2015 excluded common stock equivalents because the effect of their inclusion would be anti-dilutive or would decrease the reported net loss per share. Therefore 50,373 and 69,245 of dilutive common stock equivalents have been excluded for the years ended December 31, 2023, and 2022, respectively, as the Company is in a net loss position. See Notes 16 and 21 for all outstanding options and warrants that were not included in the computation of diluted weighted average common shares outstanding, as the exercise price of the options and warrants exceeded the average price of the Company’s common stock during the reporting period, and therefore are anti-dilutive.
Basic and diluted net loss per share is calculated as follows (net loss in thousands):
| | | | | | |
|
| Year Ended December 31, | ||||
| | 2023 |
| 2022 | ||
Net loss | | $ | (66,215) | | $ | (98,007) |
Basic weighted-average shares outstanding | |
| 238,687,621 | |
| 221,537,262 |
Net loss per share - basic and diluted | | $ | (0.28) | | $ | (0.44) |
6. Marketable Securities
The Company’s investments in marketable securities are stated at fair value and are available for sale. During the year ended December 31, 2023, all remaining investments in marketable securities matured with no realized gain or loss. The following table summarizes the Company’s investments in marketable securities (in thousands) as of:
| | | | | | | | | | | |
|
| | | December 31, 2022 | |||||||
| | |
| Amortized |
| Gross |
| | | ||
| | | | Cost | | Unrealized | | | | ||
| | Maturity | | Basis | | Losses | | Fair Value | |||
Marketable securities (current) |
|
|
| |
|
| |
|
| |
|
U.S. Treasury notes |
| Within one year | | $ | 56,418 | | $ | (344) | | $ | 56,074 |
U.S. Government-sponsored enterprise securities |
| Within one year | |
| 112,030 | |
| (696) | |
| 111,334 |
Total marketable securities (current) | | | | $ | 168,448 | | $ | (1,040) | | $ | 167,408 |
73
The cost of securities sold is based upon the specific identification method. Interest income from marketable securities totaled $0.8 million and $4.3 million for the years ended December 31, 2023, and 2022, respectively, and is included in “Interest and investment income” in the Consolidated Statements of Operations.
7. Restricted Cash
As of December 31, 2023, current restricted cash of $77.3 million consists of amounts held as collateral for letters of credit to provide financing support for development and construction of the NW Iowa RNG and NZ1 projects.
The Company entered into an irrevocable direct pay letter of credit (the “Bond Letter of Credit”) with Citibank N.A (“Citibank”) in April 2021 to support the 2021 Bonds (as defined below) for the development and construction of NW Iowa RNG. See Note 14, Debt, for additional information on the 2021 Bonds. The Bond Letter of Credit has a 0.5% annual fee and expires April 4, 2024 (unless terminated earlier). The Company deposited $71.2 million with Citibank as restricted cash to secure any amounts drawn under the Bond Letter of Credit. As of December 31, 2023, no amounts have been drawn under the Bond Letter of Credit.
In September 2022, the Company entered into a Pledge and Assignment agreement with Citibank to provide credit support in the form of a letter of credit (the “Power Letter of Credit”) from Citibank to a local electric utility company in order to induce the utility company to design and construct the power transmission and distribution facilities that will serve NZ1. The Company deposited $6.6 million of restricted cash in an account with Citibank to collateralize the Power Letter of Credit, which has a 0.3% annual fee and expires September 30, 2024 (unless terminated earlier). As of December 31, 2023, no amounts have been drawn under the Power Letter of Credit. In January 2024, Citibank was notified by the local electric utility company to close the letter of credit, as the Company has discontinued its relationship with the local utility, and fulfilled all obligations under the Power Letter of Credit.
The Company is entitled to receive interest income on the restricted cash, and recorded interest income of $3.4 million and $0.5 million for the years ended December 31, 2023, and 2022, respectively, included in “Other income, net” in the Consolidated Statements of Operations.
8. Prepaid and Other Current Assets
The following table sets forth securities that could potentially dilute the calculationcomponents of diluted earnings per share. This table excludes any shares that could potentially be issued in settlement of make-whole payments associated with the 2020Company’s prepaid and the 2022 Notes.other current assets (in thousands) as of:
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Warrants to purchase common stock |
| 7,193,766 |
|
|
| 1,103,766 |
|
|
| 1,024,635 |
|
Convertible 2017 Notes |
| - |
|
|
| 75,119 |
|
|
| 75,191 |
|
Convertible 2020 Notes |
| 28,759,675 |
|
|
| - |
|
|
| - |
|
Convertible 2022 Notes |
| - |
|
|
| 5,608 |
|
|
| 13,117 |
|
Outstanding options to purchase common stock |
| 46,431 |
|
|
| 16,915 |
|
|
| 24,089 |
|
Unvested restricted common stock |
| 3,093 |
|
|
| 8,823 |
|
|
| 16,413 |
|
Total |
| 36,002,965 |
|
|
| 1,210,231 |
|
|
| 1,153,445 |
|
| | | | | | |
|
| December 31, | ||||
| | 2023 |
| 2022 | ||
Prepaid insurance | | $ | 568 | | $ | 911 |
Interest receivable | |
| 1,331 | |
| 514 |
Prepaid feedstock | |
| 1,097 | |
| 1,097 |
Other current assets | |
| 1,357 | |
| 512 |
Total prepaid expenses and other current assets | | $ | 4,353 | | $ | 3,034 |
9. Leases, Right-of-Use Assets and Related Liabilities
The following table sets forth additional securities transactionsCompany is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in January 2029. The lease contains an option to extend the lease which management does not reasonably expect to exercise, so it is not included in the length of the term. The Company also has one production line piece of equipment with an operating lease that had they occurredexpires in 2017 would have further diluted the calculation for earnings/ (loss) per share:2024.
74 |
|
| |||
|
|
| |||
|
| ||||
Recent Accounting Pronouncements
Revenue from Contracts with Customers (“ASU 2014-09”). In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The objectiveTable of ASU 2014-09 is to outline a new, single comprehensive model to use in accounting for revenue arising from contracts with customers. The new revenue recognition model provides a five-step analysis for determining when and how revenue is recognized, depicting the transfer of promised goods or services to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is permitted. On July 9, 2015, the FASB Board voted to delay the implementation of ASU 2014-09 by one year to December 15, 2017. In April 2016, the FASB issued Accounting Standards Update No. 2016-10 Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing (“ASU 2016-10”) which provides additional clarification regarding Identifying Performance Obligations and Licensing . The new standard is required to be applied retrospectively to each priorContents
82
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. As a result of the Company’s conclusions below, there is no requirement to select a transition method, as a result of the Company determining that there is no impact upon revenue recognition, historical or otherwise, as a result of adopting ASU 2014-09.
The Company’s current and historical revenues have consisted of the following: (a) ethanol sales and related products revenue, net; (b) Hydrocarbon revenue; and (c) grant and other revenue, which primarily has historically consisted of revenues from governmental and cooperative research grants. The following provides the Company’s initial assessment on how this standard will impact the aforementioned sources of revenue. Given the complexity of this new standard the information below is subject to change and a different conclusion may be reached in 2018, even if remote.
Ethanol sales and related products revenues. Ethanol sales and related products revenues are sold to customers on a “free-on-board, shipping point” basis. Each transaction occurs independent of any other sale, and once sold, there are no future obligations on the part of the Company to provide post-sale support or promises to deliver future goods or services. The Company has four finance leases for land under arrangements related to NW Iowa RNG. Under these contracts, the Company leases land from dairy farmers on which it has built three anaerobic digesters, and continuesrelated equipment and pipelines to sell close to 100 percent of its ethanol productioncondition raw biogas from cow manure provided by the farmers. The partially conditioned biogas is transported from the three digester sites to a single customer, representing 76%, 71%central gas upgrade system located at the fourth site that upgrades the biogas to pipeline-quality RNG for sale. These leases expire at various dates between 2031 and 71% of total revenues2050. The Company accounts for lease components separately from non-lease components for the twelve-months ended December 31, 2017, 2016 and 2015, respectively.Company’s dairy lease asset class. The Company completed its review of this customer and consistent with prior assessments, does not expect there to be any impact on howtotal consideration in the Company has and will continue to account for sales of ethanol to this customer. The Company further evaluated related products, including distiller’s grains and corn oil, and after its review, does not expect there to be any significant impact to how the Company has or will account for or disclose these revenues streams.
Hydrocarbon revenue. Hydrocarbon revenues include sales of alcohol-to-jet fuel, isooctene and isooctane andlease agreement is sold mostly on a “free-on-board, shipping point” basis. Each transaction occurs independent of any other sale, and once sold, there are no future obligations on the part of the Company to provide post-sale support or promises to deliver future goods or services. The Company has determined that there will be no material impact as to how the Company has historically recognized or will recognize revenues priorallocated to the upcoming adoption of ASU 2014-09.lease and non-lease components based on their relative standalone selling prices.
GrantThe following tables present the (i) other quantitative information and other revenues. Grant(ii) future minimum payments under non-cancelable financing and other revenues primarily have historically consisted of governmental and cooperative research grants, of which the Northwest Advanced Renewables Alliance (“NARA”) grant, funded by the United States Department of Agriculture (“USDA”), comprised the majority of those revenues since 2014. After reviewing this arrangement, the Company has concluded that this grant consists of a non-reciprocal arrangement, and therefore, does not qualify as a contract pursuant to Topic 606 “ Revenues from Contracts with Customers”, which was established with the issuance of ASU 2014-09. However, Topic 606 does stipulate revenue recognition under these circumstances, and we determined that there will be no change to revenues recognition before and after adoption of ASU 2014-09.
Leases (“ASU 2016-02”). In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Topic 842 Leases. ASU-2016-02 requires leases to be reported on the financial statements. The objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Future minimum lease obligations for leases accounted for as operating leases at December 31, 2017 totaled $2.9 million. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.
Statement of Cash Flows, Classification of Certain Cash Receivable and Cash Payments (“ASU 2016-15”). In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments which clarifies cash flow statement classification of eight specific cash flow issues. The purpose of ASU 2016-15 isas they relate to provide clarification and consistency for classifying the eight specific cash flow issues because current GAAP either is unclear or does not include specific guidance. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-15 on its consolidated statements of cash flows.
Statement of Cash Flows – Restricted Cash (“ASU 2016-18”). In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows Restricted Cash which standardizes the classification and presentation of changes in restricted cash on the statement of cash flows. This amendment requires that that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This amendment is effective for public business entities for fiscal years beginning after December 15, 2017, but early adoption is permitted. This standard must be applied retrospectively for all periods presented. Adoption of this standard will materially impact the presentation of the Company’s historical statementleases (in thousands), except for weighted averages:
| | | | | | | |
| | Years Ended December 31, |
| ||||
| | 2023 |
| 2022 |
| ||
Other Information | | |
|
| |
| |
Cash paid for amounts included in the measurement of lease liabilities: | | |
|
| |
| |
Operating cash flows from finance leases | | $ | 22 | | $ | 30 | |
Operating cash flows from operating leases | |
| 330 | |
| 928 | |
Finance cash flows from finance leases | |
| 2 | |
| 2 | |
Right-of-use asset obtained in exchange for new operating lease liabilities | |
| 199 | |
| — | |
Weighted-average remaining lease term, finance lease (months) | |
| 307 | |
| 311 | |
Weighted-average remaining lease term, operating leases (months) | |
| 61 | |
| 65 | |
Weighted-average discount rate - finance leases (1) | |
| 12 | % |
| 12 | % |
Weighted-average discount rate - operating leases (1) | |
| 6 | % |
| 5 | % |
(1) | Our leases do not provide an implicit interest rate, and we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease. |
| | | | | | |
Year Ending December 31, |
| Operating Leases |
| Finance Leases | ||
2024 | | $ | 617 | | $ | 50 |
2025 | |
| 398 | |
| 27 |
2026 | |
| 367 | |
| 25 |
2027 | |
| 335 | |
| 26 |
2028 | |
| 345 | |
| 26 |
2029 and thereafter | |
| — | |
| 523 |
Total | |
| 2,062 | |
| 677 |
Less: amounts representing present value discounts | |
| 231 | |
| 445 |
Total lease liabilities | |
| 1,831 | |
| 232 |
Less: current portion | |
| 532 | |
| 45 |
Non-current portion | | $ | 1,299 | | $ | 187 |
75
Table of cash flow due to the existence of approximately $2.6 million in restricted cashContents
83
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
deposits relating to the 2017 Notes (see Note 5)10. However, this standard will not materially impact the Company prospectively as a result of the release of the restricted cash in April 2017 due to an amendment to the 2017 Notes (see Note 7).
Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Provisions (“ASU 2017-11”). In July 2017, the FASB issued Accounting Standards Update No. 2017-11, Derivatives and Hedging (Topic 815) Accounting for Certain Financial Instruments with Down Round Provisions which simplifies the accounting for certain equity-linked financial instruments and embedded features with down round features that reduce the exercise price when the pricing of a future round of financing is lower. Currently, the existence of such features require classification outside of equity and recognition of changes in the fair value of the instrument in earnings each reporting period. This standard eliminates the need to remeasure the instruments at fair value and allows classification within equity. This standard will not materially impact the Company’s accounting, as current liability classified financial instruments and embedded derivatives that require separation from the host instrument have features other than down-round provisions that require current accounting and classification.
Adoption of New Accounting Pronouncements.
Simplifying the Measurement of Inventory (“ASU 2015-11”). In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company adopted this standard for the year-ending December 31, 2017. Adoption of this standard does not materially impact the measurement of the Company’s inventory.
Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”). In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments . Topic 815 requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. There are two approaches for determining if the criteria are met. The objective of ASU 2016-06 is intended to resolve the diversity in practice resulting from those two approaches. The Company adopted this standard in the first quarter of 2017. The adoption of this new standard does not materially impact the Company’s consolidated financial statements.
Compensation—Stock Compensation (‘ASU 2016-09”). In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation. This standard was issued as part of its Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2016-09 effective as of January 1, 2017 on a prospective basis, and prior periods have not been adjusted. The adoption of this standard does not materially impact the Company’s accounting for stock compensation.
84
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The following table sets forth the components of the Company’s inventory balances (in thousands). as of:
| December 31, |
| |||||
| 2017 |
|
| 2016 |
| ||
Raw materials |
|
|
|
|
|
|
|
Corn | $ | 189 |
|
| $ | 108 |
|
Enzymes and other inputs |
| 202 |
|
|
| 309 |
|
Nutrients |
| 5 |
|
|
| 10 |
|
Finished goods |
|
|
|
|
|
|
|
Ethanol |
| 222 |
|
|
| 72 |
|
Isobutanol |
| 1,122 |
|
|
| 755 |
|
Jet Fuels, Isooctane and Isooctene |
| 524 |
|
|
| 519 |
|
Distiller's grains |
| 59 |
|
|
| - |
|
Work in process - Agri Energy |
| 197 |
|
|
| 274 |
|
Work in process - Gevo |
| 437 |
|
|
| 62 |
|
Spare parts |
| 1,405 |
|
|
| 1,349 |
|
Total inventories | $ | 4,362 |
|
| $ | 3,458 |
|
| | | | | | |
|
| December 31, | ||||
| | 2023 |
| 2022 | ||
Raw materials |
| $ | 104 | | $ | 168 |
Finished goods | |
| | | | |
SAF, Isooctane, Isooctene and other | |
| 1,167 | |
| 1,581 |
Work in process | |
| | |
| |
Environmental attributes | | | 2,067 | | | 4,193 |
Jet fuel | |
| — | |
| 51 |
Spare parts | |
| 471 | |
| 354 |
Total inventories | | $ | 3,809 | | $ | 6,347 |
WorkDuring the years ended December 31, 2023, and 2022, the Company recorded net realizable value adjustments of $1.9 million and $0.4 million, respectively, included in process inventory includes unfinished jet fuel, isooctane, and isooctene inventory.Cost of production in the Consolidated Statements of Operations.
4.
11. Property, Plant and Equipment
The following table sets forth the Company’s property, plant and equipment by classification (in thousands).:
|
|
| December 31, |
| |||||
|
|
| 2017 |
|
| 2016 |
| ||
Construction in progress | - |
| $ | 479 |
|
| $ | 293 |
|
Plant machinery and equipment (1) | 10 years |
|
| 16,284 |
|
|
| 15,397 |
|
Site improvements | 10 years |
|
| 7,051 |
|
|
| 7,050 |
|
Agri-Energy Retrofit asset (1) | 20 years |
|
| 70,842 |
|
|
| 70,791 |
|
Lab equipment, furniture and fixtures and vehicles | 5 years |
|
| 6,513 |
|
|
| 6,431 |
|
Demonstration plant | 2 years |
|
| 3,597 |
|
|
| 3,597 |
|
Buildings | 10 years |
|
| 2,543 |
|
|
| 2,543 |
|
Computer, office equipment and software | 3 years |
|
| 1,795 |
|
|
| 1,594 |
|
Leasehold improvements, pilot plant, land and support equipment | 2 - 5 years |
|
| 2,536 |
|
|
| 2,526 |
|
Total property, plant and equipment |
|
|
| 111,640 |
|
|
| 110,222 |
|
Less accumulated depreciation and amortization |
|
|
| (41,271 | ) |
|
| (34,630 | ) |
Property, plant and equipment, net |
|
| $ | 70,369 |
|
| $ | 75,592 |
|
| | | | | | | | |
|
| Useful Life | | December 31, | ||||
| | (in years) |
| 2023 |
| 2022 | ||
Land | | | | $ | 6,505 | | $ | 6,452 |
Plant facilities and infrastructure |
| 5 to 20 | |
| 77,329 | |
| 76,900 |
Machinery and equipment |
| 5 to 20 | |
| 95,212 | |
| 87,248 |
Furniture and office equipment |
| 3 to 7 | |
| 2,864 | |
| 2,977 |
Software |
| 3 to 6 | |
| 1,636 | |
| 2,217 |
Construction in progress |
| | |
| 114,332 | |
| 81,019 |
Total property, plant and equipment |
| | |
| 297,878 | |
| 256,813 |
Less: accumulated depreciation and amortization |
| | |
| (86,315) | |
| (71,639) |
Property, plant and equipment, net | | | | $ | 211,563 | | $ | 185,174 |
|
|
As of December 31, 2017 and 2016, the Company has zero and $0.7 million, respectively, of capital lease assets included in computer, office equipment and software. The Company recorded amortization of capital lease assets of $0.1 million during each of the years ended December 31, 2017, 2016 and 2015, as a component of depreciation and amortization in the consolidated statements of cash flows.
The Company recorded $6.6 million, $6.7depreciation expenses of $17.6 million and $6.6$6.5 million of depreciation expense for the years ended December 31, 2017, 2016,2023, and 2015, respectively, including $6.2 million, $6.02022, respectively.
At December 31, 2023, and 2022, construction in progress included accruals of $7.0 million and $5.7$13.8 million, respectively.
Construction in progress includes $34.7 million for Gevo, $15.5 million for Agri-Energy related to a fractionation and hydrocarbon skid, $0.6 million for NW Iowa RNG and $63.5 million for NZ1 at December 31, 2023. Construction in progress includes $25.9 million for Gevo, $11.4 million for Agri-Energy, $1.0 million for NW Iowa RNG and $42.7 million for NZ1 at December 31, 2022. Construction in progress is not subject to depreciation until the assets are placed into service.
Borrowing costs. Borrowing costs directly attributable to acquisition and construction of an asset are capitalized until it is completed and ready for its intended use, and thereafter are recognized in profit or loss for the current period. The Company did not capitalize interest expense during the year ended December 31, 2023, and capitalized $0.3 million of depreciationinterest expense in costfor the year ended December 31, 2022.
76
12. Intangible Assets
Identifiable intangible assets consist of patents, which management evaluates to determine whether they (i) support current products, (ii) support planned research and development, or (iii) prevent others from competing with Gevo’s products.
The following tables set forth the Company’s intangible assets by classification (in thousands) as of:
| | | | | | | | | | | |
|
| December 31, 2023 | |||||||||
| | | |
| | |
| Identifiable |
| Weighted- | |
| | Gross Carrying | | Accumulated | | Intangible | | Average Useful Life | |||
| | Amount |
| Amortization |
| Assets, net |
| (Years) | |||
Patents | | $ | 4,580 | | $ | (1,621) | | $ | 2,959 |
| 7.4 |
Defensive assets | |
| 4,900 | |
| (1,335) | |
| 3,565 |
| 8.4 |
Intangible assets | | $ | 9,480 | | $ | (2,956) | | $ | 6,524 |
| 7.9 |
| | | | | | | | | | | |
|
| December 31, 2022 | |||||||||
| | | |
| | |
| Identifiable |
| Weighted- | |
| | Gross Carrying | | Accumulated | | Intangible | | Average Useful Life | |||
| | Amount | | Amortization | | Assets, Net | | (Years) | |||
Patents | | $ | 4,580 | | $ | (1,039) | | $ | 3,541 |
| 7.4 |
Defensive assets | |
| 4,900 | |
| (750) | |
| 4,150 |
| 8.4 |
Intangible assets | | $ | 9,480 | | $ | (1,789) | | $ | 7,691 |
| 7.9 |
The Company recorded amortization expense of $1.2 million and $1.3 million for the years ended December 31, 2017, 20162023, and 20152022, respectively.
The following table details the estimated amortization of identifiable intangible assets as of December 31, 2023 (in thousands):
| | | | | | | | | |
Year Ending December 31, |
| Patents |
| Defensive Assets |
| Total | |||
2024 | | $ | 582 | | $ | 586 | | $ | 1,168 |
2025 | |
| 582 | |
| 586 | |
| 1,168 |
2026 | |
| 582 | |
| 586 | |
| 1,168 |
2027 | |
| 582 | |
| 586 | |
| 1,168 |
2028 | |
| 582 | |
| 586 | |
| 1,168 |
2029 and thereafter | |
| 49 | |
| 635 | |
| 684 |
Total intangible assets | | $ | 2,959 | | $ | 3,565 | | $ | 6,524 |
85
13. Deposits and Other Assets
The following table sets forth the components of the Company’s deposits and other assets (in thousands) as of:
| | | | | | |
|
| Year Ended December 31, | ||||
|
| 2023 |
| 2022 | ||
Deposits (1) | | $ | 166 | | $ | 276 |
Prepaid feedstock (2) | |
| 440 | |
| 934 |
Equity interest (3) | |
| 1,500 | |
| 1,500 |
Exclusivity fees (4) | |
| 583 | |
| 2,522 |
Deposits receivable (5) | |
| 33,602 | |
| — |
Other assets, net (6) | |
| 8,028 | |
| 8,460 |
Total deposits and other assets | | $ | 44,319 | | $ | 13,692 |
77
(1) | Deposits for services and products. |
(2) | Prepaid feedstock fees, non-current, for the production of RNG. |
(3) | The Company directly holds a 4.6% interest in the Series A Preferred Stock of Zero6 Clean Energy Assets, Inc. (“Zero6”), formerly Juhl Clean Energy Assets, Inc., which is not a publicly listed entity with a readily determinable fair value. The Company therefore measures the securities at cost. Recent observable equity raises indicated no impairment issues. This ownership interest is also pledged as collateral against two future obligations to Rock County Wind Fuel, LLC (“RCWF”), a Zero6 subsidiary, see Note 19, Commitments and Contingencies, for additional information. |
(4) | Axens North America, Inc. (“Axens”) will provide certain alcohol-to-SAF technologies and services exclusively provided to the Company which may be offset against future license fees subject to the delivery of a process design package. |
(5) | Deposits provided to a developer of certain wind-farm projects and power utility contractor to induce to design and construct the power generation, transmission and distribution facilities that will serve NZ1, $5.5 million of which will be either reimbursed or used as an investment into wind generation facility and the remaining $28.1 million is expected to be fully reimbursed upon completion of the project. Gevo has contractual priority liens against the equipment and constructed facilities under the contracts. |
(6) | Payments which were allocated to the non-lease fuel supply, primarily related to sand separation systems, to support NW Iowa RNG fuel supply agreements prior to commencement of operations, being amortized over the life of the project. |
14. Accounts Payable and Accrued Liabilities
The following table sets forth the components of the Company’s accounts payable and accrued liabilities in the consolidated balance sheetsConsolidated Balance Sheets (in thousands).:
| December 31, |
| |||||
| 2017 |
|
| 2016 |
| ||
Accounts payable - trade | $ | 666 |
|
| $ | 2,611 |
|
Accrued legal-related fees |
| 274 |
|
|
| 626 |
|
Accrued employee compensation |
| 700 |
|
|
| 1,385 |
|
Accrued interest |
| 434 |
|
|
| 359 |
|
Accrued production fees |
| 447 |
|
|
| 144 |
|
Accrued utilities payable |
| 677 |
|
|
| 567 |
|
Accrued taxes payable |
| 172 |
|
|
| 136 |
|
Short-term capital lease |
| - |
|
|
| 147 |
|
Customer deposit |
| 436 |
|
|
| - |
|
Other accrued liabilities * |
| 205 |
|
|
| 218 |
|
Total accounts payable and accrued liabilities | $ | 4,011 |
|
| $ | 6,193 |
|
| | | | | | |
|
| Year Ended December 31, | ||||
|
| 2023 |
| 2022 | ||
Accounts payable | | $ | 2,718 | | $ | 5,009 |
Accrued liabilities | |
| 13,411 | |
| 12,594 |
Accrued payroll and related benefits | |
| 6,621 | |
| 5,105 |
Accrued sales and use tax | |
| 2 | |
| 2,052 |
Total accounts payable and accrued liabilities | | $ | 22,752 | | $ | 24,760 |
|
|
6. Embedded Derivatives15. Debt
2020 Notes Embedded Derivative2021 Bond Issuance
In June 2017,On April 15, 2021, on behalf of Gevo NW Iowa RNG, LLC, the CompanyIowa Finance Authority (the “Authority”) issued $68,155,000 of its 12% convertible senior secured notes due 2020non-recourse Solid Waste Facility Revenue Bonds (Gevo NW Iowa RNG, LLC Renewable Natural Gas Project), Series 2021 (Green Bonds) (the “2020 Notes”“2021 Bonds”) in exchange for its 12.0% convertible senior secured notes due 2017NW Iowa RNG. The bond proceeds were used as a source of construction financing alongside equity from the Company. The bonds were issued under a Trust Indenture dated April 1, 2021 (the “2017 Notes”“Indenture”) between the Authority and Citibank, N.A. as trustee (the “Trustee”). The 2020 Notes contain2021 Bonds mature April 1, 2042. The bonds bear interest at 1.5% per annum during the following embedded derivatives: (i) a Make-Whole PaymentInitial Term Rate Period, (as defined in the indenture governing the 2020 Notes (the “2020 Notes Indenture”)) upon either conversion or redemption; (ii) right to redeem the outstanding principal upon a Fundamental Change (as defined in the 2020 Notes Indenture); (iii) issuer rights to convert into a limited number of shares in any given three-month period commencing nine -months from the issuance date and dependent on the stock price exceeding 150% of the then in-effect conversion price over a ten-business day period; and (iv) holder rights to convert into either shares of the Company’s common stock or pre-funded warrants upon the election of the holders of the 2020 Notes.
Embedded derivatives are separated from the host contract and the 2020 Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that certain embedded derivatives within the 2020 Notes meet these criteria and, as such, must be valued separate and apart from the 2020 Notes as one embedded derivative and recorded at fair value each reporting period.
The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2020 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the 2020 Notes would be converted by the holder, called by the issuer, or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2020 Notes will be converted by the holder if the conversion value plus the holder’s Make-Whole Payment is greater than the holding value; or (ii) the 2020 Notes will be called by the issuer if (a) the stock price exceeds 150% of the then in-effect conversion price over a ten-business day period and (b) if the holding value is greater than the conversion value plus the Make-Whole Payment at the time.
Using this lattice model, the Company valued the embedded derivative using a “with-and-without method”, where the value of the 2020 Notes including the embedded derivative is defined as the “with”, and the value of the 2020 Notes excluding the embedded derivative is defined as the “without”. This method estimates the value of the embedded derivative by comparing the difference in the values between the 2020 Notes with the embedded derivative and the value of the 2020 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of Gevo common stock; (ii) Conversion Rate (as defined in the 2020 Notes Indenture); (iii) Conversion Price (as defined in the 2020 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated
86
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
stock volatility; and (vii) estimated credit spread for the Company.
Upon issuance on June 20, 2017, the fair value of the embedded derivative was valued at $7.0 million. As of December 31, 2017 the estimated fair value of the embedded derivatives was $5.2 million. The Company recorded a $1.8 million gain to reflect the change in fair value of the embedded derivative in the consolidated statements of operations for the year-ended December 31, 2017. The Company recorded the estimated fair value of the embedded derivative as a component of current liabilities in the consolidated balance sheet.
The following table sets forth the inputs to the lattice model that were used to value the embedded derivatives.
| December 31, |
|
| June 20, |
| ||
| 2017 |
|
| 2017 (*) |
| ||
Stock price | $ | 0.59 |
|
| $ | 0.62 |
|
Conversion Rate |
| 1,358.90 |
|
|
| 1,358.90 |
|
Conversion Price | $ | 0.74 |
|
| $ | 0.74 |
|
Maturity date | March 15, 2020 |
|
| March 15, 2020 |
| ||
Risk-free interest rate |
| 1.89 | % |
|
| 1.45 | % |
Estimated stock volatility |
| 75 | % |
|
| 80 | % |
Estimated credit spread |
| 28 | % |
|
| 28 | % |
* The June 20, 2017 inputs represent the initial valuation of the 2020 Notes Embedded Derivative instrument that arose due to the exchange of the 2017 Notes for the 2020 Notes.
Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded featured within the 2020 Notes. For example, the estimated fair value will generally decrease with: (1) a decline in the stock price; (2) decreases in the estimated stock volatility; and (3) a decrease in the estimated credit spread.
2022 Notes Embedded Derivative
In July 2012, the Company issued 7.5% convertible senior notes due July 2022 (the “2022 Notes”) which contain the following embedded derivatives: (i) rights to convert into shares of the Company’s common stock, including upon a Fundamental Change (as defined in the indenture governing the 2022 Notes (the “2022 Notes Indenture”)); and (ii) a Coupon Make-Whole Payment (as defined in the 2022 Notes Indenture) in the event of a conversion by the holders of the 2022 Notes prior to July 1, 2017.
Embedded derivatives are separated from the host contract, the 2022 Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that the embedded derivatives within the 2022 Notes meet these criteria and, as such, must be valued separate and apart from the 2022 Notes as one embedded derivative and recorded at fair value each reporting period.
The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2022 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the 2022 Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2022 Notes will be converted early if the conversion value is greater than the holding value; or (ii) the 2022 Notes will be called if the holding value is greater than both (a) the Redemption Price (as defined in the 2022 Notes Indenture) and (b) the conversion value plus the Coupon Make-Whole Payment at the time. If the 2022 Notes are called, then the holders will maximize their value by finding the optimal decision between (1) redeeming at the Redemption Price and (2) converting the 2022 Notes.
Using this binomial lattice model, the Company valued the embedded derivative using a “with-and-without method”, where the value of the 2022 Notes including the embedded derivative is defined as the “with”, and the value of the 2022 Notes excluding the embedded derivative is defined as the “without”. This method estimates the value of the embedded derivative by looking at the difference in the values between the 2022 Notes with the embedded derivative and the value of the 2022 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of Gevo common stock; (ii) Conversion Rate (as defined in the 2022 Notes Indenture); (iii) Conversion Price (as defined in the 2022 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.
87
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2017 and December 31, 2016, the estimated fair value of the embedded derivatives was zero. Any decline in the estimated fair value of the embedded derivatives represents an unrealized gain which has been recorded as gain from change in fair value of embedded derivatives in the consolidated statements of operations. The Company recorded the estimated fair value of the embedded derivative with the 2022 Notes, net in the consolidated balance sheets.
7. Derivative Warrant Liability
The following warrants were sold by the Company:
December 2013, the Company sold warrants to purchase 71,013 shares of the Company’s common stock (the “2013 Warrants”).
August 2014, the Company sold warrants to purchase 50,000 shares of the Company’s common stock (the “2014 Warrants”).
February 2015, the Company sold Series A warrants to purchase 110,833 shares of the Company’s common stock (the “Series A Warrants”) and Series B warrants to purchase 110,833 shares of the Company’s common stock (the “Series B Warrants”).
May 2015, the Company sold Series C warrants to purchase 21,500 shares of the Company’s common stock (the “Series C Warrants”).
December 2015, the Company sold Series D warrants to purchase 502,500 shares of the Company’s common stock (the “Series D Warrants”) and Series E warrants to purchase 400,000 shares of the Company’s common stock (the “Series E Warrants”).
April 2016, the Company soldSeries F warrants to purchase 514,644 shares of common stock (the “Series F Warrant”) and 1,029,286 Series H warrants, each to purchase one share of common stock (the “Series H Warrant”), and 328,571 pre-funded Series G warrants (“Series G Warrants”) to purchase one share of common stock, pursuant to an underwritten public offering.
September 2016, the Company soldSeries I warrants to purchase 712,503 shares of common stock (the “Series I Warrant”) and 185,000 pre-funded Series J warrants (“Series J Warrants”) to purchase one share of common stock, pursuant to an underwritten public offering.
In February 2017, the Company sold Series K warrants to purchase 6,250,000 shares of the Company’s common stock (the “Series K Warrants”) and Series M warrants to purchase 6,250,000 shares of the Company’s common stock (the “Series M Warrants”), and pre-funded Series L warrants (the “Series L Warrants”) to purchase 570,000 shares of the Company’s common stock, pursuant to an underwritten public offering
88
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The following sets forth information pertaining to shares issued upon the exercise of such warrants for the year ended December 31, 2017:
|
| Issuance Date |
| Expiration Date |
| Exercise Price as of December 31, 2017 |
|
| Shares Underlying Warrants on Issuance Date |
|
| Shares Issued upon Warrant Exercises as of December 31, 2017 |
|
| Shares Underlying Warrants Outstanding as of December 31, 2017 (4) |
| ||||
2013 Warrants |
| 12/16/2013 |
| 12/16/2018 |
| $ | 8.99 |
|
|
| 71,013 |
|
|
| 15,239 |
|
|
| 55,774 |
|
2014 Warrants |
| 08/05/2014 |
| 08/05/2019 |
| $ | 6.83 |
|
|
| 50,000 |
|
|
| 30,538 |
|
|
| 19,462 |
|
Series A Warrants |
| 02/03/2015 |
| 02/03/2020 |
| $ | 0.68 |
|
|
| 110,833 |
|
|
| 99,416 |
|
|
| 11,417 |
|
Series B Warrants |
| 02/03/2015 |
| 08/03/2015 |
|
| - |
| (1) |
| 110,833 |
|
|
| 110,833 |
|
|
| - |
|
Series C Warrants |
| 05/19/2015 |
| 05/19/2020 |
| $ | 5.50 |
|
|
| 21,500 |
|
|
| - |
|
|
| 21,500 |
|
Series D Warrants |
| 12/11/2015 |
| 12/11/2020 |
| $ | 2.00 |
|
|
| 502,500 |
|
|
| 501,570 |
|
|
| 930 |
|
Series E Warrants |
| 12/11/2015 |
| 12/11/2020 |
|
| - |
| (1) |
| 400,000 |
|
|
| 400,000 |
|
|
| - |
|
Series F Warrants |
| 04/01/2016 |
| 04/01/2021 |
| $ | 2.00 |
|
|
| 514,644 |
|
|
| 233,857 |
|
|
| 280,787 |
|
Series G Warrants |
| 04/01/2016 |
| 04/01/2017 |
|
| - |
| (1) |
| 328,571 |
|
|
| 328,571 |
|
|
| - |
|
Series H Warrants |
| 04/01/2016 |
| 10/01/2016 |
|
| - |
| (1) |
| 1,029,286 |
|
|
| 1,029,286 |
|
|
| - |
|
Series I Warrants |
| 09/13/2016 |
| 09/13/2021 |
| $ | 11.00 |
|
|
| 712,503 |
|
|
| - |
|
|
| 712,503 |
|
Series J Warrants |
| 09/13/2016 |
| 09/13/2017 |
|
| - |
|
|
| 185,000 |
|
|
| 185,000 |
|
|
| - |
|
Series K Warrants |
| 02/17/2017 |
| 2/17/2022 |
| $ | 0.60 |
|
|
| 6,250,000 |
|
|
| 160,000 |
|
|
| 6,090,000 |
|
Series L Warrants |
| 02/17/2017 |
| 02/17/2018 |
|
| - |
| (1) |
| 570,000 |
|
|
| 570,000 |
|
|
| - |
|
Series M-A Warrants |
| 02/17/2017 |
| 11/17/2017 |
|
| - |
| (1), (2) |
| 2,305,000 |
|
|
| 1,485,000 |
|
|
| - |
|
Series M-B Warrants |
| 02/17/2017 |
| 11/17/2017 |
|
| - |
| (1), (3) |
| 3,945,000 |
|
|
| 3,945,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| 17,106,683 |
|
|
| 9,094,310 |
|
|
| 7,192,373 |
|
|
|
|
|
|
|
|
|
The agreements governing the above warrants include the following terms:
certain warrants have exercise prices which are subject to adjustment for certain events, including the issuance of stock dividends on the Company’s common stock and, in certain instances, the issuance of the Company’s common stock or instruments convertible into the Company’s common stock at a price per share less than the exercise price of the respective warrants;
warrant holders may exercise the warrants through a cashless exercise if, and only if, the Company does not have an effective registration statement then available for the issuance of the shares of its common stock. If an effective registration statement is available for the issuance of its common stock, a holder may only exercise the warrants through a cash exercise;
the exercise price and the number and type of securities purchasable upon exercise of the warrants are subject to adjustment upon certain corporate events, including certain combinations, consolidations, liquidations, mergers, recapitalizations, reclassifications, reorganizations, stock dividends and stock splits, a sale of all or substantially all of the Company’s assets and certain other events; and
89
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
|
Based on these terms, the Company has determined that all warrants issued since 2013 (the “Warrants”) qualify as derivatives and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The fair value of the Warrants was estimated to be $2.0 million and $2.7 million as of December 31, 2017 and December 31, 2016, respectively. The decrease in the estimated fair value of the Warrants represents an unrealized gain which has been recorded as a gain from the change in fair value of derivative warrant liability in the consolidated statements of operations.
During the twelve months ended December 31, 2017, common stock was issued as a result of exercise of Warrants as described below:
| Twelve Months Ended December 31, 2017 |
| |||||
| Common Stock Issued |
|
| Proceeds |
| ||
Series K Warrants |
| 160,000 |
|
|
| 106,000 |
|
Series L Warrants |
| 570,000 |
|
|
| 5,700 |
|
Series M-A Warrants |
| 1,485,000 |
|
|
| 950,250 |
|
Series M-B Warrants |
| 3,945,000 |
|
|
| 2,367,000 |
|
|
| 6,160,000 |
|
| $ | 3,428,950 |
|
During the twelve months ended December 31, 2017, we issued 160,000 shares of common stock as a result of the exercise of Series K Warrants, 570,000 shares of common stock as a result of the exercise of Series L Warrants and 5,430,000 shares of common stock as a result of the exercise of Series M Warrants, resulting in a total proceeds of approximately $3.4 million.
In addition, in September 2017, as permitted by Section 2(a) of the Series M Warrants agreement the Board of Directors of the Company approved a voluntarily reduction of the exercise price of the Series M Warrants exercisable into 3,945,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock, for the remaining term of these warrants (The Series “M-B” Warrants). Except for the reduction in exercise price, the terms of these Series M-B Warrants remained unchanged. In September 2017, the Company issued 3,500,000 shares of common stock as a result of the exercise of these Series M-B Warrants. In the fourth quarter of 2017, the remaining 445,000 Series M-B Warrants for which the exercise price had been adjusted to $0.60 were exercised.
In October 2017, the Board of Directors of the Company approved voluntarily reductions of the exercise price of additional Series M Warrants exercisable into 1,185,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.65 per share of common stock, and Series M Warrants exercisable into 300,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock. These, along with the remainder of the Series M Warrants for which the original exercise price was not reduced comprise the Series M-A Warrants. Except for the reduction in exercise price, the terms of these Series M Warrants remained unchanged. During the fourth quarter of 2017, all Series M-A warrants for which the exercise price was reduced were exercised. The remaining Series M-A warrants expired during the fourth quarter of 2017.
As of December 31, 2017, all of the Series B, E, G, H, J and M Warrants for which the exercise price had been adjusted were fully exercised or expired.
8. Debt
2020 Notes
The following table sets forth information pertaining to the 2020 Notes which is included in the Company’s consolidated
90
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
balance sheets (in thousands).
| Principal Amount of 2020 Notes |
|
| Debt Discount |
|
|
|
| Debt Issue Costs |
|
| Total 2020 Notes |
|
| 2020 Notes Embedded Derivative |
|
| Total 2020 Notes and 2020 Notes Embedded Derivative |
| ||||||
Balance - December 31, 2016 | $ | - |
|
| $ | - |
|
|
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Issuance of 2020 Notes and related discounts and issue costs | $ | 16,492 |
|
| $ | (3,009 | ) |
|
|
| $ | (800 | ) |
| $ | 12,683 |
|
| $ | 6,975 |
|
| $ | 19,658 |
|
Amortization of debt discount |
| - |
|
|
| 508 |
|
|
|
|
| - |
|
|
| 508 |
|
|
| - |
|
|
| 508 |
|
Amortization of debt issue costs |
| - |
|
|
| - |
|
|
|
|
| 135 |
|
|
| 135 |
|
|
| - |
|
|
| 135 |
|
Paid-in-kind interest |
| 165 |
|
|
| - |
|
|
|
|
| - |
|
|
| 165 |
|
|
| - |
|
|
| 165 |
|
Change in fair value of 2020 Notes embedded derivative |
| - |
|
|
| - |
|
|
|
|
| - |
|
|
| - |
|
|
| (1,751 | ) |
|
| (1,751 | ) |
Balance - December 31,2017 | $ | 16,657 |
|
| $ | (2,501 | ) |
|
|
| $ | (665 | ) |
| $ | 13,491 |
|
| $ | 5,224 |
|
| $ | 18,715 |
|
On April 19, 2017, the Company entered into an Exchange and Purchase Agreement (the “Purchase Agreement”) with WB Gevo, LTD (the “Holder”) the holder of the 2017 Notes, which were issued under that certain Indenture dated as of June 6, 2014, by and among the Company, the guarantors party thereto, and Wilmington Savings Fund Society, FSB, as trustee and as collateral trustee (as supplemented, the “2017 Notes Indenture”), and Whitebox Advisors LLC, in its capacity as representative of the Holder (“Whitebox”). Pursuant to the terms of the Purchase Agreement, the Holder, subject to certain conditions, including approval of the transaction by the Company’s stockholders (which was received on June 15, 2017), agreed to exchange all of the outstanding principal amount of the 2017 Notes for an equal principal amount of the 2020 Notes, plus an amount in cash equal to the accrued and unpaid interest (other than interest paid in kind) on the 2017 Notes (the “Exchange”). Pursuant to the Purchase Agreement, the Company also granted the Holder an option (the “Purchase Option”) to purchase up to an additional aggregate principal amount of $5.0 million of 2020 Notes (the “Option Notes”), at a purchase price equal to the aggregate principal amount of such Option Notes purchased, having identical terms (other than with respect to the issue date and restrictions on transfer relating to compliance with applicable securities law) to the 2020 Notes issued, at any time on or within ninety (90) days of the closing of the Exchange. The right to purchase Option Notes expired as of September 30, 2017. On June 20, 2017, the Company completed the Exchange, terminated the 2017 Notes Indenture and cancelled the 2017 Notes. The Company recognized an approximately $4.0 million loss which has been recorded as loss on exchange or conversion of debt within the consolidated statements of operations.
The 2020 Notes will mature on March 15, 2020 and are secured by a first lien on substantially all of the Company’s assets. The 2020 Notes bear interest at a rate equal to 12% per annum (with 2% potentially payable as PIK Interest (as defined and described below) at the Company’s option), payable on March 31, June 30, September 30, and December 31 of each year. Under certain circumstances, the Company has the option to pay a portion of the interest due on the 2020 Notes by either (a) increasing the principal amount of the 2020 Notes by the amount of interest then due or (b) issuing additional 2020 Notes with a principal amount equal to the amount of interest then due (interest paid in the manner set forth in (a) or (b) being referred to as “PIK Interest”). In the event the Company pays any portion of the interest due on the 2020 Notes as PIK Interest, the maximum aggregate principal amount of 2020 Notes that could be convertible into shares of the Company’s common stock will be increased. Additional shares of the Company’s common stock may also become issuable pursuant to the 2020 Notes in the event the Company is required to make certain make-whole payments as provided in the 2020 Notes Indenture.
The 2020 Notes are convertible into shares of the Company’s common stock, subject to certain terms and conditions. The initial conversion price of the 2020 Notes is equal to $0.7359 per share of common stock, or 1.3589 shares of common stock per $1 principal amount of 2020 Notes (the “Conversion Price”). In addition, upon certain equity financing transactions by the Company, the Holders will have a one-time right to reset the Conversion Price (the “Reset Provision”) (i) in the first ninety (90) days following the Exchange Date, at a 25% premium to the common stock price in the equity financing and (ii) after ninety (90) and to and including one hundred eighty (180) days following the closing of the Exchange, at a 35% premium to the common stock share price in the equity financing. Following an exercise of the Reset Provision, the Holders will also have a right to consent to certain equity financings by the Company during the one hundred eighty (180) days following the closing of the Exchange.
Each Holder has agreed not to convert its 2020 Notes into shares of Company common stock to the extent that, after giving effect to such conversion, the number of shares of common stock beneficially owned by such Holder and its affiliates would exceed 4.99% of Company common stock outstanding at the time of such conversion (the “4.99% Ownership Limitation”); provided that a
91
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Holder may, at its option and upon sixty-one (61) days’ prior notice to the Company, increase such threshold to 9.99% (the “9.99% Ownership Limitation”). If a conversion of 2020 Notes by Whitebox would exceed the 4.99% Ownership Limitation or the 9.99% Ownership Limitation, as applicable, the Purchase Agreement contains a provision granting the holder a fully funded prepaid warrant for such common stock with a term of nine months, subject to a 6 month extension, which it can draw down from time to time.
Other than as set forth in the Reset Provision, the 2020 Notes do not contain any anti-dilution adjustments for future equity issuances that are below the Conversion Price, and adjustments to the Conversion Price will only generally be made in the event that there is a dividend or distribution paid on shares of the Company’s common stock, a subdivision, combination or reclassification of the Company’s common stock, or at the discretion of the Board of Directors of the Company in limited circumstances and subject to certain conditions.
Under certain circumstances, we may file one or more registration statements on Form S-3 or amend filings in order to register shares of common stock for sale or resale, as necessary in connection with the 2020 Notes.
2017 Notes
In May 2014, the Company entered into a term loan agreement (the “Loan Agreement”) with the lenders party thereto from time to time (each, a “Lender” and collectively, the “Lenders”) and Whitebox Advisors, LLC, as administrative agent for the Lenders (“Whitebox”), with a maturity date of March 15, 2017, pursuant to which the Lenders committed to provide one or more senior secured term loans to the Company in an aggregate amount of up to approximately $31.1 million on the terms and conditions set forth in the Loan Agreement (collectively, the “Term Loan”). The first and only advance of the Term Loan in the amount of $22.8 million, net of discounts and issue costs of $1.6 million and $1.5 million, respectively, was made to the Company in May 2014. Also in May 2014, the Company and its subsidiaries entered into an Exchange and Purchase Agreement (the “Exchange and Purchase Agreement”) with WB Gevo, Ltd. and the other Lenders party thereto from time to time and Whitebox, in its capacity as administrative agent for the Lenders. Pursuant to the terms of the Exchange and Purchase Agreement, the Lenders were given the right, subject to certain conditions, to exchange all or a portion of the outstanding principal amount of the Term Loan for the Company’s 2017 Notes, which were convertible into shares of the Company’s common stock. While outstanding, the Term Loan bore an interest rate equal to 15% per annum, of which 5% was payable in cash and 10% was payable in kind and capitalized and added to the principal amount of the Term Loan.
In June 2014, the Lenders exchanged all $25.9 million of outstanding principal amount of Term Loan for 2017 Notes, together with accrued paid-in-kind interest of $0.2 million. The terms of the 2017 Notes were set forth in an indenture by and among the Company, its subsidiaries in their capacity as guarantors, and Wilmington Savings Fund Society, FSB, as trustee (the “2017 Notes Indenture”).
On February 13, 2017, the Company and its subsidiaries, as guarantors, entered into an Tenth Supplemental Indenture (the “Tenth Supplemental Indenture”) with Wilmington Savings Fund Society, FSB, as trustee and collateral trustee, and Whitebox, relating to the 2017 Notes. The Tenth Supplemental Indenture amended the 2017 Notes Indenture to, among other things, (i) extend the maturity date of the 2017 Notes to June 23, 2017, (ii) increase the interest rate on the 2017 Notes from 10.0% to 12.0% per annum, and (iii) required the Company to pay down approximately $9.6 million in principal outstanding leaving the remaining principal balance of the 2017 Notes at approximately $16.5 million.
On June 20, 2017, the Company and the Holder exchanged all of the outstanding principal amount of the 2017 Notes for an equal principal amount of the 2020 Notes. As a result, at December 31, 2017, the outstanding principal amount of the 2017 Notes was zero.
While the 2017 Notes were outstanding, the Company was required to maintain an interest reserve in an amount equal to 10% of the original outstanding principal amount of $26.1 million, to be adjusted on an annual basis. As of December 31, 2016, there was a balance of $2.6 million in the interest reserve account. This amount was classified as restricted deposits until the second quarter of 2017.
2022 Notes
The following table sets forth information pertaining to the 2022 Notes which is included in the Company’s consolidated balance sheets (in thousands).
92
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Principal Amount of 2022 Notes |
|
| Debt Discount |
|
| Debt Issue Costs |
|
| Total |
| |||||
Balance - December 31, 2016 | $ | 9,575 |
|
| $ | (1,307 | ) |
| $ | (47 | ) |
| $ | 8,221 |
|
Amortization of debt discount |
| - |
|
|
| 149 |
|
|
| - |
|
|
| 149 |
|
Amortization of debt issue costs |
| - |
|
|
| - |
|
|
| 6 |
|
|
| 6 |
|
Exchange of 2022 Notes |
| (8,885 | ) |
|
| - |
|
|
| - |
|
|
| (8,885 | ) |
One-time repurchase of debt |
| (175 | ) |
|
| - |
|
|
| - |
|
|
| (175 | ) |
Write-off of debt discount and debt issue costs associated with extinguishment of debt |
| - |
|
|
| 1,158 |
|
|
| 41 |
|
|
| 1,199 |
|
Balance - December 31, 2017 | $ | 515 |
|
| $ | - |
|
| $ | - |
|
| $ | 515 |
|
In July 2012, the Company sold $45.0 million in aggregate principal amount of 2022 Notes, for net proceeds of $40.9 million, after accounting for $2.7 million and $1.4 million of discounts and issue costs, respectively. The 2022 Notes bear interest at 7.5% which is to be paid semi-annually in arrears on January 1 and July 1 of each year. The 2022 Notes will mature on July 1, 2022, unless earlier repurchased, redeemed or converted. During the twelve-months ended December 31, 2017, 2016 and 2015, the Company recorded $0.2 million, $4.0 million and $3.7 million, respectively, of expense related to the amortization of debt discounts and issue costs, $1.2 million, $2.5 million, and $1.9 million respectively, of expense related to the write-off of debt discount and debt issue costs associated with extinguishment or conversion of debt; and $0.05 million and $1.2 million and $1.8 million, respectively, of interest expense related to the 2022 Notes.
The amortization of debt issue costs, debt discounts and cash interest are included as a component of interest expense in the consolidated statements of operations. The Company amortizes debt discounts and debt issue costs associated with the 2022 Notes using an effective interest rate is 1.1%. The bonds are supported by the $71.2 million Bond Letter of approximately 40% fromCredit; see Note 7, Restricted Cash. The Trustee can draw sufficient amounts on the issuanceBond Letter of Credit to pay the principal and interest until the first mandatory tender date through Julyof April 1, 2017, a five-year period, which represents2024. The bonds are callable and re-marketable on or after October 1, 2022. If the bonds have not been called and re-marketed by the first mandatory tender date, the holders can require the Company to repurchase the 2022 Notes.
The 2022 Notes are convertible at a conversion rate of 0.5856 shares of the Company’s common stock per $1,000 principal amount of 2022 Notes, subject to adjustment in certain circumstances as described in the Indenture. This is equivalent to a conversion price of approximately $1,707.65 per share of common stock. HoldersTrustee may convert the 2022 Notes at any time prior to the close of businessdraw on the third business day immediately precedingBond Letter of Credit to repay the maturity datebonds in their entirety at the purchase price. As of July 1, 2022.
If a holder elected to convert its 2022 Notes prior to July 1, 2017, such holder was entitled to receive, in addition to the consideration upon conversion, a Coupon Make-Whole Payment. The Coupon Make-Whole Payment was equal to the sum of the present values of the number of semi-annual interest payments that wouldDecember 31, 2023, no amounts have been payable on the 2022 Notes that a holder had elected to convert from the last day through which interest was paid up to but excluding July 1, 2017, computed using a discount rate of 2%. The Company could pay any Coupon Make-Whole Payment either in cash or in shares of common stock at its election. If the Company elected to pay in common stock, the stock would be valued at 90% of the average of the daily volume weighted average prices of the Company’s common stock for the 10 trading days preceding the date of conversion. Prior to 2016, the Company converted $20.1 million in outstanding 2022 Notes in return for 28,978 shares of the Company’s common stock, of which, 7,331 represented amounts oweddrawn under the Coupon Make-Whole Payment. Additionally, the Company issued 55,392 shares in exchange for the redemptionBond Letter of $2.5 millionCredit.
78
The Company had a provisional redemption right (“Provisional Redemption”) to redeem, at its option, all or any part of the 2022 Notes at a price payable in cash, beginning on July 1, 2015 and prior to July 1, 2017, provided that the Company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day immediately prior to the date of the redemption notice exceeds 150% of the conversion price for the 2022 Notes in effect on such trading day. On or after July 1, 2017, the Company has an optional redemption right (“Optional Redemption”) to redeem, at its option, all or any part of the 2022 Notes at a price payable in cash. The price payable in cash for the Optional Redemption or Provisional Redemption is equal to 100% of the principal amount of 2022 Notes redeemed plus any accrued and unpaid interest thereon through, but excluding, the repurchase date.
The holders of the 2022 Notes had a one-time option to require the Company to repurchase on July 1, 2017 (or on the first business day following such date), at a purchase price, payable in cash, equal to one hundred percent (100%) of the principal amount of any 2022 Notes to be so purchased, plus accrued and unpaid interest. Prior to July 1, 2017, certain holders of the 2022 Notes delivered notices to the trustee of the 2022 Notes requiring the repurchase of $175,000 principal amount of the 2022 Notes, plus
93
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
accrued and unpaid interest, which was completed on July 3, 2017.
In the second half of 2016, the CompanyThe 2021 Bonds were issued 951,801 shares in exchange for the redemption of $12.8 million in outstanding 2022 Notes. In the first half of 2017, the Company issued 2,982,053 shares in exchange for $8.9 million in outstanding 2022 Notes, resulting in approximately $1.0 million loss on exchange of debt.
If a Fundamental Change (as defined in the 2022 Notes Indenture) occurs, at any time, then each holder will have the right to require the Company to repurchase all of such holder’s 2022 Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, for cash at a repurchase pricepremium of 100%$0.8 million and debt issuance costs were $3.0 million. The bond debt is classified as current debt and is presented net of the principal amount of such 2022 Notes plus any accruedpremium and unpaid interest thereon through, but excluding,issuance costs, which are being amortized over the repurchase date.
If there is an Event of Default (as defined in the 2022 Notes Indenture) under the 2022 Notes, the holders of not less than 25% in principal amountlife of the outstanding notes by notice tobonds using the Company and the trustee may, and the trustee at the request of such holders shall, declare the principal amount of all the outstanding 2022 Notes and accrued and unpaid interest thereon to be due and payable immediately. There have been no Events of Default as of December 31, 2017
In the first quarter of 2018, the Company issued 780,303 shares in exchange for the redemption of the remaining $515,000 in outstanding 2022 Notes.
9. Capital Stock
method. As of December 31, 2017,2023, and 2022, the premium balance and the debt issuance cost net of amortization were $0.1 million, $0.4 million, $0.3 million and $1.3 million, respectively.
Loans Payable
In April 2020, the Company has authorized 250.0and Agri-Energy each entered into a loan agreement with Live Oak Banking Company, pursuant to which the Company and Agri-Energy obtained loans from the SBA PPP totaling $1.0 million and 10.0in the aggregate (the “SBA Loans”).
In April 2021, the balance of $0.5 million shares of common and preferred stock, respectively, of which there are 21.8 million shares of common stock outstanding and zero shares of preferred stock outstanding.
The holders of the Company’s common stock have one voteand $0.1 million of Agri-Energy’s loans and accrued interest obtained through the SBA PPP were forgiven. The remaining SBA Loan for Agri-Energy totals $0.3 million, bears interest at 1.0% per share. annum and matures in April 2025. Monthly payments of $8,230, including interest, began on June 5, 2021 and are payable through April 2025.
The board of directors has the authority, without action by its stockholders, to designate and issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The Company’s amended and restated certificate of incorporation provides that the Company’s board of directors will be divided into three classes, with staggered three-year terms and provides that all stockholder actions must be effected at a duly called meeting of the stockholders and not by a written consent. The amended and restated certificate of incorporation also provides that only the board of directors may call a special meeting of the stockholders and requires the approval of either a majority of the directors then in office or 66 2/3% of the voting power of all then outstanding capital stock for the adoption, amendment or repeal of any provisionsummary of the Company’s amended and restated bylaws. In addition, the amendment or repeal of certain provisions oflong-term debt is as follows (in thousands) as of:
| | | | | | | | | | |
|
| |
|
| | Year Ended December 31, | ||||
| | Interest Rate | | Maturity Date |
| 2023 |
| 2022 | ||
2021 Bonds, net |
| 1.5% |
| April 2042 | | $ | 67,967 | | $ | 67,223 |
SBA Loans |
| 1.0% |
| April 2025 | |
| 119 | |
| 224 |
Equipment |
| 4% to 5% |
| December 2023 to December 2024 | |
| 32 | |
| 94 |
Total debt | | |
|
| |
| 68,118 | |
| 67,541 |
Less: current portion | | |
|
| |
| (68,097) | |
| (159) |
Non-current portion | | |
|
| | $ | 21 | | $ | 67,382 |
Future payments for the Company’s amended and restated certificate of incorporation requireslong-term debt are as follows (in thousands):
| | | |
Year Ending December 31, |
| Total Debt | |
2024 | | $ | 68,089 |
2025 | |
| 29 |
Total debt | | $ | 68,118 |
16. Stock-Based Compensation
Equity incentive plans. In February 2011, the approval of 66 2/3% of the voting power of all then outstanding capital stock.
94
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
2006 Omnibus Securities and Incentive Plan. During 2006, the Company established the Gevo, Inc. 2006 Omnibus Securities and Incentive Plan (the “2006 Plan”). Pursuant to the 2006 Plan, the Company granted stock awards to employees and directors of the Company. Upon adoption ofCompany’s stockholders approved the Gevo, Inc. 2010 Stock Incentive Plan (as amended and restated to date, the “2010 Plan”), no further grants can be made under and the 2006Employee Stock Purchase Plan. At December 31, 2017, a total of 837 shares of Gevo common stock were reserved for issuance upon the exercise of outstanding stock option awards under the 2006 Plan. To the extent outstanding awards under the 2006 Plan expire, or are forfeited, cancelled, settled, or become unexercisable without the issuance of shares, the shares of common stock subject to such awards will be available for future issuance under the 2010 Plan.
2010 Stock Incentive Plan. In February 2011, the Company’s stockholders approved theThe 2010 Plan which was subsequently amended in June 2013, and amended and restated in July 2015, June 2016 and November 2016, and provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units and other equity awards to employees and directors of the Company. Stock options grantedIn May 2023, upon approval of the shareholders at the 2023 Annual Meeting of Stockholders, the 2010 Plan was amended and restated, which increased the number of shares of common stock reserved for issuance under the 2010 Plan have an exercise price that is at least equal to the fair market value of the Company’s common stock on the date the stock option is granted and expire ten years after the date of grant.37,980,074 shares. At December 31, 2017, a total of 45,594 shares of Gevo common stock were reserved for issuance upon the exercise of outstanding stock option awards under the 2010 Plan, and an additional 133,6072023, 13,613,130 shares were available for grant.
Employee Stock Purchase Plan. In February 2011, the Company’s stockholders approved the ESPP. The offering periods for the ESPP are from January 1 to June 30 and from July 1 to December 31 of each calendar year. The Company has reserved 4,285 shares of common stock forfuture issuance under the ESPP,2010 Plan.
Stock-based compensation expense. The Company records stock-based compensation expense during the requisite service period for share-based payment awards granted to employees and non-employees.
79
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
11. Stock-Based Compensation
Stock-Based Compensation Expense. The following table sets forth the Company’s stock-based compensation expense (in thousands).
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Stock options and ESPP awards |
|
|
|
|
|
|
|
|
|
|
|
Research and development | $ | 37 |
|
| $ | 62 |
|
| $ | 131 |
|
Selling, general and administrative |
| 122 |
|
|
| 321 |
|
|
| 401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| 12 |
|
|
| 116 |
|
|
| 576 |
|
Selling, general and administrative |
| 17 |
|
|
| 143 |
|
|
| 1,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| 70 |
|
|
| 28 |
|
|
| 10 |
|
Selling, general and administrative |
| 163 |
|
|
| 216 |
|
|
| 62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation | $ | 421 |
|
| $ | 886 |
|
| $ | 2,647 |
|
Determining Fair Value of Share-Based Payment Awards. The following table sets forth the Black-Scholes option pricing model assumptions and resulting grant date fair value for stock options granted.
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Risk-free interest rate |
| 2.01 | % |
|
| 1.49 | % |
|
| 1.62 | % |
Expected dividend yield | None |
|
| None |
|
| None |
| |||
Expected volatility factor |
| 119.00 | % |
|
| 106.70 | % |
|
| 106.89 | % |
Expected option life (in years) |
| 5.77 |
|
|
| 5.77 |
|
|
| 5.77 |
|
Weighted average grant date fair value | $ | 0.86 |
|
| $ | 5.66 |
|
| $ | 35.40 |
|
95
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Due to the Company’s limited history of grant activity, the expected life of options granted was estimated using the “simplified method” in accordance with SEC Staff Accounting Bulletin 110, where the expected life equals the arithmetic average of the vesting term and the original contractual term of the options. The volatility factor was determined based upon management’s estimate using inputs from comparable public companies. The risk-free interest rate assumption is determined based upon observed interest rates appropriate for the expected term of the Company’s employee stock options. The dividend yield assumption is based on the Company’s history of dividend payouts.
An annual forfeiture rate is estimated at the time of grant for all share-based payment awards, and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the Company’s estimate. Forfeitures have been estimated by the Company based upon historical and expected forfeiture experience. Estimated forfeiture rates used for the periods presented were from 0% to 5%.indicated (in thousands):
| | | | | | |
|
| Year Ended December 31, | ||||
| | 2023 |
| 2022 | ||
Equity Classified Awards |
| |
|
| |
|
Cost of production | | $ | 59 | | $ | (25) |
General and administrative | |
| 15,204 | |
| 14,342 |
Other | |
| 1,824 | |
| 2,618 |
Total equity classified awards | |
| 17,087 | |
| 16,935 |
Total stock-based compensation | | $ | 17,087 | | $ | 16,935 |
Stock Option Award Activityoption award activity. Stock option activity under the Company’s optionstock incentive plans at December 31, 2017 and changes during the year ended December 31, 20172023, were as follows.follows:
| | | | | | | | | | | |
|
| |
| | |
| Weighted- |
| | | |
| | | | | | | Average | | | | |
| | | | Weighted- | | Remaining | | | | ||
| | | | Average | | Contractual | | Aggregate | |||
| | Number of | | Exercise | | Term | | Intrinsic | |||
| | Options |
| Price (1) |
| (years) |
| Value | |||
Options outstanding at December 31, 2022 |
| 5,945,321 | | $ | 4.65 | | | 9.1 |
| $ | — |
Granted |
| 3,368,717 | | $ | 1.69 | |
|
|
| $ | — |
Canceled or forfeited |
| (1,204,915) | | $ | 4.06 | |
|
|
| $ | — |
Exercised |
| — | | $ | — | |
|
|
| $ | — |
Options outstanding at December 31, 2023 |
| 8,109,123 | | $ | 3.51 | |
| 8.8 | | $ | — |
Options vested and expected to vest at December 31, 2023 |
| 3,046,060 | | $ | 4.80 | |
| 8.0 | | $ | — |
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
| |
|
|
|
|
| Weighted- |
|
| Remaining |
|
|
|
|
| ||
|
|
|
|
| Average |
|
| Contractual |
|
|
|
|
| ||
| Number of |
|
| Exercise |
|
| Term |
|
| Aggregate |
| ||||
| Options |
|
| Price |
|
| (years) |
|
| Intrinsic Value |
| ||||
Options outstanding at December 31, 2016 |
| 16,915 |
|
| $ | 289.73 |
|
|
|
|
|
| $ | - |
|
Granted |
| 60,000 |
|
|
| 1.01 |
|
|
|
|
|
|
|
|
|
Canceled or forfeited |
| (30,484 | ) |
|
| 1.01 |
|
|
|
|
|
|
|
|
|
Exercised |
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2017 |
| 46,431 |
|
| $ | 106.19 |
|
|
| 8.25 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2017 |
| 29,013 |
|
| $ | 165.47 |
|
|
| 7.85 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest at December 31, 2017 |
| 46,431 |
|
| $ | 106.19 |
|
|
| 8.25 |
|
| $ | - |
|
(1) | Exercise price of options outstanding range from $1.15 to $876 as of December 31, 2023. The higher end of the range is due to the impact of several reverse stock splits during the years 2015 to 2018. |
During the year ended December 31, 2023, 3.0 million stock options vested. As of December 31, 2023, the total unrecognized compensation expense, net of actual forfeitures, relating to stock options was $8.6 million, which is expected to be recognized over the remaining weighted-average period of approximately 1.9 years.
The aggregate intrinsic values infollowing table sets forth the table above representweighted average Black-Scholes option pricing model assumptions (no dividends were expected) and resulting grant date fair value for the total pre-tax intrinsic values (the difference between the closing price of Gevo’s common stock on the last trading day of the 2017 calendar year and the exercise price, multiplied by the number of in-the-money stock option shares) that would have been received by the option holders had all in-the-money outstanding stock options been exercised on December 31, 2017. The total intrinsic value of options exercisedgranted during the years ended December 31, 2017, 2016,2023, and 2015 was zero. 2022:
The following table summarizes information associated with outstanding and exercisable stock options at December 31, 2017.
| | | | | | | |
| | Year Ended December 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Risk-free interest rate |
| | 4.30 | % | | 2.90 | % |
Expected volatility factor |
| | 153 | % | | 134 | % |
Expected option life (years) |
| | 6.0 |
| | 6.0 | |
Weighted-average fair value | | $ | 1.41 | | $ | 2.18 | |
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
|
|
|
|
|
|
| Weighted- |
| ||
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
| Weighted- |
|
| Average |
| |||
Range of |
|
|
|
|
| Weighted- |
|
| Remaining |
|
|
|
|
|
| Average |
|
| Remaining |
| ||||
Exercise |
| Number of |
|
| Average Exercise |
|
| Contractual Life |
|
| Number of |
|
| Exercise |
|
| Contractual Life |
| ||||||
Prices |
| Options |
|
| Price |
|
| in Years |
|
| Options |
|
| Price |
|
| in Years |
| ||||||
$0.00 to $51.00 |
|
| 43,968 |
|
| $ | 14.03 |
|
|
| 8.65 |
|
|
| 26,550 |
|
| $ | 18.35 |
|
|
| 8.49 |
|
$105.00 to $147.00 |
|
| 80 |
|
| $ | 144.90 |
|
|
| 0.00 |
|
|
| 80 |
|
| $ | 144.90 |
|
|
| 0.00 |
|
$264.00 to $438.00 |
|
| 586 |
|
| $ | 368.79 |
|
|
| 0.33 |
|
|
| 586 |
|
| $ | 368.79 |
|
|
| 0.33 |
|
$462.00 to $1,845.00 |
|
| 801 |
|
| $ | 715.51 |
|
|
| 1.89 |
|
|
| 801 |
|
| $ | 715.51 |
|
|
| 1.89 |
|
$2,331.00 to $3,426.00 |
|
| 637 |
|
| $ | 2,938.98 |
|
|
| 0.29 |
|
|
| 637 |
|
| $ | 2,938.98 |
|
|
| 0.29 |
|
$3,801.00 to $5,742.00 |
|
| 360 |
|
| $ | 4,556.47 |
|
|
| 1.69 |
|
|
| 360 |
|
| $ | 4,556.47 |
|
|
| 1.69 |
|
|
|
| 46,431 |
|
| $ | 106.19 |
|
|
| 8.25 |
|
|
| 29,013 |
|
| $ | 165.47 |
|
|
| 7.85 |
|
96
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2017, $0.1 million of total unrecognized compensation cost related to stock options is expected to be recognized as an expense by the Company in the future over a weighted-average period of approximately one year.
There is a maximum contractual term of 10ten years for the share options. The Company settles stock option exercises with newly issued common shares. No tax benefits were realized by the Company in connection with these exercises as the Company maintains net operating loss carryforwards and has established a valuation allowance against the entire tax benefit.
Restricted Stock.Stock. The Company periodically grants restricted stock awards to employees and directors. The vesting period for restricted stock awards granted may be based upon a service period or based upon the attainment of performance objectives. The Company recognizes stock-based compensation over the vesting period, generally two to three to six years, for awards that vest based upon a service period. For performance based restricted stock awards, the Company recognizes expense over the requisite service period.
80
Non-vested restricted stock awards at December 31, 20172023, and changes during the year ended December 31, 20172023, were as follows. follows:
|
|
|
|
| Weighted- |
| |
|
|
|
|
| Average |
| |
| Number of |
|
| Grant-Date |
| ||
| Shares |
|
| Fair Value |
| ||
Non-vested at December 31, 2016 |
| 8,823 |
|
| $ | 47.51 |
|
Granted |
| - |
|
|
| - |
|
Vested |
| (5,730 | ) |
|
| 49.50 |
|
Canceled or forfeited |
| - |
|
|
| - |
|
Non-vested at December 31, 2017 |
| 3,093 |
|
| $ | 43.80 |
|
| | | | | |
|
| |
| Weighted- | |
| | | | Average | |
| | Number of | | Grant-Date | |
| | Shares | | Fair Value | |
Outstanding at December 31, 2022 |
| 5,254,457 | | $ | 3.94 |
Granted |
| 4,208,021 | | $ | 1.49 |
Vested and issued |
| (2,415,824) | | $ | 4.08 |
Canceled or forfeited |
| (887,313) | | $ | 3.39 |
Non-vested at December 31, 2023 |
| 6,159,341 | | $ | 2.30 |
The total fair value of restricted stock that vested during the years ended December 31, 2017, 20162023, and 20152022, was $0.2 million, $0.3$9.8 million and $1.4$10.2 million,, respectively. As of December 31, 2017,2023, the total unrecognized compensation expense, net of estimatedactual forfeitures, relating to restricted stock awards was $0.1$10.3 million, which is expected to be recognized over athe remaining weighted-average period of approximately one year.
12. Gevo Development
Gevo, Inc. currently owns 100% of the outstanding equity interests of Gevo Development.
Gevo, Inc. made capital contributions to Gevo Development of $8.9 million, $12.3 million, and $7.9 million, respectively, during the years ended December 31, 2017, 2016, and 2015.
The following table sets forth (in thousands) the net loss incurred by Gevo Development (including Luverne after September 22, 2010, the closing date of the acquisition) which has been fully allocated to Gevo, Inc.’s capital contribution account based upon its capital contributions (for the period prior to September 2010) and 100% ownership (for the period after September 22, 2010).
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Gevo Development Net Loss | $ | (12,653 | ) |
| $ | (12,983 | ) |
| $ | (12,294 | ) |
The accounts of Agri-Energy are consolidated within Gevo Development as a wholly owned subsidiary which is then consolidated into Gevo, Inc.1.8 years. As of December 31, 20172023, Gevo Development does not have any assets that can be used only to settle obligations of Gevo Development.
As previously disclosed, in June 2011, we entered into an Isobutanol Joint Venture Agreement (the “Joint Venture Agreement”) between our wholly-owned subsidiary, Gevo Development and Redfield Energy, LLC (“Redfield”), under which we agreed to work with Redfield to Retrofit Redfield’s ethanol production facility located near Redfield, South Dakota for the commercial production of isobutanol. During the fourth quarter of 2017, we entered into an Agreement with Redfield, pursuant to which we and Redfield agreed to terminate the Joint Venture Agreement in all respects. Therethere are no termination fees or other obligations of either party in connection with such termination.unvested liability-classified restricted stock awards.
97
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
13.17. Income Taxes
There is no provision for income taxes because the Company has incurred operating losses since inception. As of December 31, 2017,2023, the Company hadhas a federal and state net operating loss carryforwardscarryover of approximately $359.2$201.2 million and $336.7$138.7 million, respectively, which may be usedavailable to offset future taxable income.income for income tax reporting purposes. The Company also hadremaining federal research and development tax creditnet operating loss carryovers do not expire. Of our state net operating loss carryovers, $137.1 million would expire between the years 2027-2043
We periodically evaluate our net operating loss carryforwards and other federal tax creditwhether certain changes in ownership have occurred that would limit our ability to utilize a portion of our net operating loss carryforwards which aggregatepursuant to $3.5 million at December 31, 2017. These carryforwards expire at various times through 2037 and may be limited in their annual usage by Section 382 of the Internal Revenue Code Section 382. An ownership change may occur, for example, as amended, relating toa result of trading in our stock by significant investors as well as issuance of new equity. As a result of ownership changes.changes in prior years, a portion of our net operating losses have been limited.
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the Company’s net deferred tax assets (in thousands). :
| | | | | | |
| | December 31, | ||||
|
| 2023 |
| 2022 | ||
Deferred tax assets, net: |
| |
|
| |
|
Net operating loss carryforwards | | $ | 48,638 | | $ | 40,511 |
Operating lease assets | |
| (405) | |
| (371) |
Operating lease liabilities | |
| 545 | |
| 410 |
Depreciation | |
| 11,421 | |
| 9,145 |
Stock compensation | |
| 2,530 | |
| 2,027 |
Business interest expense | |
| 1,110 | |
| 1,033 |
Capitalized research cost | |
| 7,332 | |
| 3,334 |
Other temporary differences | |
| 820 | |
| 691 |
Deferred tax assets | |
| 71,991 | |
| 56,780 |
Valuation allowance | |
| (71,991) | |
| (56,780) |
Net deferred tax assets | | $ | — | | $ | — |
| December 31, | |||||||
| 2017 |
|
| 2016 |
|
| ||
Deferred tax assets, net: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards | $ | 100,631 |
|
| $ | 133,514 |
|
|
Research and other credits |
| 3,482 |
|
|
| 3,482 |
|
|
Other temporary differences |
| 3,266 |
|
|
| 2,319 |
|
|
Deferred tax assets - before valuation allowance |
| 107,379 |
|
|
| 139,315 |
|
|
Valuation allowance |
| (107,379 | ) |
|
| (139,315 | ) |
|
Net deferred tax assets - after valuation allowance | $ | - |
|
| $ | - |
|
|
81
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to amortize them over five years pursuant to Internal Revenue Code Section 174. The Company recognizes uncertainmandatory capitalization requirement increases the deferred tax positions net, against any operating losses or applicable research credits as they arise. Currently, there are no uncertain tax positions recognized atasset for Capitalized Research Costs by $3.6 million for the year ended December 31, 2017. The Company has2023.
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Based on management’s review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting results, we have concluded that it is not more likely than not that we will be able to realize all of our U.S. deferred tax assets. Therefore, we have provided a full valuation allowance on itsagainst deferred tax assets at December 31, 20172023 and 2016, as management believes it is more likely than not that the related deferred tax asset will not be realized. The reported amount of income tax expense differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses, primarily because of changes in the valuation allowance.2022, respectively.
The following table sets forth reconciling items from income tax computed at the statutory federal rate. rate:
| Year Ended December 31, |
| ||||||||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||
| | | | | | |||||||||||
| | Year Ended December 31, | | |||||||||||||
|
| 2023 |
| 2022 | | |||||||||||
Federal income tax at statutory rate |
| 35.0 | % |
|
| 35.0 | % |
|
| 35.0 | % |
| 21.0 | % | 21.0 | % |
State income taxes, net of federal benefits |
| 7.5 | % |
|
| 2.9 | % |
|
| 5.4 | % |
| 6.8 | % | 1.6 | % |
Research and other credits |
| 0.0 | % |
|
| (5.8 | %) |
|
| (1.2 | %) | |||||
Impact of change in statutory tax rates |
| (183.8 | %) |
|
| 0.0 | % |
|
| 0.0 | % | |||||
Permanent deductions |
| 7.5 | % |
|
| (18.0 | %) |
|
| (4.0 | %) | |||||
Officers compensation limit |
| (1.8) | % | (1.2) | % | |||||||||||
Stock based compensation | | (2.5) | % | — | % | |||||||||||
Other permanent | | (0.2) | % | (1.0) | % | |||||||||||
Valuation allowance |
| 133.8 | % |
|
| (14.1 | %) |
|
| (35.2 | %) |
| (23.3) | % | (20.4) | % |
Effective tax rate |
| 0.0 | % |
|
| (0.0 | %) |
|
| 0.0 | % |
| — | % | — | % |
Accounting literature regarding liabilities for unrecognized tax benefits provides guidance for the recognition and measurement in financial statements of uncertain tax positions taken or expected to be taken in a tax return. The Company’s evaluation was performed for the tax periods from inception to December 31, 2017, which remain2023. The Company is subject to examination by major tax jurisdictions as offor the years ended December 31, 2017.2018 to 2022.
The Company may from time to time be assessed interestrecognizes uncertain tax positions net, against any operating losses or penalties by majorapplicable research credits as they arise. Currently, there are no uncertain tax jurisdictions, although there have been no such assessments historically, with any material impact to its financial results. The Company would recognize interest and penalties
98
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties would be included within the related tax liability line in the consolidated balance sheets.
In December 2017, the federal government of the United States of America passed the “Tax Cuts and Jobs Act”. The Company has evaluated the impact, if any, on the Company’s financial statements, including tax disclosures. As ofpositions recognized at December 31, 2017, the Company does not consider the new tax reform to materially impact to the Company’s financial statements except for certain reductions in the estimated valuation of net operating loss carryforwards2023 and the associated offsetting valuation allowance. 2022, respectively.
14.18. Employee Benefit Plan
The Company’s employees participate inCompany sponsors the Gevo, Inc. 401(k) Plan (the “401(k) Plan”). under Section 401(k) of the Internal Revenue Code. Subject to certain eligibility requirements, the 401(k) Plan covers substantially all employees beginning the month after three months of service with quarterly entry dates.employment. Employee contributions are deposited by the Company into the 401(k) Plan and may not exceed the maximum statutory contribution amount. The Company may makeBeginning January 1, 2023, the 401(k) Plan was amended to include matching and/or discretionary contributions to the 401(k) Plan. Effective January 2013,Plan, with the Company elected to cease providing an employer match.
15. Commitmentsmatching 100% of the employee’s contributions that are not over 3% of compensation, plus 50% of contributions which are over 3% but are not over 5% of compensation. The matching contributions will be made in shares of the Company’s common stock and Contingencies
Leases. Duringvest immediately. For the year ended December 31, 2012,2023, accrued matching contributions to the Company entered into a six year software license agreement.401(k) Plan was $0.7 million, equivalent to approximately 0.7 million shares of common stock, to be remitted to participants in Q1 2024. The Company concluded that the software license agreement qualifies as a capital lease. Accordingly, at December 31, 2017 and 2016, the Company had capital lease liabilities of zeroand $0.1 million included in accounts payable and accrued liabilities and other long-term liabilities, respectively on its consolidated balance sheet.
The Company hasdid not provide an operating lease for its office, research, and production facility in Englewood, Colorado (the “Colorado Facility”) with a term expiring in July 2021. The Company also maintains a corporate apartment in Colorado, which has a lease term expiringemployer match during the next 12 months. The Company maintains an operating lease for rail cars Luverne Facility, with the lease term expiring in July 2020.
Rent expense for the yearsyear ended December 31, 2017, 20162022.
19. Commitments and 2015 was $1.6 million, $1.7 million,Contingencies
Legal Matters. From time to time, the Company has been and $1.6 million, respectively.may again become involved in legal proceedings arising in the ordinary course of its business. The Company recognizes rent expenseis not presently a party to any litigation and is not aware of any pending or threatened litigation against the Company that it believes could have a material adverse effect on its business, operating leasesresults, financial condition or cash flows.
82
State Tax Audit. During the year ended 2023, the Company was notified of a pending sales and use tax audit by the South Dakota Department of Revenue for the period covering January 2021 through December 2023. Although the final resolution of the Company’s sales and use tax audit is uncertain, based on current information, in the opinion of the Company’s management, the ultimate disposition of these matters will not have a straight-line basis.material adverse effect on the Consolidated Balance Sheets, Statements of Operations, or Liquidity.
The table below shows the future minimum payments under non-cancelable operating leases and capital leases at December 31, 2017 (in thousands).
| Operating Leases |
| |
2018 | $ | 1,421 |
|
2019 |
| 907 |
|
2020 |
| 394 |
|
2021 |
| 200 |
|
2022 |
| - |
|
Thereafter |
| - |
|
Total | $ | 2,922 |
|
Indemnifications. In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions. As of December 31, 2017and 2016,2023, and 2022, the Company did not have any liabilities associated with indemnities.
In addition, the Company as permitted under Delaware law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity.limitations. The duration of these indemnifications, commitments, and guarantees varies and, in certain cases, is indefinite. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.
Environmental Liabilities. The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which it operates. These laws require the Company to investigate and remediate the
99
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company’s liability is probable, and the costs can be reasonably estimated. No environmental liabilities have been recorded as of December 31, 2017.2023.
Fuel Supply Commitment. The Company has three long-term fuel supply contracts to source feedstock for the anaerobic digesters at the NW Iowa RNG project. These contracts provide an annual amount of feedstock to be used in the production of RNG.
Zero6 Commitments. In September 2022, the Company entered into a development agreement with Zero6 to construct and operate a wind project for the provision of electric energy for NZ1. Pursuant to the agreement, the Company has committed to pay Zero6 total development charges of $8.6 million, comprised of advanced development fee payments of $0.9 million, certain reimbursable costs of $1.2 million, and $6.5 million upon completion of the project. The Company is not contractually obligated for the specified development charges until certain milestones are met in future periods, and upon completion of the project. Further, the Company has committed to fund certain discretionary, budgeted costs associated with long lead equipment and engineering services for NZ1, totaling an estimated $36.0 million. The amount is expected to be fully reimbursed upon completion of the project. Gevo has contractual priority liens against the equipment and constructed facilities under the contracts. See Footnote 22 below for further information.
16.Additionally, the Company’s investment in Zero6, see Note 13 above, is pledged separately as collateral for two commitments for the purchase of wind electricity for the Luverne Facility, as well as the purchase of 100% of RCWF’s renewable energy credits. Gevo has a commitment to purchase all of RCWF’s electricity. The portion not used by the Luverne Facility is charged to the Company at a lower price.
83
The estimated commitments as of December 31, 2023, and thereafter are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, | |||||||||||||||||||
| | | | | | | | | | | | | | | | | 2029 and | | | | |
|
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| 2028 |
| thereafter |
| Total | |||||||
Fuel Supply Payments | | $ | 3,193 | | $ | 2,699 | | $ | 1,718 | | $ | 2,060 | | $ | 2,202 | | $ | 26,061 | | $ | 37,933 |
Zero6 Commitment | |
| 36,221 | |
| 7,149 | |
| — | |
| — | |
| — | |
| — | |
| 43,370 |
Renewable Energy Credits | |
| 128 | |
| 128 | |
| 129 | |
| 128 | |
| 128 | |
| 1,455 | |
| 2,096 |
Electricity Above Use (Est.) | |
| 447 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 447 |
Total | | $ | 39,989 | | $ | 9,976 | | $ | 1,847 | | $ | 2,188 | | $ | 2,330 | | $ | 27,516 | | $ | 83,846 |
20. Fair Value Measurements and Fair Value of Financial Instruments
Accounting standards define fair value, outline a framework for measuring fair value, and detail the required disclosures about fair value measurements. Under these standards, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Standards establish a hierarchy in determining the fair market value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Standards require the utilization of the highest possible level of input to determine fair value.
Level 1 – inputs include quoted market prices in an active market for identical assets or liabilities.
Level 2 – inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.
Level 3 – inputs are unobservable and corroborated by little or no market data.
100
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
These tables present theThe carrying value and fair value, by fair value hierarchy, of ourthe Company’s financial instruments excluding cash and cash equivalents, accounts receivable and accounts payable; as carrying value approximately fair value due to their short-term nature; at December 31, 20172023, and 2016, respectively2022, are as follows (in thousands).:
| | | | | | | | | | | | |
|
| | | | Fair Value Measurements at December 31, 2023 | |||||||
| | | | | Quoted | | | | | | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | Fair Value at | | Identical | | Observable | | Unobservable | ||||
| | December 31, | | Assets | | Inputs | | Inputs | ||||
|
| 2023 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Cash and cash equivalents (1) | | $ | 298,349 | | $ | 298,349 | | $ | — | | $ | — |
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at December 31, 2022 | |||||||
| | | | | Quoted | | | | | | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | Fair Value at | | Identical | | Observable | | Unobservable | ||||
| | December 31, | | Assets | | Inputs | | Inputs | ||||
|
| 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Cash and cash equivalents (1) | | $ | 237,125 | | $ | 237,125 | | $ | — | | $ | — |
Marketable securities |
| $ | 167,408 | | $ | 167,408 | | $ | — | | $ | — |
|
|
|
|
| Fair Value Measurements at December 31, 2017 (In thousands) |
| |||||||||
| Fair Value at December 31, 2017 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Warrant Liability | $ | 1,951 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,951 |
|
2020 Notes Embedded Derivative Liability |
| 5,224 |
|
|
| - |
|
|
| - |
|
|
| 5,224 |
|
Total Recurring Fair Value Measurements | $ | 7,175 |
|
| $ | - |
|
| $ | - |
|
| $ | 7,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn and finished goods inventory | $ | 1,916 |
|
| $ | 189 |
|
| $ | 1,727 |
|
| $ | - |
|
| $ | 1,916 |
|
| $ | 189 |
|
| $ | 1,727 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at December 31, 2016 (In thousands) |
| |||||||||
| Fair Value at December 31, 2016 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Warrant Liability | $ | 2,698 |
|
| $ | - |
|
| $ | 1,884 |
|
| $ | 814 |
|
2017 Notes |
| 25,769 |
|
|
| - |
|
|
| - |
|
|
| 25,769 |
|
Total Recurring Fair Value Measurements | $ | 28,467 |
|
| $ | - |
|
| $ | 1,884 |
|
| $ | 26,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn and finished goods inventory | $ | 1,327 |
|
| $ | 108 |
|
| $ | 1,219 |
|
| $ | - |
|
| $ | 1,327 |
|
| $ | 108 |
|
| $ | 1,219 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Cash and cash equivalents includes $283.2 million and $200.7 million invested in U.S. government money market funds as of December 31, 2023, and 2022, respectively. |
84
|
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands) |
| |||||||||
|
| Derivative Warrant Liability |
|
| 2017 Notes |
|
| 2020 Embedded Derivative Liability |
| |||
Opening Balance |
| $ | 814 |
|
| $ | 25,769 |
|
| $ | - |
|
Transfers into Level 3 |
|
| 1,884 |
|
|
| - |
|
|
| - |
|
Transfers out of Level 3 |
|
| - |
|
|
| - |
|
|
| - |
|
Total (gains) or losses for the period |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
| (5,101 | ) |
|
| 339 |
|
|
| (1,751 | ) |
Included in other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
Purchases, issues, sales and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
| - |
|
|
| - |
|
|
| - |
|
Issues |
|
| 5,671 |
|
|
| - |
|
|
| 6,975 |
|
Sales |
|
| - |
|
|
| - |
|
|
| - |
|
Settlements |
|
| (1,317 | ) |
|
| (26,108 | ) |
|
| - |
|
Closing balance |
| $ | 1,951 |
|
| $ | - |
|
| $ | 5,224 |
|
Inventories. The Company records its corn inventory at fair value only when the Company’s cost of corn purchased exceeds the market value for corn. The Company determines the market value of corn and dry distiller’s grain based upon Level 1 inputs using quoted market prices. The Company records its ethanol, isobutanol and hydrocarbon inventory at market using Level 2 inputs.
2017 Notes. The Company had estimatedno transfers of assets or liabilities between fair value hierarchy levels during the years ended December 31, 2023, and 2022.
For the 2021 Bonds, the fair valuevalues are estimated using the Black-Derman-Toy interest rate lattice framework. The effective maturity of the 2017 2021 Bonds was assumed to be April 1, 2024 (three years from issuance) with repayment of 100% of principal on that date. The impact of the Company’s optional redemption feature, effective October 1, 2022, is appropriately captured by the Black-Derman-Toy interest rate lattice. The carrying values and estimated fair values of the 2021 Bonds as of December 31, 2023, are summarized as follows (in thousands):
| | | | | | |
|
| Carrying |
| Estimated | ||
| | Value | | Fair Value | ||
2021 Bonds | | $ | 67,967 | | $ | 67,916 |
21. Shareholders’ Equity
Share Issuances
In February 2018, the Company commenced an at-the-market offering program, which allows it to sell and issue shares of its common stock from time to time. In 2021, the at-the-market offering program was amended to provide a total capacity of $500.0 million. As of December 31, 2023, the Company has remaining capacity to issue up to approximately $360.6 million of common stock under the at-the-market offering program.
Subsequently, in January 2024 the Company filed an updated Form S-3, which included a base prospectus which covers the offer, issuance and sale of up to an aggregate of $750.0 million of the registrant’s common stock, preferred stock, debt securities, depositary shares, warrants, purchase contracts and units and an at-the-market offering prospectus supplement covering the offering, issuance and sale by the registrant of up to a maximum aggregate offering price of $500.0 million of the Company’s common stock that may be issued and sold under an at-the-market-offering agreement.
In June 2022, the Company completed a registered direct offering (“the June 2022 Offering”) of an aggregate of 33,333,336 shares of the Company’s common stock at a price of $4.50 per share, accompanied by Series 2022-A warrants to purchase an aggregate of 33,333,336 shares of the Company’s common stock (each, a “Series 2022-A Warrant”) pursuant to a securities purchase agreement with certain institutional and accredited investors. The Series 2022-A Warrants are exercisable for a term of five years from the date of issuance at an exercise price of $4.37 per share. As of December 31, 2023, none of the Series 2022-A Warrants had been exercised.
The net proceeds to the Company from the June 2022 Offering were $139.2 million, after deducting placement agent’s fees, advisory fees and other offering expenses payable by the Company, and assuming none of the Series 2022-A Warrants issued in the June 2022 Offering are exercised for cash. The Company intends to use the net proceeds from the June 2022 Offering to fund capital projects, working capital and for general corporate purposes.
Warrants
In addition to the Series 2022-A Warrants, the Company has warrants outstanding that were issued in conjunction with a registered direct offering in August 2020 (the “Series 2020-A Warrants”). The Company evaluated the Series 2022-A Warrants and Series 2020-A Warrants for liability or equity classification and determined that equity treatment was appropriate because both the Series 2022-A Warrants and Series 2020-A Warrants do not meet the definition of liability instruments.
85
GEVO, INC.
Notes to be $25.8 million at December 31, 2016, utilizing a binomial lattice model. Consolidated Financial Statements (Continued)
The Company derecognized the liability when it exchanged the 2017 Notes for the 2020 Notes on June 20, 2017,Series 2022-A Warrants and the obligation now is accounted forSeries 2020-A Warrants are classified as a component of equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the 2020 Notesshares of common stock with which they were issued, are immediately exercisable and related 2020 Note Embedded Liability.
2020 Notes. The Company has estimated the fair value of the 2020 Notes to be $13.5 million at June 20, 2017,will expire five years from the date of issuance, do not embody an obligation for the Company exchangedto repurchase its shares, and permit the 2017 Notes for the 2020 Notes, utilizingholders to receive a binomial lattice model. The Company has elected to account for the 2020 Notes using the amortized cost method and reported at $13.5 million, netfixed number of debt discount and issuance costs at December 31, 2017.
2020 Notes Embedded Derivative. The Company had estimated the fair valueshares of the embedded derivative on a stand-alone basis to be $5.2 million at December 31, 2017 basedcommon stock upon Level 3 inputs. See Note 6, Embedded Derivatives and Derivative Warrant Liabilities, for the fair value inputs used to estimate the fair value of the 2020 Notes with and without the embedded derivative and the fair value of the embedded derivative.
2022 Notes Embedded Derivative. The Company had estimated the fair value of the embedded derivative on a stand-alone basis to be $0 million at December 31, 2017 and December 31, 2016, respectively, based upon Level 3 inputs. See Note 6, Embedded Derivatives and Derivative Warrant Liabilities, for the fair value inputs used to estimate the fair value of the 2022 Notes with and without the embedded derivative and the fair value of the embedded derivative.
Derivative Warrant Liability. Prior to 2017, the Company estimated the fair value ofexercise. In addition, the Series A, Series F2022-A Warrants and Series K warrants using a Monte-Carlo model (Level 3). For all other warrants the Company valued these using a standard Black-Scholes model (Level 2). However, beginning in the first quarter 2017, the2020-A Warrants do not provide any guarantee of value or return. The Company valued the Series F2022-A Warrants and KSeries 2020-A Warrants at issuance using a Monte-Carlo model (Level 3) and other warrants usingthe Black-Scholes models comprised of some inputs requiring the use of Monte-Carlo models (Level 3).option pricing model. The Company has estimated the fair value at the issuance date of the derivative warrant liabilitySeries 2022-A Warrants was $92.9 million with the key inputs to be $2.0the valuation model including a weighted average volatility of 151.1%, a risk-free rate of 2.86% and an expected term of five years. The fair value at the issuance date of the Series 2020-A Warrants was $8.3 million aswith the key inputs to the valuation model including a weighted average volatility of December 31, 2017.130%, a risk-free rate of 0.30% and an expected term of five years.
While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
On February 17, 2022, the remaining Series K warrants expired with 7,126 unexercised warrants.
.The following table sets forth information pertaining to shares issued upon the exercise of warrants:
.
| | | | | | | | | | | | | |
| | |
| |
| | |
| |
| Shares |
| Shares |
|
| | | |
| | |
| |
| Issued upon |
| Underlying |
| | | | |
| | |
| Shares |
| Warrant |
| Warrants |
| | | | |
| Exercise |
| Underlying |
| Exercises as |
| Outstanding | |
| | | | | | Price as of |
| Warrants on |
| of |
| as of | |
| | Issuance | | Expiration | | | December 31, | | Issuance |
| December 31, |
| December 31, |
|
| Date |
| Date |
| 2023 |
| Date |
| 2023 |
| 2023 | |
Series 2020-A Warrants (1) |
| 7/6/2020 |
| 7/6/2025 | | $ | 0.60 |
| 30,000,000 |
| 29,914,069 |
| 85,931 |
Series 2022-A Warrants (1) |
| 6/8/2022 |
| 6/7/2027 | | $ | 4.37 |
| 33,333,336 |
| — |
| 33,333,336 |
Total Warrants | | | | | | | |
| 63,333,336 |
| 29,914,069 |
| 33,419,267 |
(1) | Equity-classified warrants. |
No warrants were exercised during the year ended December 31, 2023. During the year ended December 31, 2022, common stock was issued as a result of the exercise of warrants as shown below (dollars in thousands):
| | | | | |
|
| Common Stock |
| | |
| | Issued | | Proceeds | |
Series 2020-A Warrants | | 4,677 | | $ | 3 |
Share Repurchase Program
17. SegmentsOn May 30, 2023, the Board authorized a stock repurchase program, under which the Company may repurchase up to $25 million of its common stock. The primary goal of the repurchase program is to allow the Company to opportunistically repurchase shares, while maintaining its ability to fund development projects. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or through privately negotiated transactions. The timing, volume and nature of stock repurchases, if any, will be in the Company’s sole discretion and will be dependent on market conditions, applicable securities laws, and other factors. The stock repurchase program may be suspended or discontinued at any time and does not have an expiration date.
The Company did not repurchase any shares of common stock under the stock repurchase program during the years ended December 31, 2023, and 2022.
86
22. Variable Interest Entities
The Company has entered into agreements with various SPEs to facilitate the development and construction of facilities to provide carbon neutral power to NZ1. These SPEs are structured as a limited liability companies.
Nonconsolidated VIEs
During September 2022 and February 2023, the Company entered into agreements with Zero6 Energy Development, Inc. (“ZEDI”), a national clean energy expert that provides expertise in capital management, development, engineering, and asset management, to develop and construct facilities to provide carbon neutral power to NZ1 via the two Project LLCs: Kingsbury County Wind Fuel, LLC (“KCWF”) and Dakota Renewable Hydrogen, LLC (“DRH”), respectively. In December 2023 the agreements with ZEDI related to the two Project LLCs were amended to remove certain kickout rights that previously existed.
Each Project LLC is currently funded via advances for certain long lead equipment items from Gevo. The Company has made certain refundable project advances indirectly to the Project LLCs via ZEDI, to induce ZEDI to design and construct the power generation, transmission and distribution facilities that will serve NZ1.
Each Project LLC is a VIE, and the Company holds an implicit variable interest in each Project LLC. As of December 2023, we have concluded that the removal of the kickout rights from the agreements has resulted in a loss of control and that, therefore, the Company is no longer the primary beneficiary of the Project LLCs. The Project LLCs are a VIE because their equity is insufficient to maintain its on-going collateral requirements without additional financial support from the Company.
There was no gain or loss recognized as a result of the deconsolidation of the Project LLCs. We have recognized $33.6 million in Deposits and other assets related to advances made to the Project LLCs which are reimbursable upon the achievement or failure to achieve certain milestones. Such amounts represent our maximum exposure to loss as a result of our involvement with the Project LLCs.
23. Segments
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, management has determined that we have two operatingthe Company has organized its operations and activities into three reportable segments: (i) Gevo Inc. segment; and (ii) Gevo Development/Agri-Energy segment; (iii) Renewable Natural Gas segment. We organize our business segments based on the nature of the products and services offered through each of our consolidated legal entities. Transactions between segments are eliminated in consolidation.
Gevo Segmentsegment. OurThe Gevo segment is responsible for all research and development activities related to the future production of isobutanol, includingSAF, commercial opportunities for other renewable hydrocarbon products, such as hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the development of our proprietary biocatalysts, the productionchemical industry, such as ethylene and sale of renewable jetbutenes; plastics and materials; and other fuels, our Retrofit process and the next generation of chemicals and biofuels that will be based on our isobutanol technology. Ourchemicals. The Gevo segment also develops, maintains and protects ourits intellectual property portfolio, develops future markets for our isobutanol and provides corporate oversight services.services, and is responsible for development and construction of our Net-Zero Projects and Verity.
Gevo Development/Agri-Energy segment. Our Gevo Development/The Agri-Energy segment is currently responsible for the operation of ourthe Company’s Luverne Facility, and the development and optimization of the production of isobutanol, ethanol isobutanol and related products.
10287
Renewable Natural Gas segment. The Renewable Natural Gas segment produces-pipeline quality methane gas captured from dairy cow manure.
| | | | | | | | | | | | |
| | Year Ended December 31, 2023 | ||||||||||
|
| | |
| | |
| Renewable |
| | | |
| | Gevo | | Agri-Energy | | Natural Gas | | Consolidated | ||||
Revenues | | $ | 1,743 | | $ | — | | $ | 15,457 | | $ | 17,200 |
Depreciation and amortization | | $ | (1,799) | | $ | (10,503) | | $ | (6,705) | | $ | (19,007) |
Loss from operations | | $ | (64,955) | | $ | (12,785) | | $ | (4,095) | | $ | (81,835) |
Interest income | | $ | 18,957 | | $ | — | | $ | — | | $ | 18,957 |
Interest expense | | $ | (354) | | $ | (16) | | $ | (1,791) | | $ | (2,161) |
Acquisitions of property, plant, and equipment | | $ | 43,907 | | $ | 4,154 | | $ | 6,394 | | $ | 54,455 |
| | | | | | | | | | | | |
| | Year Ended December 31, 2022 | ||||||||||
| | | | | | | | Renewable | | | | |
|
| Gevo |
| Agri-Energy |
| Natural Gas |
| Consolidated | ||||
Revenues | | $ | 81 | | $ | 240 | | $ | 854 | | $ | 1,175 |
Depreciation and amortization | | $ | (1,573) | | $ | (6,002) | | $ | (312) | | $ | (7,887) |
Loss from operations | | $ | (58,427) | | $ | (40,171) | | $ | (4,088) | | $ | (102,686) |
Interest income | | $ | 6,118 | | $ | — | | $ | — | | $ | 6,118 |
Interest expense | | $ | (436) | | $ | 1 | | $ | (732) | | $ | (1,167) |
Acquisitions of property, plant, and equipment | | $ | 45,272 | | $ | 4,091 | | $ | 34,714 | | $ | 84,077 |
| | | | | | | | | | | | |
| | December 31, 2023 | ||||||||||
| | | | | | | | Renewable | | | | |
|
| Gevo |
| Agri-Energy |
| Natural Gas |
| Consolidated | ||||
Total assets | | $ | 519,994 | | $ | 28,818 | | $ | 101,510 | | $ | 650,322 |
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | | | | | | | Renewable | | | | |
|
| Gevo |
| Agri-Energy |
| Natural Gas |
| Consolidated | ||||
Total assets | | $ | 573,057 | | $ | 34,440 | | $ | 93,251 | | $ | 700,748 |
The Company’s chief operating decision maker is provided
24. Subsequent Events.
On February 29, 2024, the Company received notice from Nasdaq that the Company was not in compliance with and reviewsNasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the financial resultsminimum bid price of each ofits common stock had been below $1.00 per share for the Company’s consolidated legal entities, Gevo, Inc., Gevo Development, LLC, and Agri-Energy, LLC.previous 30 consecutive business days. The Company organizes itshas 180 calendar days, or until August 27, 2024, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the minimum bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business segments based ondays during the nature ofcompliance grace period. In the products and services offered through each of its consolidated legal entities. All revenue is earned, and all assets are held, in the U.S.
| Year Ended December 31, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
Gevo | $ | 1,097 |
|
| $ | 2,425 |
|
| $ | 2,911 |
|
Gevo Development / Agri-Energy |
| 26,439 |
|
|
| 24,788 |
|
|
| 27,226 |
|
Consolidated | $ | 27,536 |
|
| $ | 27,213 |
|
| $ | 30,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations: |
|
|
|
|
|
|
|
|
|
|
|
Gevo | $ | (10,603 | ) |
| $ | (11,045 | ) |
| $ | (19,723 | ) |
Gevo Development / Agri-Energy |
| (12,679 | ) |
|
| (12,940 | ) |
|
| (12,204 | ) |
Consolidated | $ | (23,282 | ) |
| $ | (23,985 | ) |
| $ | (31,927 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
Gevo | $ | 2,951 |
|
| $ | 7,789 |
|
| $ | 8,147 |
|
Gevo Development / Agri-Energy |
| - |
|
|
| 48 |
|
|
| 96 |
|
Consolidated | $ | 2,951 |
|
| $ | 7,837 |
|
| $ | 8,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
Gevo | $ | 473 |
|
| $ | 738 |
|
| $ | 856 |
|
Gevo Development / Agri-Energy |
| 6,168 |
|
|
| 6,009 |
|
|
| 5,717 |
|
Consolidated | $ | 6,641 |
|
| $ | 6,747 |
|
| $ | 6,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of plant, property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
Gevo | $ | 120 |
|
| $ | 350 |
|
| $ | 7 |
|
Gevo Development / Agri-Energy |
| 1,786 |
|
|
| 5,588 |
|
|
| 1,457 |
|
Consolidated | $ | 1,906 |
|
| $ | 5,938 |
|
| $ | 1,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
| |||||
| 2017 |
|
| 2016 |
|
|
|
|
| ||
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
Gevo | $ | 87,507 |
|
| $ | 110,072 |
|
|
|
|
|
Gevo Development / Agri-Energy |
| 149,758 |
|
|
| 156,749 |
|
|
|
|
|
Intercompany eliminations (1) |
| (148,412 | ) |
|
| (154,497 | ) |
|
|
|
|
Consolidated (2) | $ | 88,853 |
|
| $ | 112,324 |
|
|
|
|
|
|
|
|
|
|
18. Subsequent Events
At-The-Market Offering Agreement
On February 13, 2018,event the Company entered into an At-The-Market Offering Agreement (the “Sales Agreement”)does not regain compliance with H.C. Wainwright & Co., LLC (the “Agent”), which provides for the issuance and sale from time to timeMinimum Bid Price Requirement by August 27, 2024, the Company of up to $5,000,000 of shares of common stock, par value $0.01 per share (the “Shares”). The Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to our Registration Statement on Form S-3 (File No. 333-211370). Sales of the Shares, if any, may be made by any method permitted by law deemed to beeligible for an “at-the-market offering” as defined in Rule 415(a)(4)additional 180-calendar day compliance period.
88
103
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
market prices and/or any other method permitted by law. The Company intends to use the net proceeds from this offering to fund working capital and for other general corporate purposes, which may include the repayment of outstanding indebtedness.
Eco-Energy Ethanol and Isobutanol Purchase and Marketing Agreement
During the first quarter of 2018, Agri-Energy, entered into an Ethanol and Isobutanol Purchase and Marketing Agreement (the “Agreement”) with Eco-Energy, LLC (“Eco-Energy”), which provides for the sale and marketing of ethanol produced at the Luverne Facility. Pursuant to the Agreement, Eco-Energy will purchase ethanol for its own use or account, or purchase ethanol to sell and market to third parties, at market prices at the time of a purchase order for the sale of the ethanol. Agri-Energy will also pay Eco-Energy a marketing fee for any product sold to third parties under the terms of the Agreement. Agri-Energy may also sell isobutanol to Eco-Energy under the terms of the Agreement, however, Agri-Energy is under no obligation to sell any isobutanol to Eco-Energy.
Exchange of 2022 Notes
See Note 8 “Debt” for disclosure of the exchange of the 2022 Notes for shares of the Company’s common stock in the first quarter of 2018.
Item 9. | Changes in and Disagreements with |
None.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms,regulations, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on their evaluation, as of December 31, 2017, our Chief Executive Officer and Principalour Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017.2023.
Remediation of Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of the Company’s consolidated financial statements for the three and nine months ended September 30, 2023, management identified a material weakness related to the ineffective design of internal controls to identify and evaluate the existence of, and accounting for, variable interest entities (“VIEs”). This material weakness resulted in the failure to timely identify two potential VIEs requiring consolidation at the time the Company entered into the agreements. This material weakness resulted in a prior period adjustment to our consolidated financial statements as of and for the period ended September 30, 2023.
In order to remediate the material weakness, management implemented the following procedures during the year ended December 31, 2023:
● | The design and operating effectiveness of the Company’s internal controls covering contract reviews and analysis were evaluated and new processes and procedures were introduced to ensure new and historical agreements are properly reviewed for the existence of potential VIEs. |
● | A comprehensive review of contracts the Company is party to was performed to ensure proper VIE accounting conclusions were reached. |
● | Management engaged expert, third-party advisory services to assist in supporting management’s analysis and processes, as well as further strengthen the precision of management’s review controls for the assessment of potential VIEs. |
During the fourth quarter of fiscal 2023, the Company completed its testing of the implemented controls. Based on the foregoing remediation activities and testing of controls, management concluded that the material weakness has been fully remediated as of December 31, 2023.
89
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Principalour Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth inInternal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the results of the evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.2023.
Changes in Internal Control Over Financial Reporting
ThereExcept for additional control improvements implemented, stemming from the remediation of the material weakness discussed above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information
During our last fiscal quarter, the below directors and/or officers, as defined in Rule 16a-1(f), adopted, modified or terminated a “Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K. The Rule 10b5-1 trading arrangements were each intended to satisfy the affirmative defense in Rule 10b5-1(c)(1).
| | | | |
Name and Title | Date | Duration of Plan | Total Number of Shares of Common Stock to be Purchased or Sold | |
Patrick Gruber Chief Executive Officer | Terminate | November 15, 2023 | June 30, 2023 to November 15, 2023 | Up to 2,067,374 |
Paul Bloom Chief Carbon Officer and Chief Innovation Officer | Terminate | December 8, 2023 | June 30, 2023 to December 8, 2023 | Up to 358,175 |
As previously disclosed,No other directors or officers, as defined in June 2011, we entered into an Isobutanol Joint Venture Agreement (the “Joint Venture Agreement”) with Redfield Energy, LLC (“Redfield”)Rule 16a-1(f), under which we agreed to work with Redfield to Retrofit Redfield’s ethanol production facility located near Redfield, South Dakota for the commercial productionadopted, modified and/or terminated a “Rule 10b5-1 trading arrangement,” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of isobutanol. On November 5, 2017, we entered into an Agreement with Redfield, pursuant to which we and Redfield agreed to terminate the Joint Venture Agreement in all respects. There are no termination fees or other obligationsRegulation S-K, during our last fiscal quarter.
90
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. PART IIIPART
The information required by this item will be included in theis incorporated by reference to our definitive proxy statement for our 2018the 2024 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2017,2023.
We have a written code of business conduct and ethics in place that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. A copy of our code of ethics is incorporated into this Reportavailable on our website: https://investors.gevo.com/corporate/corporate-governance/. We are required to disclose certain changes to, or waivers from, that code for our senior financial officers. We intend to use our website as a method of disseminating any change to, or waiver from, our code of ethics as permitted by reference.applicable SEC rules.
The information required by this item will be included in theis incorporated by reference to our definitive proxy statement for our 2018the 2024 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2017, and is incorporated into this Report by reference.2023.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item will be included in theis incorporated by reference to our definitive proxy statement for our 2018the 2024 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2017, and is incorporated into this Report by reference.2023.
The information required by this item will be included in theis incorporated by reference to our definitive proxy statement for our 2018the 2024 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2017, and is incorporated into this Report by reference.2023.
The information required by this item will be included in theis incorporated by reference to our definitive proxy statement for our 2018the 2024 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 20172023.
91
PART IV
(a)(1) Financial Statements
The following consolidated financial statementsConsolidated Financial Statements are included:
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted because they are not applicable or are not required, or because the information required to be set forth therein is included in the consolidated financial statementsConsolidated Financial Statements or notes thereto.
|
|
|
| Incorporated by Reference |
|
| ||||||
Exhibit No. |
| Description |
| Form |
| File No. |
| Filing Date |
| Exhibit |
| Filed Herewith |
3.1 |
| Amended and Restated Certificate of Incorporation of Gevo, Inc. |
| 10-K |
| 001-35073 |
| March 29, 2011 |
| 3.1 |
|
|
3.2 |
| Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Gevo, Inc. |
| 8-K |
| 001-35073 |
| June 10, 2013 |
| 3.1 |
|
|
3.3 |
| Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc. |
| 8-K |
| 001-35073 |
| July 9, 2014 |
| 3.1 |
|
|
3.4 |
| Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc. |
| 8-K |
| 001-35073 |
| April 22, 2015 |
| 3.1 |
|
|
3.5 |
| Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc. |
| 8-K |
| 001-35073 |
| January 6, 2017 |
| 3.1 |
|
|
3.6 |
|
| 10-K |
| 001-35073 |
| March 29, 2011 |
| 3.2 |
|
| |
4.1 |
|
| S-1 |
| 333-168792 |
| January 19, 2011 |
| 4.1 |
|
| |
4.2 |
| Fifth Amended and Restated Investors’ Rights Agreement, dated March 26, 2010. |
| S-1 |
| 333-168792 |
| August 12, 2010 |
| 4.2 |
|
|
4.3† |
|
| S-1 |
| 333-168792 |
| August 12, 2010 |
| 4.3 |
|
| |
4.4 |
|
| S-1 |
| 333-168792 |
| October 1, 2010 |
| 4.4 |
|
| |
4.6 |
|
| S-1 |
| 333-168792 |
| October 1, 2010 |
| 4.11 |
|
| |
4.7 |
|
| S-1 |
| 333-168792 |
| October 1, 2010 |
| 4.12 |
|
| |
4.8 |
|
| 8-K |
| 001-35073 |
| October 26, 2011 |
| 10.7 |
|
| |
4.9 |
|
| 8-K |
| 001-35073 |
| December 12, 2013 |
| 4.1 |
|
| |
4.10 |
|
| 8-K |
| 001-35073 |
| December 12, 2013 |
| 4.2 |
|
| |
4.11 |
|
| 8-K |
| 001-35073 |
| December 12, 2013 |
| 4.3 |
|
| |
4.12 |
| Common Stock Warrant, issued to Genesis Select Corporation, dated June 6, 2013. |
| 10-Q |
| 001-35073 |
| August 14, 2013 |
| 4.9 |
|
|
| | | | Incorporated by Reference | | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Description |
| Form |
| File No. |
| Filing Date |
| Exhibit |
| Filed |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
3.1 | | Amended and Restated Certificate of Incorporation of Gevo, Inc. | | 10-K | | 001-35073 | | February 24, 2022 | | 3.1 | | |
| | | | | | | | | | | | |
3.2 | | | 8-K | | 001-35073 | | November 24, 2021 | | 3.1 | | | |
| | | | | | | | | | | | |
4.1 | | | S-1 | | 333-168792 | | January 19, 2011 | | 4.1 | | | |
| | | | | | | | | | | | |
4.2 | | | 8-K | | 001-35073 | | July 8, 2020 | | 4.1 | | | |
| | | | | | | | | | | | |
4.3 | | | 8-K | | 001-35073 | | June 8 2022 | | 4.1 | | | |
| | | | | | | | | | | | |
4.4 | | | 10-K | | 001-35073 | | February 24, 2022 | | 4.3 | | | |
| | | | | | | | | | | | |
10.1# | | | 8-K | | 001-35073 | | May 25, 2023 | | 10.1 | | | |
| | | | | | | | | | | | |
10.2# | | Form of Restricted Stock Unit Agreement under the Amended and Restated 2010 Stock Incentive Plan. | | S-1 | | 333-168792 | | January 19, 2011 | | 10.15 | | |
| | | | | | | | | | | | |
10.3# | | Form of Restricted Shares Award Agreement under the Amended and Restated 2010 Stock Incentive Plan. | | 10-Q | | 001-35073 | | August 8, 2018 | | 10.7 | | |
| | | | | | | | | | | | |
10.4# | | Form of Stock Option Award Agreement under the Amended and Restated 2010 Stock Incentive Plan. | | 10-Q | | 001-35073 | | August 8, 2018 | | 10.6 | | |
| | | | | | | | | | | | |
92
|
|
|
| Incorporated by Reference |
|
| ||||||
Exhibit No. |
| Description |
| Form |
| File No. |
| Filing Date |
| Exhibit |
| Filed Herewith |
|
| 8-K |
| 001-35073 |
| December 12, 2013 |
| 4.1 |
|
| ||
4.14 |
|
| 8-K |
| 001-35073 |
| April 20, 2017 |
| 4.1 |
|
| |
4.15 |
|
| 8-K |
| 001-35073 |
| June 20, 2017 |
| 4.1 |
|
| |
4.16 |
|
| 8-K |
| 001-35073 |
| June 20, 2017 |
| 4.2 |
|
| |
4.17 |
|
| 8-K |
| 001-35073 |
| August 6, 2014 |
| 4.1 |
|
| |
4.18 |
|
| 8-K |
| 001-35073 |
| February 4, 2015 |
| 4.1 |
|
| |
4.19 |
|
| 8-K |
| 001-35037 |
| May 20, 2015 |
| 4.1 |
|
| |
4.20 |
|
| 8-K |
| 001-35037 |
| December 15, 2015 |
| 4.1 |
|
| |
4.21 |
|
| 8-K |
| 001-35037 |
| June 13, 2016 |
| 4.3 |
|
| |
4.22 |
|
| 8-K |
| 001-35037 |
| April 5, 2016 |
| 4.1 |
|
| |
4.23 |
|
| 8-K |
| 001-35037 |
| September 15, 2016 |
| 4.1 |
|
| |
4.24 |
|
| 8-K |
| 001-35037 |
| February 22, 2017 |
| 4.1 |
|
| |
10.1† |
| Ethanol Purchasing and Marketing Agreement, dated April 1, 2009, by and between C&N Ethanol Marketing Corporation and Agri-Energy, LP. |
| S-1 |
| 333-168792 |
| November 4, 2010 |
| 10.26 |
|
|
10.2† |
|
| S-1 |
| 333-168792 |
| November 4, 2010 |
| 10.6 |
|
| |
10.3 |
|
| S-1 |
| 333-168792 |
| October 21, 2010 |
| 10.10 |
|
|
|
|
|
| Incorporated by Reference |
|
| ||||||
Exhibit No. |
| Description |
| Form |
| File No. |
| Filing Date |
| Exhibit |
| Filed Herewith |
|
| 10-Q |
| 001-35073 |
| August 7, 2015 |
| 10.5 |
|
| ||
10.27† |
|
|
|
|
|
|
|
|
|
| X | |
10.28† |
|
|
|
|
|
|
|
|
|
| X | |
10.29† |
|
| 10-Q |
| 001-35073 |
| November 5, 2015 |
| 10.2 |
|
| |
10.30† |
|
| 10-Q |
| 001-35073 |
| November 5, 2015 |
| 10.3 |
|
| |
10.31† |
|
| 8-K |
| 001-35073 |
| November 10, 2015 |
| 10.1 |
|
| |
10.32† |
|
| 8-K |
| 001-35073 |
| November 10, 2015 |
| 10.2 |
|
| |
10.33† |
|
| 8-K |
| 001-35073 |
| November 21, 2017 |
| 10.1 |
|
| |
10.34† |
|
| 8-K |
| 001-35073 |
| November 21, 2017 |
| 10.2 |
|
| |
10.35† |
| Joint Development Agreement, dated February 1, 2016, by and between Gevo, Inc. and Porta Hnos S.A. |
| 8-K |
| 001-35073 |
| February 5, 2016 |
| 10.1 |
|
|
10.36† |
| Commercial License Agreement, dated February 1, 2016, by and between Gevo, Inc. and Porta Hnos S.A. |
| 8-K |
| 001-35073 |
| February 5, 2016 |
| 10.2 |
|
|
10.37 |
| First Amendment to Lease, effective December 11, 2015, between Hines REIT 345 Inverness Drive, LLC. |
| 10-K |
| 001-35073 |
| March 30, 2016 |
| 10.62 |
|
|
10.38 |
|
| 8-K |
| 001-35073 |
| June 13, 2016 |
| 10.1 |
|
| |
10.39 |
|
| 8-K |
| 001-35073 |
| September 9, 2016 |
| 10.3 |
|
| |
10.40† |
| Supply Agreement, effective May 15, 2017, by and between Gevo, Inc. and HCS Holding GmbH. |
| 8-K |
| 001-35073 |
| May 4, 2017 |
| 10.1 |
|
|
21.1 |
|
| S-1 |
| 333-168792 |
| October 1, 2010 |
| 10.10 |
|
| |
23.1 |
|
|
|
|
|
|
|
|
|
| X |
| | | | Incorporated by Reference | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit | Description | Form | File No. | Filing Date | Exhibit | Filed | |||||||||||||||||
| | | | | | | | | | | | | |||||||||||
10.5# | | | 10-Q | | 001-35073 | | August 8, 2018 | | 10.8 | | | ||||||||||||
| |
| |
| |
| |
| |
| |
| |||||||||||
| | S-8 | | 333-172771 | | March 11, 2011 | | 4.7 | | | |||||||||||||
| | | | | | | | | | | | | |||||||||||
10.7# | | | 10-Q | | 001-35073 | | November 2, 2011 | | 10.1 | | | ||||||||||||
| | | | | | | | | | | | | |||||||||||
10.8# | | Form of Indemnification Agreement between Gevo, Inc. and its directors and officers. | | S-1 | | 333-168792 | | January 19, 2011 | | 10.33 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.9# | | Employment Agreement, dated June 4, 2010, by and between Gevo, Inc. and Patrick Gruber. | | S-1 | | 333-168792 | | November 4, 2010 | | 10.14 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.10# | | Amendment Agreement, dated December 21, 2011, by and between Gevo, Inc. and Patrick Gruber. | | 8-K | | 001-35073 | | December 27, 2011 | | 10.1 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.11# | | Second Amendment Agreement, dated February 16, 2015, by and between Gevo, Inc. and Patrick Gruber. | | 8-K | | 001-35073 | | February 17, 2015 | | 10.1 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.12# | | Employment Agreement, dated June 4, 2010, by and between Gevo, Inc. and Christopher Ryan. | | S-1 | | 333-168792 | | November 4, 2010 | | 10.16 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.13# | | Offer Letter, dated November 9, 2019, by and between Gevo, Inc. and L. Lynn Smull. | | 8-K | | 001-35073 | | November 15, 2019 | | 10.1 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.14# | | Offer Letter, dated February 16, 2021, by and between Gevo Inc. and Paul Bloom. | | 10-Q | | 001-35073 | | May 14, 2021 | | 10.6 | | | |||||||||||
| | | | | | | | | | | | | |||||||||||
10.15† | | | S-3 | | 333-276515 | | January 16, 2024 | | 1.2 | | | ||||||||||||
| | | | | | | | | | | | | |||||||||||
10.16+ | | | 8-K | | 001-35073 | | August 18, 2020 | | 10.1 | | | ||||||||||||
| | | | | | | | | | | | | |||||||||||
10.17+ | | | 8-K | | 001-35073 | | August 9, 2021 | | 10.1 | | | ||||||||||||
| | | | | | | | | | | | | |||||||||||
10.18+ | | | 8-K | | 001-35073 | | August 9, 2021 | | 10.2 | | | ||||||||||||
| | | | | | | | | | | | |
93
| | | | Incorporated by Reference | | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Description |
| Form |
| File No. |
| Filing Date |
| Exhibit |
| Filed |
| | | | | | | | | | | | |
10.19+ | | | 8-K | | 001-35073 | | August 9, 2021 | | 10.3 | | | |
| | | | | | | | | | | | |
10.20+ | | | 8-K | | 001-35073 | | August 9, 2021 | | 10.4 | | | |
| | | | | | | | | | | | |
10.21+†† | | | 8-K | | 001-35073 | | September 23, 2021 | | 10.1 | | | |
| | | | | | | | | | | | |
10.22 | | | 8-K | | 001-35073 | | April 15, 2021 | | 10.1 | | | |
| | | | | | | | | | | | |
10.23++ | | | 8-K | | 001-35073 | | April 15, 2021 | | 10.2 | | | |
| | | | | | | | | | | | |
10.24+ | | Fuel Supply Agreement, dated March 16, 2022, by and between Gevo, Inc. and Delta Air Lines, Inc. | | 8-K | | 001-35073 | | March 22, 2022 | | 10.1 | | |
| | | | | | | | | | | | |
10.25+ | | Fuel Supply Agreement, dated March 18, 2022, by and between Gevo, Inc. and British Airways plc. | | 8-K | | 001-35073 | | March 21, 2022 | | 10.1 | | |
| | | | | | | | | | | | |
10.26+ | | Fuel Supply Agreement, dated July 18, 2022, by and between Gevo, Inc. and American Airlines, Inc. | | 8-K | | 001-35073 | | July 22, 2022 | | 10.1 | | |
| | | | | | | | | | | | |
10.27++ | | | 10-Q | | 001-35073 | | August 8, 2022 | | 10.2 | | | |
| | | | | | | | | | | | |
10.28# | | | 8-K | | 001-35073 | | December 2, 2022 | | 10.1 | | | |
| | | | | | | | | | | | |
10.29+ | | | 10-Q | | 001-35073 | | August 10, 2023 | | 10.1 | | | |
| | | | | | | | | | | | |
10.30+ | | | 10-Q | | 001-35073 | | March 15, 2023 | | 10.1 | | | |
| | | | | | | | | | | | |
94
| | | | Incorporated by Reference | | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit | Description | Form | File No. | Filing Date | Exhibit | Filed | ||||||
| | | | | | | | | | | | |
10.31+ | | Side Agreement, dated May 5, 2023, by and between Axens North America, Inc. and Gevo, Inc. | | 10-Q | | 001-35073 | | August 10, 2023 | | 10.2 | | |
| | | | | | | | | | | | |
10.32+ | | | 10-Q | | 001-35073 | | August 10, 2023 | | 10.3 | | | |
| | | | | | | | | | | | |
10.33+ | | | 8-K | | 001-35073 | | December 13, 2023 | | 10.1 | | | |
| | | | | | | | | | | | |
10.34 | | | | | | | | | | | X | |
| | | | | | | | | | | | |
10.35 | | | | | | | | | | | X | |
| | | | | | | | | | | | |
10.36 | | | | | | | | | | | X | |
| | | | | | | | | | | | |
10.37+ | | | | | | | | | | | X | |
| | | | | | | | | | | | |
21.1 | | | | | | | | | | | X | |
| | | | | | | | | | | | |
23.1 | | | | | | | | | | | X | |
| | | | | | | | | | | | |
31.1 | | Section 302 Certification of the Principal Executive Officer. | | | | | | | | | | X |
| | | | | | | | | | | | |
31.2 | | Section 302 Certification of the Principal Financial Officer. | | | | | | | | | | X |
| | | | | | | | | | | | |
32.1 * | | Section 906 Certifications of the Principal Executive Officer and the Principal Financial Officer. | | | | | | | | | | * |
| | | | | | | | | | | | |
97 | | | | | | | | | | | X | |
| | | | | | | | | | | | |
101.INS | | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data | | | | | | | | | | X |
| | | | | | | | | | | | |
95
| | | | Incorporated by Reference | | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit | Description | Form | File No. | Filing Date | Exhibit | Filed | ||||||
| | | | | | | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema | | | | | | | | | | X |
| | | | | | | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
01.LAB | | Inline XBRL Taxonomy Extension Label Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) | | | | | | | | | | |
† | Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC. |
+ | Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. |
++ | Confidential portions of the exhibit have been redacted from the filed version of the exhibit and are marked with a *** |
†† | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any omitted schedules to the Securities and Exchange Commission upon request. |
# | Indicates a management contract or compensatory plan or arrangement. |
* | Furnished herewith |
(b) Exhibits
See Item 15(a)(3) above.
(c) Financial Statement Schedules
See Item 15(a)(2) above.
None.
96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
Gevo, Inc. | | |
(REGISTRANT) | | |
| | |
By: | /s/ | |
|
| |
| | |
Date: March | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | | ||||||
Signatures |
| Title |
| Date | ||||||
| | | | | ||||||
/s/ PATRICK R. GRUBER | | Chief Executive Officer (Principal Executive Officer) and Director | | March | ||||||
Patrick R. Gruber, Ph.D. | | | | | ||||||
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/s/ L. LYNN SMULL | | Chief | | March 7, 2024 | ||||||
L. Lynn Smull | | | | | ||||||
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/s/ ALISHER NURMAT | | Vice President of Accounting and Treasurer (Principal Accounting Officer) | | March | ||||||
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/s/ | | Chairperson of the Board of Directors | | March | ||||||
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/s/ GARY W. MIZE | | Director | | March | ||||||
Gary W. Mize | | | | | ||||||
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/s/ | | Director | | March | ||||||
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/s/ | | Director | | March | ||||||
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/s/ | | Director | | March | ||||||
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/s/ ANGELO AMORELLI | | Director | | March 7, 2024 | ||||||
Angelo Amorelli | | | | | ||||||
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/s/ MARY KATHRYN ELLET | | Director | | March 7, 2024 | ||||||
Mary Kathryn Ellet | | | | |
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