Summary of Significant Accounting Policies

Principles of Consolidation

. The Consolidated Financial Statements of Gevo include the accounts of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation.

The Consolidated Financial Statements of the Company (which include the accounts of its wholly-owned subsidiaries Gevo Development, 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. ("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, 2019.

Use of Estimates

. The preparation of financial statements in conformity with 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.

Reclassifications.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did

not

affect total revenues, costs and expenses, net income or stockholders’ equity.

Concentrations of Credit Risk

. 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.

Cash and Cash Equivalents

. The Company maintains its cash and cash equivalents in highly liquid interest-bearing money market accounts or non-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.

Accounts Receivable

. The Company records receivables for products shipped and services provided but for which payment has

not

yet been received. As of

December 31, 2019

and

2018,

allowance for doubtful accounts has been recorded, based upon the expected full collection of the accounts receivable. As of

December 31, 2019,

three

customers, Eco-Energy, LLC ("Eco-Energy"), Purina Animal Nutrition, LLC (“Purina”), formerly Land O'Lakes Purina Feed, LLC, and HCS Group GmbH ("HCS") comprised

57%,

13%

and

15%

of the Company's outstanding trade accounts receivable, respectively. As of

December 31, 2018,

two

customers, Eco-Energy and Purina, comprised

66%

and

27%

of the Company's outstanding trade accounts receivable, respectively.

Inventories

. Inventory is recorded at net realizable value. Cost of goods sold is determined by average cost method. Isobutanol and ethanol inventory cost consists of the applicable share of raw material, direct labor and manufacturing overhead costs. Spare Parts inventory consists of the parts required to maintain and operate the Company’s Luverne Facility and is recorded at cost.

Derivative Instruments

. The Company evaluates its contracts for potential derivatives which Gevo, Inc. uses to raise capital. See Note

for a description of the Company’s accounting for embedded derivatives.

Warrants.

The Company has warrants outstanding as of

December 31, 2019

representing

54,989

shares of Gevo's common stock, which expire at various dates through

February 17, 2022.

The exercise prices of the warrants range from

$3.80

$220.00

as of

December 31, 2019.

Based on the terms of the warrant agreements, the Company has determined that all warrants issued since

2013

qualify as derivatives and, as such, are included in "

Accounts Payable and Accrued Liabilities"

on the Consolidated Balance Sheets and recorded at fair value each reporting period. The decrease (increase) in the estimated fair value of the warrants outstanding as of

December 31, 2019

and

2018

represents an unrealized gain (loss) which has been recorded as a gain (loss) from the change in fair value of derivative warrant liability in the Consolidated Statements of Operations.

During the year ended

December 31, 2018,

common stock was issued as a result of exercise of warrants as described below:

	Common Stock Issued	Proceeds

Series A Warrants	251	$	1,054
Series K Warrants	300,660		1,262,712

	300,911	$	1,263,766

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,

Plant and Equipment

. The Company’s property, plant and equipment consist primarily of assets associated with the acquisition and upgrade of the Luverne Facility. The Company assesses impairment of property, plant and equipment for recoverability 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 Company evaluated its Luverne Facility for impairment as of

December 31, 2019

and

2018.

These evaluations included comparing the carrying amount of the acquisition and upgrade of the Luverne Facility to the estimated undiscounted future cash flows at the Luverne Facility 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:

•

sales price of isobutanol, hydrocarbons, ethanol and by-products such as dried distillers grains;

•

purchase price of corn;

•

production levels of isobutanol;

•

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.

Based upon the Company’s evaluation at

December 31, 2019

and

2018,

the Company concluded that the estimated undiscounted future cash flows from the Luverne Facility exceeded the carrying value and, as such, these assets were

not

impaired. Although the Company’s cash flow forecasts are based on assumptions that are consistent with its 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, the Company

may

make changes to its 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.

Investment in Juhl.

September 2019,

Agri-Energy purchased

1.5

million shares of Series A preferred stock of Juhl Clean Energy Assets, Inc. ("Juhl") for a purchase price of

$1.00

per share in connection with the development of wind electrical energy generating facility project near the Luverne Facility. An affiliate of Juhl will construct, own and operate the wind project, and Agri-Energy will purchase the electricity directly from the City of Luverne. The investment in Juhl is accounted for under the cost method.

Debt Issue Costs

. Debt issue costs are costs 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.

Revenue Recognition

. The Company records revenue from the sale of ethanol and related products, hydrocarbon products and funding from government grants and cooperative agreements. The Company recognizes revenue when all of the following criteria are satisfied: (i) it has identified a contract with a customer; (ii) it has identified the performance obligations of the customer; (iii) it has determined the transaction price; (iv) it has allocated the transaction price to the identified performance obligations in the contract with the customer; and (v) it has satisfied each individual performance obligation with the contract with a customer.

Ethanol and related products as well as hydrocarbon products are generally shipped free-on-board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to marketers are deducted from the gross sales price at the time payment was remitted. Ethanol and related products sales are recorded net of commissions and shipping and handling costs. Sales and other taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue.

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 lease agreements are recognized on a straight-line basis over the term of the contract.

For the years ended

December 31, 2019

and

2018,

Eco-Energy accounted for approximately

71%

and

72%

of the Company's consolidated revenue, respectively. Purina represented approximately

17%

and

21%

of the Company's consolidated revenue for the years ended

December 31, 2019

and

2018,

respectively. All are customers of the Company's Gevo Development/Agri-Energy segment (see Note

). Given the production capacity compared to the overall size of the North American market and the fungible demand for the Company's products, the Company does

not

believe that a decline in a specific customer's purchases would have a material adverse long-term effect upon the Company's financial results.

Cost of Goods Sold

. Cost of goods sold includes costs incurred in conjunction with the operations for the production of isobutanol at the Luverne Facility and costs directly associated with the ethanol and related products production process such 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, plant utilities, including natural gas and plant depreciation. Direct materials consist of dextrose for initial production of isobutanol, corn 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. 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. The Company purchases natural gas to power steam generation in the production process and to dry the distillers 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.

Research and Development

. Research and development costs are expensed as incurred and are recorded as research and development expense in the

Consolidated Statements of Operations. 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, 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.

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.

Stock-Based Compensation

. The Company’s stock-based compensation expense includes expenses associated with share-based awards granted to employees and board members, and expenses associated with awards under its employee stock purchase plan (“ESPP”). Stock-based compensation expense for all share-based payment awards granted is based on the grant date fair value. 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 estimated 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 based restricted stock awards, the Company recognizes expense over the requisite service period.

Net Loss Per Share

. Basic net loss per share is computed by dividing the net loss attributable to Gevo's common stockholders for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings 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, 2019

and

2018

excluded common stock equivalents because the effect of their inclusion would be anti-dilutive or would decrease the reported loss per share.

The following table sets forth securities that could potentially dilute the calculation of diluted earnings per share:

	Year Ended December 31,
	201 9	201 8

Warrants to purchase common stock - liability classified	54,989	55,963
Warrants to purchase common stock - equity classified	—	6
Convertible 2020 Notes	974,139	1,071,674
Outstanding options to purchase common stock	1,561	2,311
Stock appreciation rights	127,225	132,566
Unvested restricted common stock	—	290,300
Total	1,157,914	1,552,820

Recent Accounting Pronouncements

Financial Instruments - Credit Losses. Measurement of Credit Losses on Financial Instruments.

June 2016,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

No.

2016

13,

Financial Instruments - Credit Losses Measurement of Credits Losses on Financial Instruments

(“ASU

2016

13”

), which replaces accounting for credit losses for most financial assets, including trade accounts receivable, and certain other instruments that are

not

measured at fair value through income. ASU

2016

replaces the current “incurred loss” model, in which losses are recognized when a loss is incurred as of the date of the balance sheet, to an “expected credit loss” model, which includes a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU

2016

is effective for fiscal years beginning after

December 15, 2022.

It is expected that the adoption of this standard will primarily apply to the valuation of the Company’s trade accounts receivables. The Company sells primarily to a small quantity of large customers with significant balance sheets and those financial assets are often settled within

one

-to-

two

weeks after the completion of the corresponding sales transaction. The Company does

not

anticipate that the adoption of this standard will have a material impact on the Company’s Consolidated Financial Statements.

Adoption of New Accounting Pronouncements

Leases

February 2016,

the FASB issued ASU

No.

2016

02,

Leases

(“ASU

2016

02”

). ASU

2016

requires most contracts which convey over a period of time the right to use or control the use of an asset to be recognized on a company’s 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

was effective for fiscal years beginning after

December 15, 2018.

The standard required using the modified retrospective transition method and applying ASU

2016

either at the (i) latter of the earliest comparative period presented in the financial statements or commencement date of the lease, or (ii) beginning of the period of adoption. The Company adopted the standard effective

January 1, 2019

with

retrospective adjustment to prior periods presented in the financial statements. There was

impact to the opening balance of retained earnings as of

January 1, 2019

as a result of the adoption of this standard.

As a result of adopting ASU

2016

02,

the Company recognized

$1.2

million in right-to-use assets and related lease liabilities at

January 1, 2019.

The Company elected both (i) the short-term lease scope exception for leases with original terms of

twelve

months or less and (ii) the package of practical expedients, which included the ability to classify leases as operating

for those leases existing prior to

January 1, 2019

that were previously classified as operating under Accounting Standards Codification ("ASC")

840,

Leases

, the superseded accounting standard for the accounting for leases.