Note 1 - Nature of Business, Financial Condition and Basis of Presentation

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

1. Nature of Business, Financial Condition and Basis of Presentation

Nature of Business. Gevo, Inc. (“Gevo” or the “Company,” which, unless otherwise indicated, refers to Gevo, Inc. and its subsidiaries), is a growth-oriented company focused on transforming renewable energy into energy dense liquid hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel (“SAF”) and renewable isooctane (which the Company refers to as “renewable premium gasoline”), with the potential to achieve a “net-zero” greenhouse gas (“GHG”) footprint and address global needs of reducing GHG emissions with sustainable alternatives to petroleum fuels. Gevo currently owns one production facility in Luverne, Minnesota (the "Luverne Facility"). Gevo plans to develop, own (in whole or in part), and operate additional production facilities that use a combination of (i) renewable energy sources such a photosynthetic energy, renewable electricity, biogas, renewable hydrogen, and (ii) renewable carbon sources such as residual carbohydrates. 

As next generation renewable fuels, Gevo's hydrocarbon transportation fuels have the advantage of being “drop-in” substitutes for conventional fuels that are derived from crude oil, working seamlessly and without modification in existing fossil-fuel based engines, supply chains and storage infrastructure. In addition, with SAF, the carbon footprint of air travel can be reduced, or in the long run, eliminated, on a net carbon basis, without changes to planes or fuel systems. In addition to the potential of net-zero carbon emissions across the whole fuel life-cycle, Gevo's renewable fuels should eliminate other pollutants associated with the burning of traditional fossil fuels, such as particulates and sulfur, while delivering superior performance. 

Gevo has a technology pathway that converts carbohydrates to alcohols via a fermentation process. The alcohols are then converted to hydrocarbon fuels using a catalytic chemical process. By using renewable energy across the production process, in combination with sustainable feedstocks, like low carbon non-food corn, the greenhouse gas emissions are expected to be substantially reduced or eliminated as measured across the whole of the life cycle. The processes used to convert carbohydrates to drop-in hydrocarbons using isobutanol as the intermediate alcohol is protected by a patent portfolio with more than 500 patents, as well as proprietary processes and know-how. The production technology to convert ethanol to hydrocarbons has been exclusively licensed to Gevo in the United States by Axens North America, Inc. (“Axens”), and incorporates more than 60 patents, as well as proprietary production technology and know-how. 

Ultimately, the Company believes that the attainment of profitable operations is dependent upon future events, including, but not limited to (i) the successful development of the Company's initial Net-Zero Project (the "Net-Zero 1 Project") and future projects for the production of energy dense liquid hydrocarbons using renewable energy and our proprietary technology; and (ii) the achievement of a level of revenues adequate to support its cost structure.

COVID-19. The novel coronavirus ("COVID-19") pandemic has had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in financial markets. It resulted in travel restrictions and extended shutdowns of businesses in various industries including, among others, the airline industry, and significantly reduced overall economic output. It is possible that that the impact of the COVID-19 pandemic on general economic activity could continue to negatively impact the Company's revenue and operating results for the remainder of 2021 and beyond. In light of the current and potential future disruption to its business operations and those of its customers, suppliers and other third parties with whom the Company does business, management considered the impact of the COVID-19 pandemic on the Company's business. The impact of the COVID-19 pandemic on the global transportation industry could continue to result in less demand for the Company's transportation fuel products, which could have a material adverse effect on the Company's business, financial condition and prospects for the foreseeable future.

During the first quarter of 2020, we suspended our ethanol production at our Luverne Facility due to COVID-19 and an unfavorable commodity environment, largely the result of greater corn costs as compared to national markets than the region has historically produced. The suspension of ethanol production and a reduction in the Company's workforce that occurred during the first quarter of 2020 due to the impact of COVID-19 had an adverse impact on the Company's financial results for the nine months ended September 30, 2021, reducing revenue by 87% compared to the nine months ended September 30, 2020. The change in revenue for the three months ended September 30, 2021 was negligible compared the three months ended September 30, 2020. The Luverne Facility re-commenced operations during July 2021 and is expected to produce isobutanol that will be used as a feedstock for us to produce SAF and renewable premium gasoline to fulfill existing sales contracts. There is a risk that COVID-19 could have a material adverse impact on the development of the Company's Net-Zero 1 Project, customer demand and cash flow, depending on the extent of our future production activities.

The Company has considered multiple scenarios, with both positive and negative inputs, as part of the significant estimates and assumptions that are inherent in its financial statements and are based on trends in customer behavior and the economic environment throughout the three and nine months ended September 30, 2021 and beyond as the COVID-19 pandemic has impacted the industries in which the Company operates. These estimates and assumptions include the collectability of billed receivables and the estimation of revenue and tangible assets. With regard to collectability, the Company believes it may face atypical delays in client payments going forward, but the Company has not experienced significant delays in collection as of September 30, 2021. In addition, management believes that the demand for certain discretionary lines of business may decrease, and that such decrease will impact its financial results in succeeding periods. Non-discretionary lines of business may also be adversely affected, for example because reduced economic activity or disruption in hydrocarbon markets could reduce demand for SAF, isooctane and isooctene. 

Basis of Presentation. The unaudited consolidated financial statements of the Company (which include the accounts of its wholly-owned subsidiaries Gevo Asset, LLC, Gevo RNG Holdco, LLC, Gevo NW Iowa RNG, LLC ("Gevo RNG"), Gevo Net-Zero HoldCo, LLC, Gevo Net-Zero 1, LLC, and Agri-Energy, LLC (“Agri-Energy”)) have been prepared, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States (“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 as of, and for the three and nine months ended,  September 30, 2021 and are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included under the heading “Financial Statements and Supplementary Data” in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Reclassifications. The Company reclassified certain prior period amounts to conform to the current period presentation, including the categorization of preliminary stage project costs on the Consolidated Statements of Operations. These reclassifications had no impact on total revenues, total cost of goods sold, total operating expenses, net loss or stockholders' equity for any period.

January 2021 Offering. On January 19, 2021, the Company completed a registered direct offering pursuant to a securities purchase agreement with certain institutional and accredited investors providing for the issuance and sale by the Company of an aggregate of 43,750,000 shares of the Company’s common stock at a price of $8.00 per share (the “January 2021 Offering”). The net proceeds to the Company from the January 2021 Offering were approximately $321.9 million, after deducting placement agent fees and other estimated offering expenses payable by the Company.

At-the-Market Offering Program. 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 September 2021, the at-the-market offering program was amended to increase the available capacity to $500 million.

During the nine months ended September 30, 2021, the Company issued 24,420,579 shares of common stock under the at-the-market offering program for total proceeds of $135.8 million, net of commissions and other offering related expenses totaling $3.6 million. There were no shares issued during the three months ended September 30, 2021.

As of September 30, 2021, the Company has remaining capacity to issue up to approximately $500 million of common stock under the at-the-market offering program.  

2021 Bonds. On April 15, 2021, the Iowa Finance Authority (the “Authority”) issued an aggregate principal amount of $68,155,000 of its Solid Waste Facility Revenue Bonds (Gevo NW Iowa RNG, LLC Renewable Natural Gas Project), Series 2021 (Green Bonds) (the “2021 Bonds”) in a public offering for the benefit of Gevo RNG (as defined below), a subsidiary of Gevo, to finance the construction of the Gevo RNG project.

The 2021 Bonds are reported at their amortized cost. The 2021 Bonds were issued at a premium of $0.8 million. Debt issuance costs totaled $3.0 million. The Company will amortize the debt issuance costs and the premium as a component of interest expense over the life of the related debt instrument using the interest method. The 2021 Bonds have been recorded as a long-term liability and will become current on the earlier of (i) one year prior to the Initial Mandatory Tender Date or (ii) upon the Company’s exercise of its call option to tender or redeem the Bonds. See Note 9, Debt, for further information.

Debt Issue Costs and Debt Discounts/Premiums. Debt issue 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 issue 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 issue costs, discounts, and premiums is included in interest expense.

Restricted Cash and Restricted Cash Equivalents. The Company’s restricted cash and restricted cash equivalents consists of unused proceeds from the issuance of the 2021 Bonds which are restricted for the purpose of constructing the Gevo NW Iowa RNG, LLC Renewable Natural Gas Project as well as amounts pledged and assigned to Citibank, N.A., in its capacity as credit facility provider of the 2021 Bonds (the "Credit Facility Provider") as collateral for the reimbursement obligations of Gevo. As of September 30, 2021, the unused restricted bond proceeds of $48.8 million included in restricted cash is classified as current since the proceeds will be distributed within twelve months. As of September 30, 2021, the restricted collateral included in restricted cash totaled $71.2 million, $1.0 million of which secures interest payments to be made within twelve months and is classified as current. The Company is entitled to receive interest income on the restricted cash at an agreed rate of return of 0.10% but has no ability to direct the use of the restricted cash. See Note 9, Debt, for further information.

The proceeds from issuance of the 2021 Bonds are maintained by the Trustee under a Trust Indenture dated April 15, 2021 and released to the Company only to pay costs of the construction of the biogas facility operated by Gevo RNG. See Note 9, Debt, for further information on the Trust Indenture. As the proceeds of the 2021 Bonds are restricted, the amounts from bond trustee are also considered to be restricted cash. Restricted cash is included with cash and cash equivalents on the Statements of Cash Flows. 

The restricted cash held by the bond trustee as of September 30, 2021 is made up of the following (in thousands):

	September 30, 2021
Bond proceeds	$	68,995
Disbursement of funds		(20,005	)
Interest paid on bonds		(216	)
Interest income		10
Total restricted cash held by bond trustee	$	48,784

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 income in shareholders’ equity, with the exception of unrealized losses believed to be other-than-temporary, which are reported in earnings in the current period. The cost of securities sold is based upon the specific identification method. Interest receivable related to the marketable securities of $1.5 million was included within prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets as of September 30, 2021.

Leases, Right-of-Use Assets and Related Liabilities. The Company enters into various arrangements which constitute a lease as defined by 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 contract; and (b) a corresponding lease liability which represents the Company’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 12 months or less. Lease expense for such leases is recognized on a straight-line basis over the lease term.

A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, and (5) 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.

Lease 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 incremental 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 or 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 as further described in the significant accounting policy “Impairment of Property, Plant and Equipment” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Renewal options are included in the calculation of our right-of-use assets and lease liabilities when the Company’s determines that the option 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 calculation of the right-of-use asset and lease liability and are recognized as variable lease cost when incurred.

The Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for our dairy lease and fuel supply asset class. This results in a significantly higher right-of-use assets and lease liabilities than if the Company had not elected this practical expedient.

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.

Intangible assets. Intangible assets consist primarily 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 "Research and development expense" in the Consolidated Statements of Operations. For patents purchased in an asset acquisition, the useful life is determined by valuation estimates of remaining economic life. Intangible assets are included in ""Deposits and other assets" in the Consolidated Balance Sheets.

The Company periodically evaluates the amortization period and carrying value of its patents to determine whether any events or circumstances warrant revised estimated useful life or reduction in value.

On September 21, 2021, the Company entered into an asset purchase agreement with Butamax Advanced Biofuels LLC and its affiliate, Danisco US Inc. (collectively, “Butamax”), pursuant to which the Company purchased all of Butamax’s rights, title and interests in certain U.S. and foreign patents and patent applications, subject to specified conditions and encumbrances, relating to the production, recovery and use of biobutanol that were owned by Butamax, for $9.0 million. Management evaluated the patents to determine whether the patents (i) supported current products; (ii) supported planned research and development (iii) prevent others from competing with Gevo's products. The Company used a valuation of the investment value of the patent portfolio performed in July 2021 to determine the relative fair value of the patents acquired. Based on the Company's estimated purchase price allocation, approximately $4.2 million of the purchase price was allocated to the purchase of patents to support current products and planned product research and $4.8 million for patents purchased for defensive purposes.  The patents are included in the Gevo Segment.

Identifiable intangible assets as of September 30, 2021 comprised the following (in thousands):

	September 30, 2021
	Gross Carrying Amount		Accumulated Amortization			Identifiable Intangible Assets, Net		Weighted-Average Useful Life (Years)
Finite-lived intangible assets:
Patents	$	4,496	$	(202	)	$	4,294		7.3
Defensive assets		4,804		—			4,804		8.4
Identifiable intangible assets	$	9,300	$	(202	)	$	9,098		7.9

	December 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Identifiable Intangible Assets, Net		Weighted-Average Useful Life
Finite-lived intangible assets:
Patents	$	300	$	(186	)	$	114		5.2

The following table details the estimated net amortization of identifiable intangible assets as of September 30, 2021 (in thousands):

Year Ending December 31,	Patents		Defensive Assets		Total
2021 (remaining)	$	147	$	144	$	291
2022		601		575		1,176
2023		601		575		1,176
2024		601		575		1,176
2025		601		575		1,176
2026 and thereafter		1,743		2,360		4,103
Total	$	4,294	$	4,804	$	9,098

Total amortization of intangible assets was less than $0.1 million for the three and nine months ended September 30, 2021 as well as for the three and nine months ended September 30, 2020. 

Capitalized Internal-Use Software Costs. Software development costs are capitalized when module development begins, it is probable that the project will be completed, and the software will be used as intended. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. Internal-use software is amortized on a straight-line basis, generally over a three to five years. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. 

Borrowing Costs. The borrowing costs that are directly attributable to acquisition and construction of an asset that needs a substantially long period of time for its intended use commence to be capitalized and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition 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. Capitalization of borrowing costs is suspended during periods in which the acquisition or construction of an asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed. Total interest of $0.8 million and $1.5 million was incurred during the three and nine months ended September 30, 2021, respectively. Interest of $0.4 million and $0.8 million relating to our borrowings, and interest of $0.3 million and $0.6 million relating to certain of our finance leases, was capitalized for the three and nine months ended September 30, 2021, respectively. Total interest of $0.5 million and $1.6 million was incurred and charged to expense during the three and nine months ended September 30, 2020, respectively.

Preliminary Stage Project Costs. Preliminary stage project costs consist of research and development expense in addition to selling, general and administrative expenses related to our Gevo RNG and Net-Zero projects.

Income Taxes. There is no provision for income taxes because the Company has incurred operating losses since inception.

Concentration of Business Risk. As of September 30, 2021, two customers, Oil & Octane and KLM Commodities LLC ("KLM") comprised approximately 61% and 38%, or approximately 98% in total, of the Company's outstanding trade accounts receivable, respectively. As of December 31, 2020, HCS Group GmbH ("HCS") comprised approximately 79% of the Company's outstanding trade accounts receivable.

For the three months ended September 30, 2021, HCS, New Vision, LLC ("New Vision") and KLM accounted for approximately 66%, 17% and 11%, or approximately 94% in total, of the Company's consolidated revenue, respectively. For the three months ended September 30, 2020, Coryton Advanced Fuels Ltd ("Coryton") and Total Petrochemicals & Refining USA, Inc. ("Total") accounted for approximately 52% and 39%, or approximately 91% in total, of the Company's consolidated revenue, respectively. For the nine months ended September 30, 2021, HCS, New Vision and Titan Aviation Fuel ("Titan") accounted for approximately 57%, 26% and 10%, or approximately 93% in total, of the Company's consolidated revenue, respectively. For the nine months ended September 30, 2020, Eco-Energy, LLC ("Eco-Energy"), Purina Animal Nutrition, LLV ("Purina") and HCS accounted for approximately 57%, 17% and 15%, or approximately 89% in total, of the Company's consolidated revenue, respectively. 

Total, HCS, KLM, Coryton and Titan are customers of the Company's Gevo segment. Juhl, New Vision, Eco-Energy and Purina are customers of the Company's Agri-Energy segment (see Note 14).

Financial Condition. The Company has incurred consolidated net losses since inception and had a significant accumulated deficit as of September 30, 2021. The Company’s cash and cash equivalents totaled $16.2 million, restricted cash totaled $120.0 million and marketable securities totaled $386.2 million as of September 30, 2021. Gevo expects to use its cash, cash equivalents, restricted cash and marketable securities for the following purposes: (i) identification, development, acquisition and construction of new production facilities and to plan for expanded production to fulfill existing off-take agreements, including the Company's Net Zero Projects; (ii) investment in the Gevo NW Iowa RNG facility; (iii) development of the Luverne Facility; (iv) development, acquisition and operation of sustainable ethanol-to-SAF plants to produce SAF alone or with partners;  (v) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (vi) exploration of strategic alternatives and additional financings, including project financing; and (vii) future debt service 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 issuance 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, the development, acquisition and construction of additional production facilities to support that Company’s offtake agreement, 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, acquisition and construction of additional productions facilities. 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, 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 on acceptable terms, or at all. Management believes it has adequate cash to fund operations for at least one year from the date the financial statements are issued.